In this lesson
- see the same market on three timeframes
- learn the top-down approach: direction, structure, timing
- find out why a short timeframe never overrules a longer one
The same week of Bitcoin can look like a calm walk or a rollercoaster – it only depends on which timeframe you open. That is why experienced traders do not look at one chart. They look at several and put them together into one picture.
Three views of one market#
The weekly chart shows the big picture. In March 2024 Bitcoin was in a strong uptrend: from the low of November 2022 it had climbed from around 15,500 to more than 70,000.
- March 2024: Mar 4 – 11, 2024
The daily chart shows the structure. Higher highs and lows from late January until mid-March.
- 5 Mar: Mar 5, 2024
The hourly chart shows the detail. And this is what happened on 5 March: at 15:00 UTC the price jumped to 69,000, four hours later it was at 59,005. A 14.5% drop in one afternoon. On the hourly chart it looks like the end of the world. On the daily chart it is one wick – and by the end of the week the price was back at 69,000.
- 5 March: Mar 5 – 6, 2024
The top-down approach#
Traders who use several timeframes usually go from the longer to the shorter one:
- The longer timeframe sets the direction. On the weekly chart you find out whether the market is rising, falling or in a range.
- The middle timeframe shows the structure and zones. On the daily chart you find the highs, lows, support and resistance.
- The shorter timeframe helps with timing. On the hourly or four-hour chart you look for where exactly to enter and where to put the stop-loss.
A common rule of thumb: keep a ratio of roughly 1 : 4 to 1 : 7 between timeframes – for example a week, a day and four hours.
When timeframes disagree#
A falling structure on the hourly chart, a rising one on the daily. Which one counts? The longer timeframe carries more weight. In that situation a decline on the hourly chart is often just a breather in an uptrend. A trade against the longer timeframe is a trade against the current – it can work, but it needs stricter risk management.
More charts = more noise, unless you have a method
Anyone who switches between the 1-minute, 5-minute and hourly chart without a plan will always find a "reason" for whatever they want to do right now. Choose your timeframes in advance and stick to them.
Common myths#
- "It is falling on the minute chart, I am selling!" First look at what the daily chart is doing.
- "The shorter the timeframe, the more precise the entry, the more profit." A shorter timeframe means more noise, more trades and more fees.
- "Every timeframe has to give me the same signal." It does not. The longer timeframe sets the direction, the shorter one only the timing.
Summary
- The same market looks different on every timeframe.
- Go top-down: the longer timeframe for direction, the middle for structure and zones, the shorter for timing.
- When timeframes disagree, the longer one carries more weight.
- Choose your timeframes in advance – otherwise you will find a reason for anything.