Bottom-up or top-down? Analyze with multiple time frames to identify opportunities and stay one step ahead!

1. What is multiple timeframe analysis?

"The trend is your friend." Trading with the trend often helps to improve the odds of successful trades, which is why it is revered by many as a trading treasure.

To help investors understand market trends better, trading software typically offers chart analysis functions across different timeframes, such as the daily chart, weekly chart, and hourly chart that we commonly use.

Multiple timeframe analysis refers to the comprehensive analysis of price movements for the same symbol across different timeframes, aiming to enhance the quality of trading decisions.

Many beginners only focus on the charts of a single timeframe while neglecting the importance of other periods. This "one chart rules them all" approach has significant limitations and does not facilitate a better understanding of market dynamics.

Experienced investors often refer to price trend charts of different periods before making trading decisions, which not only enables them to trade with the trend more effectively but also gives them the opportunity to capture potential turning points in the market in advance.

2. How to conduct multiple timeframe analysis?

Through different timeframes, investors can see varied market scenarios. For instance, in a larger timeframe, one might observe a clear trending market, but from a smaller timeframe, it may present some oscillating movements.

When performing multi-timeframe analysis, one common mistake beginners make is to look at smaller timeframes first, then look at larger timeframes. This is a "bottom-up" analysis method, and the downside is that investors try to validate the smaller timeframe with the larger one, often resulting in failure.

In contrast, a more rational approach is "top-down." This means looking at larger timeframes first to confirm market trends, and then examining smaller timeframes to search for potential trading opportunities.

Specifically, the "top-down" method first allows investors to grasp the overall market trend within larger timeframes, deciding whether to go long or short. At the same time, potential resistance and Resistance levels are usually more reliable in larger timeframes.

Based on this, when investors switch to smaller timeframes, they can gain a more detailed understanding of short-term price movements and identify specific entry and exit points.

3. Case Analysis

Figure 1 is a daily chart that shows a "triple bottom" chart pattern. It is easy to see that when the stock price breaks through the neckline of the triple bottom pattern, it is accompanied by a large gap up and a sharp increase in Volume. This is a relatively ideal breakout pattern from which technical traders can seize potential trading opportunities.

To better track the details of stock price movements, we can refer to smaller period Candlestick charts, such as the 1-hour chart.

Figure 2 is the 1-hour chart, showing that after the stock price strongly breaks through the neckline, it retracts back close to the neckline. Since the stock price has broken through the triple bottom pattern, the neckline can serve as a potential Resistance level at this time. When the stock price falls back near this Resistance, it presents a potential buying opportunity.

Figure 3 is also a daily chart, demonstrating that the stock price tentatively broke above the rising Trendlines, but quickly retraced upwards. The stock price fell below the rising Trendlines, sounding the alarm for investors that the market might trend downwards.

A few trading days later, the market issued another warning signal: the stock price approached a horizontal Resistance and was clearly facing some resistance.

The market issued two consecutive bearish warning signals in a short period, which requires the attention of traders. To further confirm the reliability of the Put signal, traders can generally reference some Technical Indicators and analyze charts of smaller timeframes, such as the 4-hour chart.

Figure 4 is a 4-hour chart, which provides more detail on stock price trends compared to the daily chart. From Figure 4, it can be seen that when the stock price reached the Resistance, the KDJ Indicators indicated overbuying, which was followed by the release of a 'death cross' signal. Based on this, traders can further confirm that there is a high probability of a short-term downward trend in the market.

This content discusses technical analysis; other methods, including Fundamental Analysis, may provide different perspectives. The examples provided are for illustrative purposes only and do not reflect expected results.

All investments involve risks, including the potential loss of principal, and there is no guarantee that any investment strategy will be successful.