Learn/ Charts/ Lesson 10

Charts · Lesson 10 11 min read Intermediate

Reading two timeframes at once

One chart gives you either context or detail, never both. Two charts, chosen with a sensible ratio and read in a fixed order, give you both — and resolve most of the contradictions that make charts feel unreliable.

The problem with one chart

Zoom in far enough and every chart looks like a downtrend at some point, including charts in a powerful uptrend. Zoom out far enough and every violent week looks like one candle. Neither view is wrong. Each is answering a different question, and confusion arrives when you ask one of them the other's question.

Here is the same instrument at the same moment, on two timeframes.

The higher timeframe — contextIllustrative
Unambiguous: higher lows, higher highs, an uptrend by the definition. The last candle is a pullback within it.
The lower timeframe — that last candle, expandedIllustrative
The same pullback, close up. For the first half of this chart, the honest reading of what is in front of you is "falling". It is also, simultaneously, a pullback inside an uptrend. Both statements are true.

Somebody looking only at the second chart sells into the strongest uptrend of the year, and their chart reading was not wrong — their frame was.

Choosing the pair

Two rules, and after that the specific choice barely matters.

  1. Ratio of roughly four to six. Daily with hourly, hourly with ten- or fifteen-minute, weekly with daily. Too close together and the second chart tells you nothing new. Too far apart — monthly and five-minute — and the two have no relationship you can act on.
  2. Two, not three. A third timeframe does not add a third opinion; it adds a tie-breaker you will use to justify whatever you already wanted to do. Two charts can agree or disagree, and both outcomes are informative. Three can always be arranged into a story.

The order of reading

Always the same sequence. The order is what makes it work.

  1. Higher timeframe first, always. What is the structure? Uptrend, downtrend, or sideways? Where are the zones?
  2. Write the answer down before opening the second chart. This sounds fussy. It is the entire discipline — it stops the lower timeframe from quietly rewriting your context.
  3. Lower timeframe second, and only to answer a narrower question: is what I am seeing consistent with that context, and where exactly is the detail?

The lower timeframe never overrules the higher one. It refines it. If you find yourself changing your view of the trend because of a fifteen-minute chart, you have inverted the hierarchy and the exercise has stopped being useful.

Context from above, detail from below. Reverse the order and you get two charts' worth of noise and one chart's worth of information.

When they disagree

Sometimes the higher timeframe says uptrend and the lower says falling. That is not a contradiction to be resolved — it is the normal appearance of a pullback, and it is the most common situation you will ever look at.

The genuine disagreement is different: the higher timeframe structure breaks while you are watching the lower one. A higher low on the daily chart gives way. At that point the context has changed and the lower timeframe was never going to tell you, because it had been showing "falling" for hours either way.

This is why the higher timeframe levels get written down. They are the thing you check against, and they are the only way to tell a pullback from a reversal while it is happening rather than afterwards.

Common mistake

Dropping to a lower timeframe after a position goes against you, to look for a reason to stay in. The lower chart will always provide one — at sufficient magnification there is always a bounce, a level, a small higher low. Changing timeframe after entry is almost never analysis; it is negotiation.

Read it yourself

Assume the higher timeframe showed the clear uptrend in the first figure above, and that its most recent higher low sits at 109.6. Now look at this lower-timeframe chart of what happened next.

Practice
  1. What is the lower timeframe on its own showing?
  2. Has the higher timeframe structure been broken?
  3. What is the correct reading, given both?
Show answers

1. A clean downtrend — every low is below the previous one, every high below the one before it. On its own the chart is unambiguous.

2. Yes. Price is trading in the 111s and 112s, well under the 109.6 higher low... except it has not reached it yet. Look again: the lowest point here is 111.1. The higher-timeframe low at 109.6 is still intact.

3. A pullback within an uptrend that has not yet invalidated anything — but which is now close enough to the level that matters for the question to be live. The useful output is not a prediction; it is a number. Below 109.6 the context has changed. Above it, this is an ordinary pullback, however unpleasant it looks at this magnification. That single number is what two timeframes buy you, and you can only get it from the higher chart.

Terms used

Higher timeframe
The slower of the pair. Supplies structure and levels.
Lower timeframe
The faster of the pair. Supplies detail within that structure.
Context
The state of the higher timeframe — uptrend, downtrend or sideways.
Pullback
A move against the higher-timeframe trend that has not broken it.
Invalidation
The price at which the higher-timeframe structure would no longer hold.

Practise this on your own charts

The Charts track works through 10 lessons like this one, each built around a drawn example and an exercise you complete yourself.

See the Charts track