A Quick Guide to Multi-Timeframe Scaling
Quick Intro
===========
Regardless of what type of trader we are, most of us will look at the same chart in different timeframes to help make the "case for a trade". The risk of doing so is that we need to understand the fundamental concept of Multi-Timeframe Scaling (let's call it MTF scaling) as we inspect the various timeframe charts of the same underlying, otherwise, we risk receiving confusing signals - that rather than helping a trade decision, will possibly hinders the decision, if not even triggering the wrong decision.
This concept has possibly been published about here before - i though it won't harm to put together a quick primer / reminder if it helps some of our new fellow traders on TradingView - if this sounds interesting, please read on.
What do I mean by Multi-Timeframe Scaling?
-------------------------------------------------------
so what did we do here:
=====================
*Larger timeframe = Context and prevailing sentiment
*Medium timeframe = Trade Decision
*Shorter Timeframe = Trade Execution
i will do the same for exits as well - i assume most traders have a similar "protocol" before they hit the trigger - but may use different "preferred set of timeframes" based on the type of trading -- day traders may use 15min for trading, with 1min for execution and 1 or 2Hrs for context -- swing traders may use 1hr for trading, with 10 mins for execution and 1 day for context and so on ....
the problem for many traders, as they switch between the charts of various timeframes is, they will see conflicting signals .. the indicators/charts many of us use are usually not "sync'ed" - to demonstrate how this looks like, look at the chart on top - to demonstrate what happens when there's lack of indicator scaling across the timeframes, i used a 3-SMA basic system -- but the same concept applies for any indicators you use (RSI, MACD, ADX/DMI, Stochastic)....etc -- the list goes on :) --
so what's wrong here and how can it be fixed?
----------------------------------------------------------
There's nothing "really" wrong, it's just there's an element at play that we may not be aware of here - We need to get very familiar with that concept of "MTF scaling" when we switch between different TF charts - the concept is really simple, and the key is the "scale factor"
the 1 day chart has 7 x 1hr bars (for stocks) -- so, for example, if i look at an SMA or EMA of length 9 on the daily chart, i need to look at the [length 9x7 =] 63 SMA or EMA on the hourly chart. 7 is my scale factor
by the same token, if i'm looking at an RSI of length 10 on a weekly chart (1 wk = 5 days for stocks, scale factor = 5), i need to be looking at the RSI of length 50 at the daily.
sounds strange? that's fine.. now take a minute to inspect the properly scaled chart below, showing almost the same "time window" for TSLA - and see how by applying the TF Scaling between the 1D and 2Hr charts, we're able to receive sync'ed signals between the 2 timeframes. It's easier to "show" this, and a picture is more than a thousand words in this case :)
How do i use this concept ?
========================
- i'm not saying you need to go back now and change all your charts
- what i'm saying is simply, be aware of this concept -- this MTF Math and scaling is at play every time you look at various charts for the same security
- you can make use of TradingView built-in indicators that provide a "resolution" setting, like in the example here, to quickly view your timeframes in "sync'ed" mode
- you can also make use of this concept if you code your own indicators and script. for example, in my RedK_VolumeWeighted RSI, and in my ADX, i provide a "sentiment factor" which is meant to enable me to view a longer timeframe of the indicator without changing the settings or the chart.
- it amazes me when i think of traders back in the 40's, 50's and 60's who did all these charts manually - and had to accommodate these concepts as they traded - we're lucky to have a platform like TradingView where we can experiment and try and adjust in a matter of seconds .. isn't that amazing! :)
in conclusion - i hope i managed to explain this and that some will find it useful - The good thing is, once you get the hang of this "TF scaling" concept and understand how it works, you can then go back and view your charts as you do now .. but with the understanding that the signals won't happen at the same "spots" on the chart due to the MTF scaling concept and you won't get confused again .. there's a kind of "aha!" that you will hopefully develop as you navigate your charts in different TFs
good luck!
===========
Regardless of what type of trader we are, most of us will look at the same chart in different timeframes to help make the "case for a trade". The risk of doing so is that we need to understand the fundamental concept of Multi-Timeframe Scaling (let's call it MTF scaling) as we inspect the various timeframe charts of the same underlying, otherwise, we risk receiving confusing signals - that rather than helping a trade decision, will possibly hinders the decision, if not even triggering the wrong decision.
This concept has possibly been published about here before - i though it won't harm to put together a quick primer / reminder if it helps some of our new fellow traders on TradingView - if this sounds interesting, please read on.
What do I mean by Multi-Timeframe Scaling?
-------------------------------------------------------
- in my trading, and as i check if there's a good trade to make on, say TSLA- i would first look at the daily chart -- cause i'm a position trader. is there a trend forming? has there been a recent consolidation? is there a possible breakout soon ? ..etc
- i then "zoom-out" to a larger timeframe -- say the weekly chart. i need to see the prevailing sentiment and the "context" - this is important because even if it looks like a bottom is forming on the daily, if TSLA on the weekly shows a diminishing momentum, i would avoid making a long trade
- assume the larger (weekly) timeframe is favorable -- so i will then "zoom-in" to find an ideal entry - using a smaller timeframe chart - the 1hr or 15mins
so what did we do here:
=====================
*Larger timeframe = Context and prevailing sentiment
*Medium timeframe = Trade Decision
*Shorter Timeframe = Trade Execution
i will do the same for exits as well - i assume most traders have a similar "protocol" before they hit the trigger - but may use different "preferred set of timeframes" based on the type of trading -- day traders may use 15min for trading, with 1min for execution and 1 or 2Hrs for context -- swing traders may use 1hr for trading, with 10 mins for execution and 1 day for context and so on ....
the problem for many traders, as they switch between the charts of various timeframes is, they will see conflicting signals .. the indicators/charts many of us use are usually not "sync'ed" - to demonstrate how this looks like, look at the chart on top - to demonstrate what happens when there's lack of indicator scaling across the timeframes, i used a 3-SMA basic system -- but the same concept applies for any indicators you use (RSI, MACD, ADX/DMI, Stochastic)....etc -- the list goes on :) --
so what's wrong here and how can it be fixed?
----------------------------------------------------------
There's nothing "really" wrong, it's just there's an element at play that we may not be aware of here - We need to get very familiar with that concept of "MTF scaling" when we switch between different TF charts - the concept is really simple, and the key is the "scale factor"
the 1 day chart has 7 x 1hr bars (for stocks) -- so, for example, if i look at an SMA or EMA of length 9 on the daily chart, i need to look at the [length 9x7 =] 63 SMA or EMA on the hourly chart. 7 is my scale factor
by the same token, if i'm looking at an RSI of length 10 on a weekly chart (1 wk = 5 days for stocks, scale factor = 5), i need to be looking at the RSI of length 50 at the daily.
sounds strange? that's fine.. now take a minute to inspect the properly scaled chart below, showing almost the same "time window" for TSLA - and see how by applying the TF Scaling between the 1D and 2Hr charts, we're able to receive sync'ed signals between the 2 timeframes. It's easier to "show" this, and a picture is more than a thousand words in this case :)
How do i use this concept ?
========================
- i'm not saying you need to go back now and change all your charts
- what i'm saying is simply, be aware of this concept -- this MTF Math and scaling is at play every time you look at various charts for the same security
- you can make use of TradingView built-in indicators that provide a "resolution" setting, like in the example here, to quickly view your timeframes in "sync'ed" mode
- you can also make use of this concept if you code your own indicators and script. for example, in my RedK_VolumeWeighted RSI, and in my ADX, i provide a "sentiment factor" which is meant to enable me to view a longer timeframe of the indicator without changing the settings or the chart.
- it amazes me when i think of traders back in the 40's, 50's and 60's who did all these charts manually - and had to accommodate these concepts as they traded - we're lucky to have a platform like TradingView where we can experiment and try and adjust in a matter of seconds .. isn't that amazing! :)
in conclusion - i hope i managed to explain this and that some will find it useful - The good thing is, once you get the hang of this "TF scaling" concept and understand how it works, you can then go back and view your charts as you do now .. but with the understanding that the signals won't happen at the same "spots" on the chart due to the MTF scaling concept and you won't get confused again .. there's a kind of "aha!" that you will hopefully develop as you navigate your charts in different TFs
good luck!
Nota
This part should read as follows - apologies as i couldn't get this updated in time."The 1 day chart has 7 x 1hr bars (for stocks) -- so, for example, if i look at an SMA or EMA of length 9 on the daily chart, i need to look at the (length 9x7 =) 63 SMA or EMA on the hourly chart. 7 is my scale factor
by the same token, if i'm looking at an RSI of length 10 on a weekly chart (1 wk = 5 days for stocks, scale factor = 5), i need to be looking at the RSI of length 50 at the daily.
Nota
Some examples for manual time frame conversion as requested:** formula is Higher TF = scale factor x lower TF
Examples:
1 Month = 4 x 1 wks (some months are 5 weeks)
1 wk = 5 x 1 day (for stocks that trade 5 days a week, FOREX, Crypto, futures, may have a different "trading week")
1 day = 7 x 1hr (although it's actually 6.5 hours, but charting platforms will still use 7 hourly bars for a day of trading - standard session)
1 day = 13 x 30min (because the standard session is 6.5 hours)
1 hour = 6 x 10 mins
1 hour = 12 x 5 mins
and so on ...... pleae adjust to what you trade, your exchange time.. etc
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