Multiple time frame analysis: Trading several timeframes at the same time
Trading Strategy . Published · By KarlVonBahnhof
There are two parts to trading multiple timeframes.
First part is the multiple time frame analysis: Unless the only thing you do is scalping on a single market, you should not disregard other timeframes than the one that you are trading. If you are building a mid- to long-term position, you are naturally following the 4H or 1D more. But as you are entering a position, mainly if it is a leveraged one, you will find the high timeframes don’t work very well for picking an entry. With leverage and stop orders, you will rob yourself of a decent chunk of profit if you don’t take a look at 30M, 15M and 5M before entering and just smash that market order button on a whim.
The other part is position management trading. It is a whole separate art of managing multiple open positions. One thing you absolutely one hundred percent need in this is a stop loss. Ideally a trailing stop: an order that will close your losing trade or lock in profit in your winning trade when the market moves against you by a set amount.
The multiple time frame trading strategy surely looks like it is just something that requires more patience and discipline than buying and hoping for the best in the ever-bullish™ cryptocurrency market of your choice. While this itself is productive – because if you are not disciplined yet, the regular practice of it with the risk of losing money will reinforce the discipline quickly – there’s of course more to it.
The problem here is that computers will always be better and faster at executing algos, so the edge you are able to gain out of this approach is limited.
As anyone who has ever looked at data as basic as crypto traders’ user handles will confirm: traders are superstitious. They will often tweak their usernames to contain words like ‘moon’ or ‘ace’ or ‘win’ and the like in them. Magical thinking is funny for sure but the deeper point in this is not unreasonable: psychology plays a big role in trading and good part of it reacts on symbols, fast-thinking associations and biases.
Many traders are actively working to clean their minds of biases, believing this kind of purer thinking will make their predictions better. The goal of many crypto traders is to remove the emotions from their trading and to simply execute an algo. The problem here is of course that computers will always be better and faster at this, so the edge you are able to gain out of this approach is limited.
There is another crop of traders, though. The ones who don’t really fuss about being right. If you are able to get out of a losing trade to live for another day, it won’t hurt you to be wrong even if it happens often – as long as the loss is small. A big advantage of this approach is that it is flexible and allows you to work with the flaws of human mind instead of trying to eliminate them. When you make a mistake, the only thing it means is yah it happens. It does not mean you need to stay out of the market because there is something fundamentally wrong with your way of thinking that would need to be set straight before you make a trade again. If you are staying out of the market it is because you are not seeing an opportunity: you cannot read the current situation to take part in it but chances are, in a few hours or perhaps in another market, you will find an opportunity.
Traders who are down with being wrong are free to work with their own psychology (and also to explore the group psychology of the markets as a whole but that’s for another article). Working with one’s own psychology does not mean emotional trading – it means recognizing that emotions, irrationality and also things one cannot control influence everyone’s decisions whether they like it or not and also no matter whether they are even aware of it. Seemingly unimportant little things can snowball immensely, just as one can compound trading mistakes quickly by (ironically) trying to avoid them.
How does this relate to trading multiple timeframes at the same time?
Some futures platforms like OKEx will let you have a long position and a short position opened at the same market. The common practice is that two positions like this will cancel each other (you open a short to close a currently active long position). OKEx however let’s people build a long term position while also capitalizing on short term retracements without needing to close the long term thing. So, you can buy a local bottom and let your winning long ride perhaps even for a few months to the maturity of the contract, if we’re talking about futures, but you can also profit from shorting the top of each leg to the bottom of each retracement that consitutes a continuation.
That’s possible on OKEx futures (BTC, BCH, ETH and ETC derivatives). Bitfinex has BTC and USD markets that you can use for this purpose since they don’t allow opposite positions on the same market. It is fun to do this and it keeps you on the same page with the market – oftentimes, from watching the ticker only you don’t really get the information about the strength of the demand or the first signs of emerging supply. Trading multiple timeframes makes you listen to the market, not to Reddit shills or your emotions.
However, one of the most common problems traders face is how easy it is to spread oneself too thin. Badly managed position is what makes the losses, not necessarily “being wrong”. Trading too many markets and multiple timeframes on top of that sounds like a lot of things to watch but what you notice when you are at it though is the fact that you have multiple positions open is not itself so tiring. It is the compulsion to keep checking everything that breaks down your focus. You go check your short term trade and when you’re at it you also check the long term position, even though it has a trailing stop. Something in the sidebar catches your attention in the meantime, perhaps you should also check the funding rates — and so it goes.
If you find this difficult, the easiest thing to do is simply to have multiple accounts.
Some crypto exchanges do allow multiple accounts as long as you are doing that for personal position management and not to rig the markets – you will be OK on Bitfinex, BitMex and Poloniex with multiple accounts.
To make managing your trades easier, simply have one account for your long term position and one account for short term trades. Set a stop-loss for your long term position and get busy watching your short term positions.
There are also traders who only make a couple of trades a year and in between them don’t even bother watching the charts. When they are getting back into the game, they feel like they need to start small and see what’s going down on the market first.
Some of these traders like to have a separate account for testing the waters and getting back into trading. They will only trade lunch money on that account and once they feel they understand the current market dynamic and see a good opportunity, they return to their normal trading account, deposit their trading stash, make the trade, withdraw the money and take a break again.
These are just ideas to consider, maybe you will find it is not for you. I am just listing things I saw traders talk about – you can pick whatever you like or nothing at all. It’s really a matter of personal preference.
About the author
Written by KarlVonBahnhof
KarlVonBahnhof also on Reddit, Chris belongs to the crypto trader class of 2013. Located in the Americas most of the time, you're most likely to meet at r/BitcoinMarkets though.