How to Use Multiple Time Frames Technical Analysis in Crypto

Introduction

Crypto market’s volatility and unpredictability can be daunting. You can rely on technical analysis (TA) – a powerful method of forecasting price movements based on historical data. But to truly master the art of trading, one must delve deeper into the technique of analyzing multiple time frames.

This will help you gain a more comprehensive view of the market's movements, helping with better trading decisions.

Read the guide below and learn more about applying technical analysis to cryptocurrencies using multiple time frames and some practical examples.

Understanding Technical Analysis Using Multiple Time Frames

Technical analysis is about studying past market data, primarily price and volume, to forecast future price movements. Key tools in TA include charts, patterns, and indicators such as Moving Averages (MA), Relative Strength Index (RSI), and Bollinger Bands.

The approach of multiple time frames involves analyzing the same asset across different time intervals, typically categorized into short-term, medium-term, and long-term time frames. 

For instance:

• Short-term: 1-minute, 5-minute, and 15-minute charts.
• Medium-term: 1-hour, 4-hour, and daily charts.
• Long-term: Weekly and monthly charts.

Why Should We Use Multiple Time Frames?

Using multiple time frames helps you capture a broader perspective of market trends and improves decision-making. A coin might appear to be consolidating on a five-minute chart, but a daily chart could reveal a strong bullish trend. 

Additionally, multi-timeframe analysis is useful for verifying chart or candlestick patterns. For instance, if a Hammer pattern appears on a five-minute chart, analyzing different timeframes can confirm the trend.  Lastly, this analysis helps you identify potential support and resistance levels.

When you correlate short-term fluctuations with long-term trends, you can:

• confirm the overall trend direction
• identify potential entry and exit points
• avoid making decisions based on short-term noise

Step-by-Step Guide to Applying Multiple Time Frames in Crypto Technical Analysis

1. Identify the primary trend

Begin with a higher time frame chart (e.g., weekly or monthly) to identify the primary trend. This provides a macro view of the market direction. For example, if the weekly chart shows a consistent upward trend, the primary trend is bullish.

Example

Analyzing Bitcoin (BTC) on a weekly chart reveals an ongoing bullish trend since early 2023. The price consistently makes higher highs and higher lows, indicating a strong uptrend.

2. Confirm the trend on a medium time frame

Next, use a medium time frame chart (e.g., daily or 4-hour) to confirm the primary trend and identify potential retracement levels. This helps in finding safer entry points in alignment with the primary trend.

Example

Switching to a daily chart for BTC, observe that despite minor corrections, the overall trend remains upward. Look for retracement levels using tools like the Fibonacci retracement to determine potential support levels where the price might rebound.

3. Pinpoint entry and exit points on a short time frame

Finally, use a lower time frame (e.g., 1 hour or 15 minutes) to pinpoint precise entry and exit points. This granular view helps in timing trades more accurately.

Example

On a 1-hour BTC chart, identify patterns such as bullish flags or pennants that indicate the continuation of the upward trend. Enter a trade at the breakout of these patterns and set stop-loss orders below recent support levels to manage risk.

4. Determine support and resistance levels

 Move to a medium-term time frame, like a daily chart, to identify key support and resistance levels. These are price points where the market has historically shown a tendency to reverse or stall.

Example

Suppose Bitcoin is currently trading at $35,000. On a monthly chart, you identify $20,000 as major support and $60,000 as major resistance. Additionally, on a daily chart, you pinpoint $35,000 as support and $40,000 as resistance. You can enter a long position at $30,000, which is the intermediate support on the weekly chart.

Applying Technical Indicators Across Multiple Time Frames

Moving Averages (MA)

• Higher time frame: use the 200-day MA on a weekly chart to determine the long-term trend. If the price is above the 200-day MA, the market is in a bullish phase.
• Medium time frame: use the 50-day MA on a daily chart to confirm the trend direction.
• Short time frame: on a 1-hour chart, use the 20-day MA to time entries and exits.

Example

Ethereum (ETH) trading above the 200-day MA on a weekly chart suggests a bullish long-term trend. Confirm this with a 50-day MA on the daily chart and use the 20-day MA on the 1-hour chart to find precise entry points during pullbacks.

Relative Strength Index (RSI)

• Higher time frame: on a weekly chart, use the RSI to gauge overall market momentum. An RSI exceeding 70 suggests overbought conditions, whereas a value below 30 signifies oversold conditions.
• Medium time frame: on a daily chart, use RSI to confirm whether the asset is maintaining momentum.
• Short time frame: on a 1-hour chart, use RSI to spot short-term overbought or oversold conditions.

Example

Litecoin (LTC) showing an RSI of 75 on the weekly chart suggests potential overbought conditions. On the daily chart, if the RSI is also high, it confirms this observation. Use the 1-hour chart to find short-term overbought signals to time exits or entries during pullbacks.

Bollinger Bands

• Higher time frame: on a weekly chart, Bollinger Bands can help identify long-term volatility and potential breakouts.
• Medium time frame: on a daily chart, they confirm the consistency of price movements within bands.
• Short time frame: on a 1-hour chart, Bollinger Bands help spot short-term volatility and breakout points.

Example

For Ripple (XRP), observe the weekly chart for long-term volatility. A squeeze (narrowing bands) might indicate a major breakout. Confirm this on the daily chart and use the 1-hour chart to time the entry when the price moves outside the bands.

Practical Example: Applying Multiple Time Frames to Bitcoin Trading

Generally, the longer the time frame, the more dependable the signals. Ideally, you should use a longer time frame to determine the primary trend of the asset you’re trading.

Once you establish the primary trend, you can use an intermediate time frame to identify the medium trend and a shorter time frame for the short-term trend. 

Here are some examples of applying multiple time frames in trading:

• For swing trading: use daily charts for decisions, weekly charts to determine the primary trend, and 60-minute charts for short-term trends.
• For day trading:  rely on 15-minute charts for trading, 60-minute charts for the primary trend, and five-minute or tick charts for short-term trends.
• For long-term position trading: focus on weekly charts, using monthly charts to establish the primary trend and daily charts to fine-tune entries and exits.

In terms of how to apply multiple time frames to Bitcoin, here’s an example:

Long-term Analysis (Weekly Chart)

Identify the trend – the weekly chart shows Bitcoin in a strong uptrend since early 2023.

Moving Average – the price is well above the 200-day MA, confirming a bullish trend.

RSI: The RSI is around 65, indicating strong momentum but not overbought.

Medium-term Analysis (Daily Chart)

Confirm the trend: – the daily chart also shows an uptrend with minor corrections.

Fibonacci Retracement – use Fibonacci levels to identify potential support levels at 0.618 and 0.5 retracement levels.

Bollinger Bands – the price consistently touches the upper band, indicating strong buying pressure.

Short-term Analysis (1-hour Chart)

Pinpoint entry points  – identify bullish flag patterns and breakouts for precise entries.

RSI – look for RSI around 30 to identify oversold conditions for entry.

Stop-Loss and Take-Profit – set Stop-Losses below recent support and take-profits at previous highs.

Executing the trade

Entry Point: enter the trade when the 1-hour chart shows a breakout from a bullish flag with RSI confirming oversold conditions.

Stop-Loss: place a stop-loss just below the 0.618 Fibonacci retracement level on the daily chart.

Take-Profit: set a take-profit at a level determined by previous highs on the daily chart.

Key Takeaways

Multiple time frame analysis is a powerful technique that can significantly improve your ability to make profitable decisions in the cryptocurrency market.

• Start with higher time frames: identify and confirm the primary trend.
• Use medium time frames: confirm trends and identify retracement levels.
• Pinpoint with lower time frames: find precise entry and exit points.
• Use technical indicators: apply MA, RSI, and Bollinger Bands across different time frames.