One of the first things you learn in Technical Analysis is that markets are fractal.
That means that you’ll find the same human behaviors (i.e. price patterns) whether you’re looking at daily timeframes, weekly time frames or even intraday (e.g. 10-min or 30-min candles).
This is a concept that Brian Shannon has done an amazing job of highlighting throughout his career. Brian has been an inspiration to me since about 2005, which is pretty unbelievable to think about. Since then we’ve become friends and go skiing together and all that. It’s pretty cool how life works sometimes.
Anyway, the idea behind “Multiple Timeframes”, which is literally part of the title of Brian’s book (go buy it), is to use this reality of “markets being fractal” to our advantage.
That can mean a lot of different things to different people.
For us, in what we do here at All Star Charts is, we start with Weekly and Monthly time horizons. That’s where it all begins.
At the end of every month we go through thousands of monthly candles and line charts to get perspective on the major trends going on around the world. This includes individual stocks, indexes, interest rates, commodities, forex markets and all of their intermarket relationships.
At the end of each week, we do the same thing with weekly charts.
Without this part of the process, we’d be lost in the day to day noise just like most investors.
Instead, we know that we’re one of the few who use this arb strategically. It’s a free cheat code that investors rather not use. I never understood that.
Once that longer-term analysis is complete, then we drill down to daily time horizons for all of our tactical opportunities, to actually execute trades in the open market.
All of our analysis and decision making happens on daily timeframes, but falls within the context of those larger trends.
This is called Multiple Timeframe Analysis. And you’ll regularly see the most successful investors of all time incorporating it into their process.
Almost everyone else chooses either not to do this, or is unaware of its power. Neither of those are acceptable excuses, as far as I’m concerned.
Many of you who have followed me for a long time know this is common sense to us. Just another day right?
But when it comes to Crypto, there’s a whole nother element of multiple timeframes that cannot be ignored, in my opinion.
I brought this up on the podcast with Josh, Michael and Tyrone this week, and the Twitterati was up in arms.
This dude is insane pic.twitter.com/IbsXDL1vaY
— Michael Batnick (@michaelbatnick) October 8, 2021
And here’s the entire podcast episode which I think you’ll enjoy.
The bottom line is, it doesn’t matter whether you live your life according to where the planets are relative to the sun. That’s actually perfectly normal.
But in market analysis, the ability to “live” on multiple time horizons is an advantage.
In Crypto, we use the daily charts to get longer-term structural perspective. And then I personally like the 4-hour charts for more tactical purposes.
It’s no different than how we use weekly charts in Stocks, Commodities, Currencies and Interest rates to identify longer-term trends, and then dive into the daily charts for execution.
It’s the same thing, but using two different sets of time horizons in order to adjust for the 5x increase in periods.
Stocks, particularly those “on bath salts”, only trade 6.5 hours a day (31.5/wk annualized). Cryptos trade 24 hours a day (168/wk always).
It’s not our fault as investors that the sun and the planets can’t keep up with the number of trading periods in Crypto markets.
Some people are making a bigger deal about it than it is.
But that’s what people do right?
They choose not to listen to what someone says, and extrapolate something completely different.
The twitterati, in their infinite wisdom and lack of hearing ability, assume I said that stocks are less volatile than crypto because they trade 24 hours (and they almost are, by the way).
For those of you asking, yes I am aware of futures markets. In fact, that was the point I was arguing later on in the episode, that price discovery is already happening in the middle of the night, especially if you live in Europe and Asia, but even if you don’t. No one cares that you’re a New Yorker and you want to have dinner with your family.
Listen to what I said.
Michael claimed that Cryptocurrencies are like stocks, but high on bath salts (the psychoactive designer street drugs). I countered by saying that plenty of stocks out there trade as if they were on bath salts as well (e.g. GME, AMC, Micro-caps, etc).
And those stocks don’t trade futures. Many of them only trade in the U.S., over that 6.5 period that US exchanges are open. So my point was that many cryptos, when you factor in the amount of periods they trade, are actually less volatile than those “stocks on bath salts”, that we were referring to. Not the S&P500 or Dow Jones Industrial Average, but stocks that trade as if they were on bath salts.
All you have to do is listen.
So if you’re going to put your academic hat on, rather than just being a logical market participant, and you have to “run the numbers”, then by all means go for it. But don’t compare the Dow to Bitcoin, because neither one of those were even part of the discussion (although they were later on at dinner, to be fair).
If you want to compare volatility, do the math on say, Micro-caps, or build a universe of the highest beta stocks and compare them to something like the Altcoin Index perhaps.
The bottom line is this: if you want to include the sun and the planets into your analysis, you’re welcome to do so. I’m not going to stop you. Your portfolio returns are not my problem.
But if you deal in periods, like us, then using Crypto daily charts for longer-term perspective, and then breaking them down to 4-hour charts for tactical opportunities, I think you’ll get a much more clear picture of market trends.
The trading will appear much more “normal” and less “high on drugs”, than they do when you force the sun and planets into the visualization of their supply and demand dynamics.
This is the same thing we achieve by starting with Weekly & Monthly charts for stocks, and then breaking it down to daily charts for tactical opportunities.
It’s really not a big deal.
People like to make a big fuss out of nothing, as we’ve learned from humans over the past 70,000 years.
So this is no different.
Go and run the math. Be my guest.
But if you want to think logically, go look at daily charts of stocks and then go look at 4-hour charts in cryptos. You’ll notice the similarities in behavior. Then look at the daily charts in Cryptos and compare them to weekly charts in stocks. Again, you’ll notice how similar they behave.
That’s because you’re eliminating the need for the sun and planetary movements in your price analysis, like a normal logical person.
If you haven’t watched Friday’s Weekly Crytpo Strategy Session, you can do so here. Enjoy!