[Fibonacci Practical Notes] Episode 8: Utilizing Fibonacci with MTF

Part 2 has ended. From here, it’s Part 3

Up to now, we have looked at the meaning of the level, how to pick the origin, what level to aim for, combinations, and confirming reactions.Part 2 was about how to judge within a single timeframe.

Part 3 adds the axis of timeframes. The theme this time is,MTF (Multi-Time Frame).

Three timeframes—large, medium, and small—dividing roles

The idea of MTF is simple.Set the direction with the larger timeframe.Read the wave shape on a medium timeframe, and then time the entry on a smaller timeframe.

For example, suppose you determine an uptrend on the 4-hour chart. Then switch to the 1-hour chart to look for pullback waves. Finally, drop down to the 15-minute chart to measure the timing of the rebound. This is the three-step process.

There are other clear signals as well.The alignment of moving averages(short-term, medium-term, and long-term) should be noted. There are moments when these align in the same direction on both higher and lower timeframes. This is called a “Perfect Order.” The moment when the bigger trend and the smaller trend point in the same direction also serves as a useful guideline.

Using Fibonacci with MTF: concrete steps

The method is surprisingly simple.

First, draw Fibonacci on the long-term timeframe.For example, if price rises from 100.00 to 103.00, calculate the 61.8% retracement. Subtract 61.8% of 300 pips from 103.00. The answer is,101.146yen.

This is the crucial part.This price of 101.146 will not change when you switch timeframes.Whether you view it on the hourly chart or on the 15-minute chart, the same price should appear in the same place. “Dropping levels to lower timeframes” essentially means this.

Remember the level calculated on the long-term timeframe. Drawing a horizontal line is helpful. Then switch to a shorter timeframe. The rest connects to the previous discussion.Whether a pin bar or a engulfing pattern occurs near 101.146is examined by checking the reaction of the longer-term level on the shorter-term timeframe.

One thing to be cautious about here.Do not wander through timeframes to chase convenient levels.As you switch from the 4-hour to the 1-hour to the daily charts, you may find levels close to prices you expect. That is not evidence-based reasoning but post-hoc justification. It is preferable to decide in advance which timeframe you will use and apply the level as a reference point in MTF analysis.

Big waves and small waves: Sometimes two Fibonacci levels overlap

There is another way to stack them.Fibonacci levels drawn on the larger wave and the smaller wave come close to the same price.

The method is as follows. First,identify a situation where the large wave and the small wave share the same high (or the same low)as their terminus. Then draw two Fibonacci lines with only the starting point changed.

Let’s put numbers to it. The larger wave goes from a low of 100.00 to a high of 105.00 (500 pips). This 38.2% retracement is,103.09yen.

The same 105.00 high is the end point for the smaller wave as well. The starting point for the smaller wave is a bit earlier, at a low of 102.00 (300 pips). This 61.8% retracement is,103.146yen.

103.09 and 103.146: the difference is only 5.6 pips.They do not match exactly. However, if they are this close, this price range is strongly watched. I have personally seen situations where the levels of the large and small waves come close.

Incidentally, the idea of two or more Fibonacci levels overlapping in this way is formally systemized in overseas famous techniques (the Dinapoli method). I regard it as a grounded perspective, not just a hunch.

Using Fibonacci in MTF and looking for locations where multiple Fibonacci levels overlap on an MTF basis is also effective.

Summary: Timeframes are not opposites but share duties

The discussion up to here isnot about which timeframe is correct.Each timeframe has its own role to play.

In other words, the larger timeframe shows direction, and the smaller timeframe shows timing. Relying on only one can leave you short of evidence.

The FTS I use displays Fibonacci levels and price consistently even when you switch timeframes. Thanks to this, switching timeframes no longer confuses me.

Details about the actual screen and features can be found on the product page.

→Fibonacci Trade System (Product Page)

Next time

Next time,an analysis that does not rely solely on Fibonacciwill be written.

In previous installments, we examined several decision-making elements centered on Fibonacci. Next, we will focus on scenarios where Fibonacci is less effective, shifting our perspective a bit.