What Time Frame Should I Use On My Charts

Best Binary Options Brokers 2020:
  • Binarium
    Binarium

    Top Binary Options Broker 2020!
    Best Choice For Beginners and Middle-Leveled Traders!
    Free Demo Account!
    Free Trading Education!
    Big Sign-Up Bonus!

  • Binomo
    Binomo

    Trustful Broker. Recommended Only For Experienced Traders!

What Time Frame Should I Use On My Charts?

This is a very common question, frequenting popping up in the comment section of articles involving indicators, strategies or trading in general. “What time frame should I use on my charts?” is a good question, but ultimately it depends on your trading style, personality and the type of strategies you gravitate toward. Here we’ll address these issues so you can focus on the time frame that is right for you, saving you from frustration, wasting time and maybe even some losses.

What You Have Time For

In order to determine what time frame to watch on your chart, you must first assess how much time you actually have each to look at your charts. If you only have 20 minutes to check out charts after you have worked a full day and most of the major markets are closed, day trading isn’t a viable option. Therefore, you’ll need to focus primarily on 4-hour or daily charts which allow you to see longer term trends so you can base your trades on those. You’ll most likely have to be a swing trader, or longer-term trader, with trades lasting several days to a few weeks in the latter case.

If you have a few hours during the day to dedicate to your charts, while major markets are open, then you have a few more choices. If you like sitting in front of your computer and actively trading with “your finger on the trigger” so to speak, then a watching a short-term time frame, such as a 1 or 2 minute chart is likely ideal. This time frame will give you the most trade set-ups for the time you have.

If watching every tick of the chart drives you crazy, then you’ll likely want to use a 5 or 15 minute chart. You’ll still likely get some trade signals, but not as many. You’re able to utilize your time effectively, but not drive yourself insane.

It’s worth noting that while some markets like forex are open 24 hours during the week, there are some points in that 24 hour period which aren’t worth trading. If you are trading forex pairs like the EUR/USD or USD/JPY, you want to make sure that either the European and/or US markets are open when trading the EUR/USD or the US or Japanese markets are open when trading the USD/JPY. When at least one of the markets in a forex pair isn’t open, price movements can be very random and thus not ideal for trading.

Trading requires well defined trading plan and strategies. Without a strategy a trader is just throwing darts hoping they hit something–which isn’t viable over any length of time. So hopefully you have come up with or found a few strategies that you like. Likely these strategies are best applied to certain market conditions, certain times of day or to a certain time frame.

Some strategies are easily adjusted to almost any time frame, while others will only work under specific conditions. For example, there are strategies designed specifically for the few minutes surrounding when a market opens. Trying to apply such a technique during the middle of the day is likely to be a losing proposition.

Analyze your strategies and determine what the best time frame is for those strategies. Hopefully what you have time for (section above) and the time frame your strategy requires align. If not, you’ll need to find another strategy until you have more time to dedicate to trading.

No One Time Frame is Perfect

The sections above hopefully helped you narrow down what type of time frame you should be watching. Ultimately though there is no perfect time frame that will suit everyone. Some traders are successful trading off tick charts, while others off 15 minute or daily charts.

Best Binary Options Brokers 2020:
  • Binarium
    Binarium

    Top Binary Options Broker 2020!
    Best Choice For Beginners and Middle-Leveled Traders!
    Free Demo Account!
    Free Trading Education!
    Big Sign-Up Bonus!

  • Binomo
    Binomo

    Trustful Broker. Recommended Only For Experienced Traders!

This is where I will throw you a curve-ball. It is recommended that you don’t only look at one time frame. While a 1-minute or tick chart may show you a lot of information about very short-term movements, they don’t show the overall trend of what you are trading. A daily chart, may show the overall trend, but isn’t good for picking out intra-day entry points. Therefore it is recommended that traders don’t get addicted to only watching one time frame. Instead, look at two or three time frames.

Short-term traders can view a 1-minute, as well as a 15 minute and 1-hour or 4-hour chart. The 1-minute provides entry and exit signals while the 15 minute and hourly make sure the trader is acting on more complete information about the trend and support and resistance levels.

Swing traders and longer-term traders may focus on a daily chart, but can also use a weekly chart for providing a larger context for the trend and support and resistance levels. A a 15 minute (for example) chart can also be used for fine-tuning exit and exit points.

Looking at more than three time frames becomes cumbersome, and likely counter-productive.

Since there isn’t a “best” time frame to use on your charts, focus on a time frame that works best for you. What is best for you will depend on how much time you have which in turn affects what type of trader you will be. Then you need to make sure your strategies are aligned with the amount of time you have, and your personality. This will help you determine your “main” time frame, but ideally you should also look at one or two other time frames as well. This will provide you with more information about the asset you are trading, such as which way the short and long term trends are moving, and where important support and resistance levels are.

Choosing the Best Day Trading Chart Time Frame

Graphical trading charts can be based on many different time frames or even on non-time-related parameters such as number of trades or price range. With an essentially infinite number of choices, choosing the best time frame or other variable for a particular trading style and type of asset can seem like a daunting task. But if you are trading smartly, it actually becomes a very simple task.

How New Traders Choose a Time Frame

Many new traders spend days, weeks, or even months trying every possible time frame or parameter in an attempt to find the one that makes their trading profitable. They try 30-second charts, five-minute charts, and so on and then they try all of the non-time-based options, including ticks and volume. When none of them makes a profit, they think they made an incorrect choice and try them all again, assuming they must have missed something the first time through.

When they still don’t find a profitable choice, they adjust their trading system or technique slightly and then try all of the time frames again, and so on.

The thinking behind this dogged effort to choose the right chart time frame or other trading parameter is that each trading system or technique—and probably every market too—has one optimal time frame or other variables that it will work best with. If that belief sounds reasonable to you, then be careful, because you may be about to enter the never-ending time frame search from which many new traders never emerge.

How Professional Traders Choose a Time Frame

Professional traders spend about 30 seconds choosing a time frame, if that, because their choice of time frame isn’t based on their trading system or technique—or the market in which they’re trading—but on their own trading personality.

For example, traders who tend to make many trades throughout the trading day might choose a shorter time frame, while traders who typically make only one or two trades per trading day might choose a longer time frame. Traders may also switch their time frame on a given day depending on how actively they’re trading.

The reason professional traders do not spend endless amounts of time searching for the best time frame is that their trading is based on market dynamics, and market dynamics apply in every time frame.

The Irrelevance of Time

When evaluating a certain time frame with regard to your trading method, a price pattern that has significance on a two-minute chart will also have significance on a two-hour chart, and if it does not, then it is not a relevant price pattern after all. In other words, if your trading system or technique is not making a profit, there is nothing wrong with the time frame; the fault is with your trading system or technique.

Other Trading Parameters

Finally, trading parameters that are not based on time should generally be used only with trading systems that are specifically designed to use them. For example, if a trading system has been created using a 100-tick chart—with a move occurring after 100 transactions have taken place—then a 100-tick chart should be used. If a trading pattern is based on the size of a price move, then time isn’t important and you should select a chart, such as a Renko chart, that enables you to base the chart on price movement.

Having said that, there is nothing wrong with using non-time-based variables. If you prefer them visually and find them easier to read, then go ahead and use them. But beginning traders shouldn’t assume that one of them has some inherent advantage over another or over a time frame format.

The Balance does not provide tax, investment, or financial services and advice. The information is being presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal.

Multiple Time Frames Can Multiply Returns

In order to consistently make money in the markets, traders need to learn how to identify an underlying trend and trade around it accordingly. Common clichés include: “trade with the trend”, “don’t fight the tape” and “the trend is your friend”. But how long does a trend last? When you should you get in or out of a trade? What exactly does it mean to be a short-term trader? Here we dig deeper into trading time frames.

Key Takeaways

  • A time frame refers to the amount of time that a trend lasts for in a market, which can be identified and used by traders.
  • Primary, or immediate time frames are actionable right now and are of interest to day-traders and high-frequency trading.
  • Other time frames, however, should also be on your radar that can confirm or refute a pattern, or indicate simultaneous or contradictory trends that are taking place.
  • These time frames can range from minutes or hours to days or weeks, or even longer.

Time Frame

Trends can be classified as primary, intermediate and short-term. However, markets exist in several time frames simultaneously. As such, there can be conflicting trends within a particular stock depending on the time frame being considered. It is not out of the ordinary for a stock to be in a primary uptrend while being mired in intermediate and short-term downtrends.

Typically, beginning or novice traders lock in on a specific time frame, ignoring the more powerful primary trend. Alternately, traders may be trading the primary trend but underestimating the importance of refining their entries in an ideal short-term time frame. Read on to learn about which time frame you should track for the best trading outcomes.

What Time Frames Should You be Tracking?

A general rule is that the longer the time frame, the more reliable the signals being given. As you drill down in time frames, the charts become more polluted with false moves and noise. Ideally, traders should use a longer time frame to define the primary trend of whatever they are trading. (For more on this see, Short-, Intermediate- and Long-Term Trends.)

Once the underlying trend is defined, traders can use their preferred time frame to define the intermediate trend and a faster time frame to define the short-term trend. Some examples of putting multiple time frames into use would be:

  • A swing trader, who focuses on daily charts for decisions, could use weekly charts to define the primary trend and 60-minute charts to define the short-term trend.
  • A day trader could trade off of 15-minute charts, use 60-minute charts to define the primary trend and a five-minute chart (or even a tick chart) to define the short-term trend.
  • A long-term position trader could focus on weekly charts while using monthly charts to define the primary trend and daily charts to refine entries and exits.

The selection of what group of time frames to use is unique to each individual trader. Ideally, traders will choose the main time frame they are interested in, and then choose a time frame above and below it to complement the main time frame. As such, they would be using the long-term chart to define the trend, the intermediate-term chart to provide the trading signal and the short-term chart to refine the entry and exit. One note of warning, however, is to not get caught up in the noise of a short-term chart and over analyze a trade. Short-term charts are typically used to confirm or dispel a hypothesis from the primary chart.

Trading Example

Holly Frontier Corp. (NYSE: HFC), formerly Holly Corp., began appearing on some of our stock screens early in 2007 as it approached its 52-week high and was showing relative strength versus other stocks in its sector. As you can see from the chart below, the daily chart was showing a very tight trading range forming above its 20- and 50-day simple moving averages. The Bollinger Bands® were also revealing a sharp contraction due to the decreased volatility and warning of a possible surge on the way. Because the daily chart is the preferred time frame for identifying potential swing trades, the weekly chart would need to be consulted to determine the primary trend and verify its alignment with our hypothesis.

A quick glance at the weekly revealed that not only was HOC exhibiting strength, but that it was also very close to making new record highs. Furthermore, it was showing a possible partial retrace within the established trading range, signaling that a breakout may soon occur.

The projected target for such a breakout was a juicy 20 points. With the two charts in sync, HOC was added to the watch list as a potential trade. A few days later, HOC attempted to break out and, after a volatile week and a half, HOC managed to close over the entire base.

HOC was a very difficult trade to make at the breakout point due to the increased volatility. However, these types of breakouts usually offer a very safe entry on the first pullback following the breakout. When the breakout was confirmed on the weekly chart, the likelihood of a failure on the daily chart would be significantly reduced if a suitable entry could be found. The use of multiple time frames helped identify the exact bottom of the pullback in early April 2007. The chart below shows a hammer candle being formed on the 20-day simple moving average and mid Bollinger Band® support. It also shows HOC approaching the previous breakout point, which usually offers support as well. The entry would have been at the point at which the stock cleared the high of the hammer candle, preferably on an increase in volume.

By drilling down to a lower time frame, it became easier to identify that the pullback was nearing an end and that the potential for a breakout was imminent. Figure 4 shows a 60-minute chart with a clear downtrend channel. Notice how HOC was consistently being pulled down by the 20-period simple moving average. An important note is that most indicators will work across multiple time frames as well. HOC closed over the previous daily high in the first hour of trading on April 4, 2007, signaling the entry. The next 60-minute candle clearly confirmed that the pullback was over, with a strong move on a surge in volume.

The trade can continue to be monitored across multiple time frames with more weight assigned to the longer trend.

Best Binary Options Brokers 2020:
  • Binarium
    Binarium

    Top Binary Options Broker 2020!
    Best Choice For Beginners and Middle-Leveled Traders!
    Free Demo Account!
    Free Trading Education!
    Big Sign-Up Bonus!

  • Binomo
    Binomo

    Trustful Broker. Recommended Only For Experienced Traders!

Like this post? Please share to your friends:
Binary Options: How To Start Trading
Leave a Reply

;-) :| :x :twisted: :smile: :shock: :sad: :roll: :razz: :oops: :o :mrgreen: :lol: :idea: :grin: :evil: :cry: :cool: :arrow: :???: :?: :!: