By Nathan Boardman
When you access a chart, it’s easy to overlook the fact that the chosen time frame entirely influences the patterns you observe. By switching between time frame tabs, you’ll notice entirely distinct charts, varying support-resistance levels, and diverse signals for initiating trades.
Some traders might perceive this approach as an attempt to perplex them. Others – select the period that shows a positive trend for you. Some argue that this entire process is pointless and suggest regularly alternating between different timeframes in order to capture the elusive pattern. Both have some validity.
Concept of a Timeframe
The timeframe in trading serves as your reference point. This serves as the guiding principle for making decisions, including setting indicators, interpreting signals, and identifying patterns and trends visually.
Put, a time frame displays a chart within a specific time scale. Typically, when utilizing it, it incorporates a technique for showcasing cost through Japanese candlesticks. Therefore, every Japanese candlestick encompasses the outcome of trading during a timeframe that matches the chosen duration.
For instance, if you possess an unrestricted “hour” chart (H1), then every candle – whether it be green or red – on this particular time frame will correspond to a duration of one hour. It will demonstrate the price movement over these 60 minutes.
If, upon the completion of an hour, the price of the asset has decreased compared to its previous value, the candle will be depicted in a red hue. If, conversely, it finished the hour with a higher value than it began, it will be displayed in green.
Available Timeframes
The timeframe plays a crucial role in determining the scale of the chart, and the trend observed within a specific timeframe holds only within that timeframe. Just by changing the punctuation mark, this situational trend disappears completely. It appears that traders believe it is crucial to “actively purchase” at the moment, but upon examining a higher timeframe, it becomes evident that it is essential to “actively sell”.
The time frame is composed of two components: a letter code and a numeric code. Decoding them is pretty straightforward: M stands for Minutes, H for Hours, D for Days, W for Weeks, and MN for Months.
As per the M20 timeframe, each candle represents 20 minutes. Similarly, in the D timeframe, each candle corresponds to one day, while in the H4 timeframe, each candle represents four hours.
What Is the Ideal Time Frame for Trading?
M1, the minute chart, is the shortest timescale, say experts. It changes dramatically and precisely reflects even the tiniest price changes, catching all market movements. Trading on this platform is unwise since it misrepresents the market, which might confuse traders.
If you want to scalp, start scrutinizing the chart at M5. There are also 10-, 15-, and 20-minute charts. They’re ideal for intraday trading. Shorter period traders commonly use 30 or 60-minute intervals for one- or two-day positions.
Weekly position traders trade H2 and H4. Medium-term traders can wait months for a win like D and W, while investors who invest for a year or more prefer MN.
Let’s discover which category you belong to.
Scalpers
If you engage in numerous trades throughout the day, constantly seeking to capitalize on even the slightest price fluctuations within 5-10 minutes, then you can be classified as a scalper. You require suitable timeframes: the greater the level of detail, the more advantageous it is, indeed.
Since each transaction starts with a negative spread, this form of trading may be intense. Predicting market fluctuations within minutes using indicators is extremely hard. Clear thinking and luck are your only tools to combat market noise. Choose the 1-to-10-minute chart scale for this case.
To avoid being trapped in a chaotic position by launching a scalper transaction against a strong market trend, which might turn your transaction around, you must properly assess each of them. Margin trading as a scalper is risky. If you still like this method, trade independently. Limit simultaneous transactions to two with a total value of 10% of the account balance. If things go wrong, you’ll have time to wait for a good turn.
Traders Who Engage in Daily Trading Activities
For intraday traders, it is crucial to begin by thoroughly examining charts spanning timeframes ranging from M20 to H4. Exploring the past eras will provide a comprehensive view of the entire day, while analyzing the more recent ones will offer insights into potential shifts in trends. Different timeframes call for other indicators, as the support and resistance levels established in the H2 timeframe may not even be noticeable in the M30 timeframe.
To avoid any confusion and maintain clarity, it is recommended to review all the charts, evaluate the situation, and ultimately choose one at the end. You can examine it and utilize it as a reference to determine the optimal timing for finalizing a transaction. You’ll want to consider either M30 or M60, depending on the duration you choose for your position. It’s essential to have a well-thought-out strategy for this as well.
Short-Term
Would you wait a long time for a trading result? Choose a longer length. You can choose D or W. Each candle will show price movements over 24 hours in the first scenario and a trading week from Monday morning to Friday night in the second. Markets are closed on weekends. I find midday the most consistent. This approach removes unimportant market swings and short-term volatility to show the daily trend. It would help if you used it for transactions.
Long-Term
For optimal long-term trades lasting several months or more, analyze various timeframes, review insights from reputable global agencies like Morgan Stanley, stay current with the news to identify market favorites, and thoroughly study the company you intend to invest in.
Alternatively, invest in gold or currencies long-term. Understanding why you think this asset will expand is critical. Consider the news context, corporate reports and goals, and essential news and rumors. In the following year, conditions may change suddenly; therefore, the period is unimportant. A disappointing quarterly report or investors switching from gold to more volatile equities are additional possibilities.
Which Period Is More Suitable for Intraday Trading?
Now, let’s focus on the most crucial aspect. What is the process for analyzing the chart within the selected time frame? This question is quite comprehensive, so let’s delve into it thoroughly in this article.
First and foremost, it is essential to possess a comprehensive range of market analysis techniques. Having a variety of options at your disposal can be incredibly beneficial, even if you only decide to utilize one of them.
Technical Analysis
It is essential to develop a well-thought-out plan that incorporates receiving signals to either buy or sell from various indicators. Naturally, it is advisable to preselect them beforehand. Typically, traders utilize support and resistance levels, along with a couple of additional tools.
Two moving averages with varying periods, one slow and one fast, can be used to generate a signal when they intersect. Additionally, an oscillator displayed beneath the chart can be employed to validate the signal. Usually, Stochastic, MACD and other similar indicators are selected.
In this scenario, the indicators indicate a shift in the current trend towards a new one, while the oscillator suggests a decrease in the strength of the previous trend (based on trading volumes). Of course, all this is shown within the specific period you have chosen. Support and resistance levels serve as boundaries that enable you to evaluate the anticipated chart movement.
To avoid constructing a repetitive “tower” of indicators, utilize one “active” time frame and one for testing purposes. Typically, the younger individual (such as M30) and the older individual (such as H4) are used as a reference point to monitor the overall pattern.
If you fail to give due consideration to the importance of preliminary analysis, your impulsive trades that last only a few minutes may quickly transform into long-term positions. It is highly advised to pay attention to technical analysis.
Graphical Analysis
This strategy focuses on identifying reversal patterns and trend continuation signals on the Japanese candlestick chart. Price Action, also known as analytics based on price movement, is a fascinating practice. Once you cultivate a keen eye and swiftly recognize even the most fundamental patterns on the chart, you’ll have the ability to spot them across various timeframes.
This will assist you in determining the ideal timeframe for initiating a trade on this occasion. If, in your perspective, a distinct “Flag” is established on the H4 chart, and you comprehend the appropriate course of action, then remain on this time frame, configure indicators and oscillators, obtain a validating signal, and initiate a transaction based on this price fluctuation.
In this scenario, the specific timeframe of M5 is not of utmost significance to you. Your focus lies in the duration of your trade, which can span over multiple days until the visual and technical signal you have obtained dissipates. It’s crucial to maintain an adaptable mindset when making decisions. Whether you choose to be a trader for the short-term or the medium-term is a matter of convention.
Fundamental Analysis
When it comes to trading, it is essential to consult the Economic Calendar across various timeframes, ranging from M1 to H4. It is important to note that the release of any report will maintain your plans and analysis of historical data, which is often referenced in trading textbooks as a prime example.
Initiating a trade a mere 5 minutes prior to the unveiling of Nonfarm Payrolls without duly considering their impact is undeniably unwise. A sudden price fluctuation during the time of release has the potential to completely alter the dynamics on the chart entirely, capturing the attention of traders worldwide for a significant period. Ultimately, the price has the potential to revert to its previous range or stabilize at altogether different levels without rushing to conform to your calculated expectations.
Naturally, your attention is directed towards the D, W, and MN periods. In that case, the emergence of any macroeconomic updates is merely a minor fluctuation in the vast ocean of information, and it is not worthwhile to emphasize them. Throughout your position in the market, a multitude of data will be released, possibly exceeding a dozen.
However, if you engage in intraday trading (M10-H4), it is crucial to stay informed about the scheduled publications for today. It is essential to specify the date of the upcoming company report as the price tends to fluctuate significantly in the days leading up to its release, based on market expectations, and in the days following. Now, you have a solid understanding of selecting the appropriate timeframe based on your trading preferences and conducting thorough market analysis!
