Establishing context in trading is important. When an asset’s price is rising and falling on a minute-by-minute basis, you may find such micromovements relevant. However, if you’re more interested in price movements over the course of a week, these minute-by-minute trends won’t matter as much.
This is where time frames in trading come in. They set the context of your trading analysis strategy. Here’s what you need to know about chart time frames and how to use them.
This article at a glance:
- A time frame is a period of time where price movements take place.
- Using time frames in trading is essential to help make decisions about the strength and direction of trends.
- Different time frames suit different trading styles.
- Multiple time frames will give you a clearer picture of how an asset is trending.
What are time frames?
A time frame is a period of time where price movements take place. This could be anywhere from a few seconds or a minute, to weeks. For example, when you track price movements of an asset across minutes, it means that you’re using minutes as a timeframe.
Using time frames in trading is essential to help make decisions about the strength and direction of trends. This is because a time frame is the period during which you carry out your analysis using time as a guide. The aim is to establish whether there are any notable trends over the course of a given time frame. If your timeframe is days, then movements on a minute-by-minute basis are less relevant.
Which time frame is best for trading?
The chart time frames you use will depend on the assets you’re trading. The best time frame to trade forex could be different from the best time frame for stocks. Moreover, the time frames you use will also vary based on the type of trading strategy you use. For instance, a position trader is more likely to hold positions for longer periods than a day trader would.
In contrast, a day trader won’t hold a position overnight. Because they’re aiming to make multiple trades per day/hour, they may choose time frames that last 15 minutes or less. The objective is to use time frames that fit your trading strategy.
By putting time frames together with other metrics such as support/resistance lines, breakout points, chart patterns, and ongoing trends, you are likely to get a better idea of how an asset’s price is trending.
The best time frames for trading
Here’s an overview of the best time frames for different types of trading:
Best time frames for scalping
Scalping uses a short-term time frame. Scalpers usually aim to make moves every few minutes. They tend to use time frames ranging from every 1 to 15 minutes. The best scalping time frame and one most commonly used by scalpers is 1-2 minutes.
Best time frames for day trading
Using 15-minute time frames is useful to day traders because their aim is to enter and exit positions multiple times per hour/day. The primary market trend can be established using 60-minute time frames. From there, time frames of 15 minutes can be used to establish short-term trends.
Best time frames for swing trading
Swing traders aim to capitalise on short and medium-term trends. The best time frame for swing trading is short-term, based on movements of an asset price every four hours. Four-hour charts can be used in conjunction with longer time frames, usually spanning days, in order to establish an overall view of the trend.
Best time frames for position trading
The best time frame for position trading is one with a longer-term focus. The aim of position trading is to find an asset that will appreciate in value, and hold it for a longer period of time. Therefore, the best time frames for this type of trading usually span the course of a day and/or week. In general, you can look at daily prices and then take a broader overview by looking at price changes over the span of a few weeks.
How to use multiple time frames in trading
Trends can exist simultaneously. Focusing on a single time frame chart will cause you to miss a lot of information that you may find useful for your trading style. On the other hand, a multi-time frame strategy allows you to look at the most important time frames for the asset you’re trading, but also consider other periods. For instance, a swing trader can have short-term time frames as their main focus, but should also consider primary (longer) and secondary (intermediate) market trends.
By using multiple time frame analysis can you get a complete overview of how an asset’s price is trending and make the right decision based on your trading strategy.
This material is for general information purposes only and is not intended as (and should not be considered to be) financial, investment or other advice on which reliance should be placed. INFINOX is not authorised to provide investment advice. No opinion given in the material constitutes a recommendation by INFINOX or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.