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Choosing the right time frame for your trading

Choosing the right time frame for your trading

Choosing the right time frame when you’re trading is essential to be successful over time. As this determines the frequency of your trades, a time frame should fit your trader profile and financial goals. In this article, we will explain how to choose the right time frame for your trading to better anticipate market movements and potentially increase the profitability of your trading strategy.

What is the time frame in trading exactly?

When you’re looking at an asset price chart on your trading platform, you can decide the unit of time that each candle or bar represents. If you look at the following example from the EUR/USD candlestick chart from the ActivTrader platform, each candle represents one day of trading. As you can see, time frames are typically measured in minutes, hours, days, weeks, or months.

The smaller the time frame, the more trading signals there will be. But getting a lot of buying/selling signals isn’t necessarily a good thing if you do not know how to deal with so much data (or if you don’t have the time to take advantage of it).

That’s why you first need to know what kind of trader you are, what you want to achieve and how, before you choose a time frame for your trading.

Choosing the right time frame mainly depends on the kind of trading you want to do

There is no unique answer to “which time frame is better”, as it all depends on you and your trading strategy. As there is a direct link between time frames and trading styles, you need to know which trading style fits you best.

What time frame is best for what type of trader? Let’s have a look at the most popular ones.

Scalping

Scalping is one of the most active trading strategies, it involves getting in and out of the markets from within a few seconds to a few minutes. By identifying very small price fluctuations many times during a trading session, scalpers accumulate little gains in the hope of making a decent profit at the end of the trading day.

Favorite time frame: because scalpers need to spot and take advantage of relatively small price fluctuations to make trades, they are usually going to use very small time frames, from 1 minute to 15 minutes.

Day Trading

Day trading is another intraday trading style that focuses on relatively small price movements within a trading day. Just as with scalpers, day traders will usually use margin trading and leverage to maximize their market exposure. However, they have more options when it comes to choosing their time frames, depending on how long they plan on holding their position within a day.

Favorite time frame: day trading is a very short-term trading style that exploits a movement from a few minutes to a few hours, as long as all trading positions are closed by the end of the day. That’s why they usually use small time frames, from 15 minutes to hourly charts.

Swing Trading

Swing trading is a short to medium-term trading strategy that focuses on longer time frames to analyze price movements and trends, as well as to detect patterns, with trades lasting from a few days to a few weeks. Swing traders usually rely on technical analysis to take advantage of price movements between a swing low and a swing high.

Favorite time frame: because they hold their positions for longer than one day, swing traders usually use longer time frames than scalpers and day traders, generally hourly to daily.

Position Trading

Position trading refers to a longer style where investors take a position because they anticipate an increase in value over time. Usually trend followers, position traders will exploit a large market movement once they’ve identified a trend. Short-term price movements and volatility aren’t taken into account with this type of trading

Favorite time frame: because they have a long-term view and will hold their positions for months, position traders usually use the longest time frames out of all the trading styles covered here – daily, weekly, and monthly.

As you have now seen, choosing the right time frame comes down to your trading style and the holding period you want to adopt – not to mention that your specific strategy and trading capital will also impact the choice of your time frame.

While some traders use a single time frame in their trading, others prefer to use a multiple time frame strategy.

What about using multiple time frames?

A multiple time frame strategy involves simultaneously analyzing an asset across several time periods to spot the best trading opportunities. After all, time frames act as filters that can help you determine the main trend, as well as entry and exit points, depending on your strategy.

That’s why some traders like to use 2 different timeframes in their trading – a long time frame to determine the main trend of an asset price, and a short time frame to better determine when to enter and exit the market. As such, multiple timeframes trading allows traders to improve their rate of success, by understanding where the asset is relative to the “big picture”.

While most traders use 2 time frames, some of them use 3 in various combinations to see a difference in asset price movements, such as 1 minute, 5 minute, and 30 minute charts, 15 minute, 1 hour, and 4 hour charts, 4 hour, daily and weekly charts, among other combinations.

Final thoughts

If you want to seriously get into trading, you have to understand that it’s a lifestyle, akin to a full time job.

Knowing the different time frames available, as well as their weaknesses and strengths, will definitely help you choose the right one for your trading. And picking the right trading frame is one of the most important steps in being sure you have the right tools to trade – ones that fit your trading personality, style, and goals.

You don’t have to choose a single timeframe if you have different trading strategies and goals. It is also possible to have a short-term trading account and another account for longer-term trades, so then you can best exploit all opportunities, depending on your horizon and goals.

 

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