Graphic trading charts can be based on many time frames. Some even use non-time-related measures such as the number of trades made or their price range. It can seem like a daunting set of choices. If you trade prudently, picking the best time frame or other variable for a certain trading style and type of asset becomes very simple.
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What is time frame ?
Time Frame is the duration of time of a single price bar on a chart. On a 1-minute time frame chart, each candle contains the opening, closing, high and low price of that 1-minute.
The commonly used time frames are:
- 1 minute
- 5 minutes
- 10 minutes
- 15 minutes
- 30 minutes
- 1 hour
- 1 day
- 1 week
- 1 month
There are other time frames like 2 min, 3 min, 4 min, 2 hours, 3 hours, quarterly (3 months) and some trading software also provide support for time frame of seconds. But the above mentioned time frames are more common and good enough for most traders.
The weekly time frame
Think of the weekly chart as the time frame that allows you to step back and get a look at the longer term trend. You can only fit so much data on the daily chart so it is hard to see what is really going on with a stock.
On the weekly chart, you want to see that the stock is in an uptrend and if there are any significant chart patterns. Many investors and institutional traders use this time frame to make buy and sell decisions. So ask yourself, “If I were them, would I want to buy the stock now?”
The daily time frame
This is where you will spend the majority of your time as a swing trader. When you run your scans, you are running them off of the daily chart. This is where you will seek to find trading opportunities.
Your daily chart should go back 5 to 7 months or longer. You want it to show enough data so that you can find support and resistance points. Remember that each candle represents one day of trading.
The 60 minute time frame
Think of the 60 minute chart (hourly) like you were getting out of pair of binoculars and analyzing what is going on with the individual candles on the daily chart. When you buy pullbacks off the daily with consecutive lower highs (long positions), you will see that the stock is in a downtrend on the 60 minute chart.
You are looking for a break of that trend line in this time frame.
When you say, “I’ll buy when the stock trades over the previous high.”, what you are really doing is buying that trend line break on the 60 minute chart.
The 15 minute time frame
There is one other time frame that is useful. That is the 15 minute chart. Why would you look at this time frame? Because sometimes, the day traders will make the 5 minute chart look sloppy! Using the 15 minute chart can smooth out the whipsaws that show up on the 5 minute chart.
You may even decide to use the 15 minute chart instead of the 5 minute chart.
The 5 minute time frame
This is where we will get our entry. So far, we have found a great setup on the daily chart. We checked the weekly for chart patterns and to make sure that the stock is in an uptrend. We zoomed in using the 60 minute chart and watched for a break of that trend line.
We have already made our decision that we are going to buy the stock.
The five minute time frame is used to buy the stock at the best possible price. You really don’t need to spend a whole lot of time analyzing this chart. Just look for the stock pull back to a support area (on the long side) to get your entry price. Simple.
You only need to look at the 5 minute chart with the current days data (each candle represents five minutes of trading).
How New Traders Choose a Time Frame
Like many new traders, you can spend days, weeks, or even months trying every possible time frame or parameter looking for the one that makes a profit. You may try 30-second charts, five-minute charts, for example. Then you try all the non-time-based options, including tick charts and trading volume.
When none of these makes a profit, you may think you made an incorrect choice and try them all again, assuming you must have missed something the first time through. When you still don’t find a profitable choice, you adjust your trading system or technique slightly and then try all of the time frames again.
The thinking behind this dogged effort to choose the right chart time frame or other trading parameter is faulty. It’s 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 the Pros Choose a Trading Time Frame
Professional traders spend about 30 seconds choosing a time frame, if that. Their choice of time frame isn’t based on their trading system or technique—or the market in which they’re trading. It’s based on their own trading personality.
For example, traders who tend to make many trades throughout the trading day might choose a shorter time frame. Those 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, which apply in every time frame. The levels of supply and demand affect prices.
Best Time Frame for Scalping
The most commonly used timeframe for ‘Scalp trading’ is between 1 to 5 minutes. You could use the 1-minute time frame on the chart, or 3 minutes or 5 minutes.
Some scalpers also use 15 minute timeframe, but very few go beyond that. It does not make sense to use 30 minute timeframe or higher because trades are taken for a very short duration of time.
Some scalpers follow the 5-minute time frame to take the trade and then switch to lower time frame to close the trade.
Best Time frame for Intraday – Trading
The best time frame for intraday trading will differ from person to person. Some are more comfortable with 30-minute or hourly charts, while others like the volatility and fast-movement of small time frames like 10 minutes or less.
Many traders believe the shorter time-frames is where money can be made, but it requires experience, expertise, quick decision-making skills and a calm mind to be successful. On 1-minute to 5-minute charts, there’s a lot happening very quickly.
The 30-minute to hourly charts are more calmer in movement and hence can give you more time to decide, plan and execute your trades.
Be aware that intraday is one of the more difficult forms of trading. Very few people go on to become successful intraday traders. Beginners should stay away from intraday and work towards becoming good at longer term trades.
Once you put in those years of learning and know what you are doing, you can look at taking short term or intraday trades.
Best Time Frame for Short Term Trades – Swing Trading
Swing trades are more relaxed in nature, compared to scalping or day trading. They do not carry the pressure of finding new trades every day, and decision making is slower.
The more commonly used time frames for swing trading are ‘Hourly’ or ‘Daily’ chart.
Since I do not like watching my screen throughout the day, I prefer ‘Swing’ and ‘Positional’. I do not generally take intraday trades.
If there is an opportunity for swing trades, I usually end up analyzing both the hourly as well as daily chart to understand the direction of the trend, along with the important support and resistance levels.
If you are beginner to the stock market, and wish to make trading you profession in the future – it’s always better to start as a swing or positional trader and gain experience.
Also, avoid small-caps and mid-caps for the first one or two years of trading. Stick to Nifty 50 stocks. Trade in small quantity. Gain experience. Understand your own self – do you like taking quick trades or are you more comfortable with holding your positions for longer periods of time?
Understand your own nature is important if you are to become a successful trader.
Best Time Frame for Long Term Trades – Investing
The weekly and monthly charts can be used for medium or long term trades (1 month to many years).
A lot of people these days use a combination of fundamental and technical analysis to buy stocks. While fundamental analysis is done to identify stocks to invest in, technical analysis can tell you when to buy and when to sell those stocks.
When stocks breakout on weekly or monthly charts, it can give phenomenal returns even in the long run.
For example, Reliance Industries gave a clear break out on the monthly chart in February 2017. For many years, it was finding resistance at the ₹ 575 price point.
But in Feb 2017, the chart gave a clear break-out signal as the stock rose above its 8-year high and went upto nearly ₹ 630 per share. That was a great buying opportunity, as the breakout on the charts coincided with the launch of Reliance Jio.
In July 2017, the monthly chart gave another major breakout when Reliance went above its all-time high which was created nearly 10 years ago in January 2008. That was another great opportunity to buy, as Jio was gaining market share rapidly.
Since then, Reliance has been unstoppable. Rising to a high of ₹ 1600 per share. A 3x multibagger in just 3 years since the launch of Jio. The company still has a long way to go, as Jio has more than 40 crore customers – which is more than the population of United States of America. Its Retail business is also growing exceptionally well.
The breakouts on monthly charts can give long term opportunities. But stocks that go bearish or move sideways on monthly chart can also be long-time under performers – like Larsen and Toubro, ITC etc.
Thank you for the article.