How To Find The Right Time Frame For Your Trading Strategy

Written by Julie Brownlee on June 10th, 2016

How To Find The Right Time Frame For Your Trading Strategy

Once you enter the exciting world of trading, it’s essential to have a solid strategy to help you find trades, and entry and exit levels.

Many traders use aspects of technical analysis as part of their strategy.

This can be to uncover the overriding trend in the market or to find opportunities to make money.

One essential component of technical analysis is time frames.

So what exactly are time frames when it comes to trading?

What’s the best one for you to use?

Should you use more than one time frame?

And does the time frame you use differ depending on your style of trading?

Let’s delve a little deeper into this crucial facet of technical analysis…

 

What Are Time Frames?

 

When you look at the price action of a particular security on a chart, you can select how long a period you look at this over.

This is the time frame.

But regardless of the time frame you use, it’s important to bear in mind that the prices are historic.

In other words, they lag.

This means they are no guarantees as to what’s going to happen to the price in the future.

Yet paying close attention to time frames and using the ones best suited to your strategy can help you become a more successful and profitable trader.

You can look at time frames from as little as a few seconds to as much as several years.

Time frames are extremely important to you as a trader as they can make a big difference to the picture you see and the trades you make.

For example, if you look at a shorter time frame you may see hints of a trend emerging, but once you zoom out to a longer time frame you may notice this isn’t a long-term trend.

 

 

How To Pick The Best Time Frame

 

The type of trader you are has a big bearing on the time frames that you should use.

For instance, if you’re an intraday trader, paying a lot of attention to what’s gone on with the price over a long period of time is far less important as to what’s happening over the short-term.

It’s important to incorporate different time frames together into your strategy.

By using a number of different time frames in your analysis you can see the bigger picture and, most importantly, have more information to base your trading decisions on.

Say you’re a short-term trader and aim to get in and out of trades within a day or two.

Looking at a longer time frame lets you see the overall market trend of the particular security you want to trade.

But when it comes to putting a trade on, you’ll want to pay attention to a shorter time frame.

This is where using multiple time frames comes in…

 

The Merits of Multiple Time Frames

 

The major benefits of trading using multiple time frames is that you should see your win rate increase and with that the risk you take on reduce.

By using a number of time frames instead of just one to base your trading decisions on, you have a more concise view of what’s happening in the market.

How To Pick The Right Time Frames For Your Strategy

This all comes down to your chosen strategy.

The time frames an intraday trader uses will be vastly different from a trader who’s in a position for weeks.

To benefit from using multiple time frames, stick to using three.

More than this can lead to confusion.

Less than this can mean you overlook important information.

The three time frames you should use are:

  1. The time frame you trade off (your base time frame);
  2. A longer time frame than your base; and
  3. A shorter time frame than your base.

To ensure you select the best ones for your strategy, pick time frames that are three or four times apart.

For example, if you’re an intraday trader, you may opt to trade using 15 minutes charts.

To give you a more concise view, you’d also look at:

  • 60 minute charts to see what the overall trend is; and
  • Five minute charts to see what’s happening in the short-term, and help you pick your entry and exit points.

On the other hand, if you take a more long-term stance, you may opt to trade using weekly charts.

To give you a better idea of what’s going on, you’d also look at:

  • Monthly charts to pinpoint the overall trend;
  • Daily charts to see what’s going on over the short-term, and help you pick your entry and exit levels.

Some traders, especially those with less experience, can pay too much attention to the short-term time frames they’re looking at.

To avoid doing this, ensure you only use the short-term one as a confirmation tool to your base time frame.

In other words, it will either affirm what your chosen time frame is telling you or dismiss it.

 

The Right Time Frames For You

 

The major factor determining which time frames you trade is how long you plan to have trades on.

As a general rule, here are the best time frames to pick depending on your base time frame…

5 Minute Charts

Use 15 minute charts for your long time frame, with one minute charts for your short time frame.

15 Minute Charts

Use 30 minute charts for your long time frame and five minute charts for your short time frame.

30 Minute Charts

Use 60 minute charts for your long time frame and 15 minute charts for your short time frame.

Daily Charts

Use weekly charts to give you a long-term picture and 60 minute charts for your short time frame.

Weekly Charts

Use monthly charts for your long time frame, with daily charts for your short time frame.

 

Make Sure You Don’t Forget…

 

When it comes to making decisions about entering and exiting a trade, ensure you stick to one time frame for this.

This should be your base chart.

Remember, you’re only using a longer and a shorter time frame to give you confirmation of what your base chart is telling you.

By incorporating the information from the other time frames you use along with your base chart, you’re giving yourself more information to improve your analysis.

Trading multiple time frames takes practise.

Take the time to play about with different time frames with your strategy.

You may discover particular time frames that work best with what you trade.

Until then, here’s to profitable trading. 

Julie Brownlee | The Money Lab

Julie Brownlee
Editorial Contributor
The Money Lab