The Ultimate Time Frame

If you are here looking for the best timeframe, this simply means that you know what chart timeframe means. It simply means how much time does a single movement on the chart takes to happen. In a candlestick chart, that movement is denoted in the form of a candle, like, hourly candles, daily candles, weekly and monthly candles.

For example,

The image above is a ‘Daily’ Candlestick chart of GBP/USD which means that each candle represents a whole day of trading. On the other hand, the chart given below is a 4-hour candlestick chart of GBP/USD which means each candle in this chart represents 4 hours of trading activity.

 New traders often struggle to decide one of the most important aspects of trading, which is the timeframe. The timeframe of the chart they should be looking at to find a profitable trading opportunity. Whether they should be looking at the hourly candles or the daily candles or the 5 min candles? Which time-frames work and which don’t?

The answer to the question is fairly simple, EVERYTHING WORKS. Yes, every timeframe works no matter if you are looking at 5 min candles or the weekly and monthly candles. Every timeframe demands different skills and tactics though. There are a number of Day traders as well as long term investors out there making big chunks of money. This in itself is proof that every timeframe works. But what you should know is that every timeframe is not for everyone. One time frame can possibly be the right timeframe for one person and may turn out to be a nightmare for another. But in the end, EVERY TIMEFRAME WORKS.

Now the big question that arises is how does a trader decide what time frame suits him/her?

The timeframe used by a trader totally reflects his/her nature and behavioral aspect. Trading is a business that has a lot to do with the behavioral aspect of a person. How a person deals with the situations which he/she faces in day to day life has a lot to do with the timeframe and strategy that individual adopt. The timeframe adopted should be in harmony with the behavioral aspect of the trader.

Let us take an example, suppose you are an active person and you admire busy-ness and feeling of thrill and excitement. You can’t sit on hands waiting for something to happen. You cherish the feeling of DOING something all the time. You enjoy long hours of sitting in front of your computer screen. Your behavior obviously reflects the style of Day Trading.

On the other hand, suppose you are a person who has an inclination towards being in control, making informed decisions, who is conscious about the bigger picture and you don’t want to spend your whole day looking at your computer screen but you want to find out the opportunity and let the market do the work for you, you are totally not made for Day trading. A person like that will be comfortable with swing trading or positional trading and investing maybe.

Hence, the trading the timeframe is decided by your behavior and not by your mentor.

What changes do different timeframes demand in the analysis?

All the strategies that are available in the market or whatever strategy one develops for himself have the best results only for the timeframe which it is made for. A strategy might do wonders on daily but may totally fail on hourly or lower timeframes. Different timeframes have their WORKS and WORKS NOT (similar to do's and don’ts)

For example, Candlestick patterns such as Pin-Bars and engulfing patterns may result in constant outstanding trades on daily time frames if combined with certain other tools such as ‘Supply & Demand’ or ‘B0llinger Bands’ but may result in horrific outcomes if used on 5-min or 15-min candlestick chart.

As you start going lower on the timeframes, you tend to see a lot of failed candlestick patterns, chart patterns, and harmonic patterns. On lower timeframes, a trader needs to develop skills to identify the patterns which have a high probability of working out and he needs to be picky with the pattern. As the credibility of the patterns gets dramatically decreased, you can’t trust each and every signal that you get in forms of patterns or from technical indicators.

Another change that is required when we consider two different time frames is ACTION. Day trading or lower time frame trading have an Action bias which means the skill that rules over all other skills is the skill of taking quick action, getting in, and getting out quickly without having much time to do the critical thinking. On the other hand, trading on the longer timeframe has an analysis bias because opportunities come relatively infrequently and a trader has time to do all the analysis in the world, so, a trader focuses more on finding more profitable setups and putting in the work in analysis.