Lesson #57 Which Time Frame Should I Trade?

One of the main reasons traders failed is because they are trading in a timeframe not in harmony with their personality. The do not have a good understanding of the time frame analysis and the insight that different timeframes can provide the needed confidence in making transactions.

Multiple time frame analysis may sound complicated but it simply refers to the same chart with more than one time squeeze in it, either weekly or daily. When the weekly and the daily charts are compatible, there is a great chance of success. The substance of the concept is basic: put the greater time frame price movement to define the tradable trend and the potential support and resistance levels

Utilizing multiple time analysis will confirm a great trading opportunity. With the various time dimensions, confirmation patterns could be seen if a buy signal is apparent. For example, a 60-minute chart shows a high probability feverish reversal pattern like the equal and opposite candle. If it is broken down to smaller time frames, the signs or bullish patterns are also visible.

Choosing the right timeframe depends on the personality of the individual. One must be comfortable with the timeframe he is trading in.

Trading timeframes are usually categorized into three types:

• Long term - traders oftentimes refer to the daily and weekly charts which help in the establishment of longer term outlook and assist in placing entries in the short term daily. In long term time frames, there is no daily market watch and since the transactions are fewer, there is less payment of spread.

• Short term or swing – traders utilize hourly time frames and may delay trades for several hours to a week. There are more opportunities for trades with less chance of losing. Short term or swing, however, cost more and subject to overnight risk.

• Intraday or day - traders employ minute charts such as 1- minute or 5-minutes and transactions are held within the day and end at the market closing. On the plus side, intraday provides lots of trading opportunities, less chance of losing and no overnight risk. On the minus side, it is mentally taxing because of high trading frequency, more spreads means higher transaction cost and limited profits because you have to retire at the end of the day.