Time Frames in Trading
Time frames signify the period of time in which a certain trend in the market lasts. These trends can be identified by traders to further make their entry and exit points when making an investment. In order to be able to make a profit and make gains more consistent than picking up losses, traders need to be able to recognize trends and time frames. Time frames should help you decide when to make your investments and when to retreat, and serve as an indicator into how long a trend will last. Time frames are usually classified as long-term, medium and short-term, and traders can use multiple time frames when trading to maximize their chances of collecting gains.
Common Candlesticks and Time Frames
Candlesticks that showcase time frames, thus revealing technical and historical trends projected on charts in specific time intervals, are commonly used by traders for technical analysis, which is why reading charts is crucial for investing and trading. Commonly used candlesticks will showcase 15-minute price momentum, one-hour, four-hour, daily trends, and trends within a week. Depending on the type of candlesticks traders use, which have different time-frames, traders are choosing their preferred trading style and classification of trends, which can be either long-term, short-term or medium.
Following up with 15-minute candlesticks is known as an effective technique for active traders who are looking to gain a steady, although small income through short-term trading and short-term gains. Traders who mostly use 15-minute candlesticks are known as scalpers due to the use of scalping as their preferred trading style. Hourly candlesticks, with commonly used four-hour time frames, will be used for day trading and short-term gains where traders follow changes in intervals of four hours. Daily candlesticks are used for medium-term gains, often in swing trading. Weekly candlestick charts are used by traders who are looking into assessing long-term gains through position trading where price trends become more relevant for traders in terms of identifying momentum in the market, as is the case with longer time frames. Candlesticks are useful for traders as they are provided with clear insight into price action, price trends and fluctuations in the market, which can help them identify the underlying value of the assets they are trading.
Custom Time Frames
Traders can choose their own time frames in order to plan entries and exits, choosing any time frame they find convenient, considering the trading style they are using, as well as whether they are looking to score short-term, long-term or medium gains. There is no universal best time for trading, which is why traders need to choose their preferred time frames based on how much time they can spare to dedicate to watching charts and trading, as well as based on their trade setups. Traders will choose longer time frames to form more significant analysis in order to establish long-term trends, which are more relevant for determining price movement, while short time frames usually serve the purpose of making short-term entries and exits to collect smaller, but frequent gains.
That way, traders can use multiple time frames for trading, using more than a single time frame at the same time. For example, if you are day trading, you will choose one-hour charts as your trend time frame, and 15-minute charts as your entry time frame. In this case, hourly candlesticks should help you determine the trend in the market, while 15-minute candlesticks will serve the purpose of making entry points to collect gains based on the trend identified within the hourly candlesticks. The shorter time frames should help identify progress in the value and evolution of the price within a longer trend line, helping traders make successful entry points that should result in gains. Multiple time frame trading as a technique and trading strategy is very useful precisely because traders can create custom combinations of time frames based on their preferred trading style.
The Validity of Longer Time Frames
The importance of time frames in trading is not only in identifying entry points, but also in preventing the loss of the initial trading funds in order to have a profitable trading session. Time frames can help traders identify trend lines, which is an important part of technical analysis. In the case of identifying trends based on the price movement and the market momentum, longer, or bigger time frames tend to be more relevant and valid as traders can follow up with historical charts showcasing active and past trend lines in the market. Getting familiar with trends means that traders are more likely to predict the outcome of their entry points.
Bigger time frames hold more validity.
As a rule, bigger time frames hold more validity in terms of determining and identifying changes in trends and price momentum, whereas in the majority of cases, smaller time frames may not serve as indicators of changing trends. Moreover, smaller time frames often represent counter-trend movements in the market price, which is why many traders use multiple timeframes. By using different time frames, traders are opening more opportunities and different case scenarios where smaller time frames usually serve as signifiers of periodical changes in trends and bigger time frames will identify underlying trends.
Trading Styles in Relation to Time Frames
Trading styles are defined by time frames, i.e. the time a trader would spend on making entry and exit points, while trading styles also depend on the timing of entry points, and, in some cases, on the frequency of generated trades. Depending on gains collected within a trade, in terms of trader’s preferences, classification of trading styles is defined as long-term, medium-term and short-term with each classification further defining the goal of different trading styles.
Position trading is classified as a long-term trading style, meaning that traders who prefer position trading are not interested in short-term gains or concerned by short-term price fluctuations. Trend time frames used for position trading can be weekly, monthly and even yearly time frames showcased and materialized through candlestick charts. If position trading uses weekly time frames to determine underlying trends, the trigger time frame would be defined in daily charts. In this case, traders can use daily charts to make entries, while following up with weekly changes as the main time frame for their trades. Moreover, position traders, as well as swing traders, are more likely to use pending orders for their trades as they are not required to make prompt exits from their trades, considering bigger time frames and long-term trades.
Swing trading is a popular trading style and it represents a medium-term where a trader is trying to catch a big move or predict a major change in the price movement in order to cash in on a price swing, thus the name of the trading style. Swing traders usually use daily time frames with four-hour trigger time frames. However, swing trading may also involve weekly time frames to define underlying trends where trigger time frames are represented daily. Swing trading is also used on multiple day charts and even on hourly charts as a medium-term trading style. Swing trading with one-hour charts can be categorized as intraday trading, although the trader is trying to capitalize on swings.
Day trading is a short-term trading style using intraday trading strategies, which means that day traders will execute a trade or a series of trades in a single day, collecting gains on a daily level. There are numerous intraday trading strategies, which include scalping, trend trading, news trading as well as swing trading with one-hour charts. Day trading is only one of these strategies. Day traders are usually relying on technical analysis rather than on fundamentals. Day trading can be done with four-hour charts as the trend time frame, in which case the trigger time frame would be showcased on hourly charts. Day traders may enter and exit a trade several times in a single trading day, focusing on short-term gains.
Scalping is a form of intraday trading where traders will try to make a profit out of smaller price changes, which requires their constant attention and involvement in the process of making entries and exit points. Scalping is a popular technique, but is also risky as traders need to come up with strict exit points in order to prevent a major loss, eliminating a series of smaller gains. Scalpers will thus get involved with live trading, being present until the series of trades is over. Quick entries are rather important for scalpers. The strategy usually takes advantage of hourly trend time frames, while relying on 15-minutes charts as their trigger time frames.