What are the best time frames to operate on the financial markets? Let’s see them together.
What are the best time frames to trade? This is one of the most recurring questions in the trading field, especially regarding what are defined as "day trading" or "intraday trading", i.e. the type of trading which provides the opening and consequent closing of operations within of the day.
This type of trading is therefore concentrated within a limited time slot at the opening and closing of the financial market in which it operates and therefore requires a more in-depth and meticulous analysis process, which leads to greater attention to market movements, especially in the moments of opening, closing and during the release of important macroeconomic data. In this context it is therefore good to specify which are the best time frames, i.e. the minimum time span taken as a reference for the analysis of market fluctuations. Note that these basic principles do not only apply to short-term traders but are also valid for traders who have longer-term trading.
The time frame, what is it?
The time frame is the time frame taken as a reference for the analysis of market fluctuations. Given a Japanese candlestick chart, the time frame indicates the duration of the candlestick taken as a reference, therefore a weekly time frame chart will see a chart composed of candlesticks whose single duration is one week and therefore the information that will be provided to us will concern the opening, closing, minimum and maximum on a weekly basis. Given a chart at time frame 1 minute, we will have information about that traded minute.
Taking the weekly time frame as a reference, a chart made up of 52 candles will show us the price trend corresponding to 52 weeks (1 year of trading) and each candle represents a week. We could say the same thing for the 1 minute time frame chart, if it were made up of 60 candles it will give us a picture of the price trend for 1 trading hour (60 minutes) where each candle will tell us what happened in that precise minute. Having seen this brief example, we can move on to what concerns the operational use of time frames, i.e. the logical prerequisite for the type of trading that is going to be carried out.
Time frames, which ones to use for trading?
The basic assumption for the use of time frames is that a reduction in operating time corresponds to a reduction in the reference time frame. In essence, a trader who operates in the long term, i.e. who opens a transaction today to close it in a few months, will be interested in analyzing longer time frames such as the "weekly" or the "monthly", while a very short-term trader, one who operates very quickly, will need to analyze the market on short timeframes, i.e. those ranging from hourly time frame (1Hour) in down to the timeframe at 1 minute (1 min). As can be seen, logically every trader has his own reference time frames as the identification of the technical levels useful for trading can be identified on different time frames.
Why does this happen? A 1 minute time frame chart is profoundly different from a much longer time frame like the weekly time frame, the same asset analyzed on different time frames will look like a chart of another asset. In practice, the same asset on different time frames will have completely different graphic conformations, on a short time frame maybe downward patterns will form and on the same asset on longer time frames upward patterns will form, all in the same same moment of analysis. So a short-term trader will focus on short time frames, while a long-term trader will focus on long time frames. However, is this a correct approach or is it limiting? Let’s take a look at multi-time frame analysis
Multi-time frame analysis
A certainly more correct approach, as more complete, is that of multi-time frame analysis. This operational approach consists in considering in the analysis process those time frames that basically do not fully reflect our way of trading. For example, taking the previous logic, a day trader will not need to see and analyze long time frames such as the weekly as his operations are concentrated on time frames of a completely different time frame.
In reality, this approach, albeit logical, is limiting since the most important dynamics and levels are identified on the longest time frames, levels which could also be touched during the trading day and which the trader in question will never see if has not previously spotted them on long-term charts. Same thing goes for the long-term trader who incurs the timing error.
The longer the time frame, the more you run into the entry timing trap. Entering the market with the correct timing also allows you to manage risk adequately, therefore not analyzing shorter time frames than the operating standards could constitute a gross error for the long-term trader. The question arises spontaneously. What is the best time frame to operate? There is no best time frame, but instead there is multi-time frame analysis, i.e. that analysis which goes to "cross" and overlap the analyzes of time frame on a single asset.
The result will then be a set of levels that the market could feel and on which the trader can make operations based on his own trading style, be it short or long term. In essence, the multi-time frame analysis is the only true approach to conscious trading and is configured as one of the most complete approaches to trading, be it short or long term. Above all, the short-term trader, the one who focuses on market movements in a very short time span, will have to deal with the basic trend, i.e. the basic trend that the market has at that moment and therefore it would be simplistic to consider only short time frames. Furthermore, the multi-time frame analysis allows you to identify anomalies on the charts (asymmetries) which are the real fertile ground for trading.
Original article published on Money.it Italy 2022-11-24 08:57:00.
Original title: Trading, i time frame migliori per operare
