in this post, we will learn and see, which are the best chart time frames For trading & investing.
Chart timeframe is one of the most important factor in chart analysis and Professional traders have specific rules about choosing a time frame because their choice of time frame is most commonly not based on a trading system or technique, nor upon the market that they are trading but upon their own trading personality and preferences.
The timeframe used for forming a chart depends on the compression of the price data: intraday, daily, weekly, monthly, quarterly or yearly price data.
Daily candlestick is made up of intraday data that has been compressed to show each day as a single candlestick, or period.
Weekly candlestick is made up of daily data that has been compressed to show each week as a single candlestick and so on.
Most traders and investors summarize trading time frames into three broad categories. These time frames are typically known as the short, medium and long term time periods. And these time periods definitions might be different for each individual trader because of his trading style and trading preference.
In my view, trading time frame can be defined as follows:
- Short Term – This time frame for a traders covers a period lasting from minutes to days. For example, scalpers, day traders and some swing traders are short term traders.
- Medium Term – This time frame for a swing trader covers a period lasting from days to weeks. For example, swing traders and investors are medium term traders.
- Long Term – This time frame mostly for an investors covers a period lasting from several weeks to years to decades. And most investors are long term traders.
Traders usually concentrate on charts made up of daily and intraday data to forecast short-term price trends. In market, micro traders or we call them as scalpers, they commonly use 1 minute chart timeframe for scalping the market.
Day traders usually uses 10 min, 15 min, 30 min or max hourly chart to analyze price movement and take trades accordingly in the market.
Hourly chart also can be used by swing traders who takes positions for more than day but less then week.
While daily chart is useful for short to intermediate term swing trading. The shorter the timeframe and the less compressed the data is, the more detail that is available. But flip side we will see high volatile moves which might affect decision making and turn into losses.
While for long term investors, short-term charts can be volatile and with a lot of noise. Large sudden price movements, wide high-low ranges, and price gaps can affect volatility, which can distort the overall picture, that why Investors usually focus on weekly and monthly charts to spot long-term trends and forecast long-term price movements. Because long-term charts (typically 1-4 years) cover a longer timeframe with compressed data, price movements do not appear as extreme and there is often less noise.
Professional traders & investors use a combination of long-term and short-term charts to stay ahead of crowd and to find perfect entry and exit from the market. Long-term charts are good for analyzing the large picture to get a broad perspective of the historical price action. After that short term chart are good for catching perfect top or bottom of long term trend.
So best chart time frame is depend on what types of trader you are? And also what are your market preferences. In upcoming posts will explore these points and each time frame in details with practical examples so stay connected.