How New Traders Choose a Time Frame
Like many new traders, you can spend days, weeks, or even months trying every possible time frame or parameter looking for the one that makes a profit. You may try 30-second charts, five-minute charts, for example. Then you try all the non-time-based options, including tick charts and trading volume. When none of these makes a profit, you may think you made an incorrect choice and try them all again, assuming you must have missed something the first time through. When you still don’t find a profitable choice, you adjust your trading system or technique slightly and then try all of the time frames again. If that belief sounds reasonable to you, then be careful, because you may be about to enter the never-ending time frame search from which many new traders never emerge.
How the Pros Choose a Trading Time Frame
Professional traders spend about 30 seconds choosing a time frame, if that. Their choice of time frame isn’t based on their trading system or technique—or the market in which they’re trading. It’s based on their own trading personality. For example, traders who tend to make many trades throughout the trading day might choose a shorter time frame. Those who typically make only one or two trades per trading day might choose a longer time frame. Traders may also switch their time frame on a given day, depending on how actively they’re trading.
Why Time Can Be Irrelevant
When evaluating a certain time frame with regard to your trading method, a price pattern that has significance on a two-minute chart will also have that meaning on a two-hour chart. If it does not, then it is not a relevant price pattern.
Trading Charts Based on Factors Other Than Time
Trading parameters that are not based on time should generally be used only with trading systems that are meant to use them. For example, a trading system may be created using a 100-tick chart. That is a specific system with a move occurring after 100 transactions have taken place. If a trading pattern is based on the size of a price move, then time doesn’t matter. You should select a chart such as a Renko chart, which lets you base the chart on price movement. It gives the trader a simpler view of patterns, trends, and factors like price reversals that occur during the course of the trading day. There is nothing wrong with using non-time-based variables if that’s what you prefer. They may be more visually appealing to you and thus easier to read. Just don’t assume that any single chart style gives you an inherent edge. Remember, candlesticks can be used for any time frame. Day traders may want to see this information separated by each minute of trading. Traders with longer time frames may use 15-minute candles, daily candles, or even monthly candles.
