Selecting Multiple TIme Frames

[RichardCox 10]

It is very common for new and experienced traders alike to get caught up in the confusion of which time frames should be watched and paired together and this comes from the fact that there is never a “best” or “most appropriate” time frame what will be suitable for all cases. The problem becomes more confusing with the latest enhancements that are made to trading stations, which are offering more and more time frames and in some cases even customization features that allow for charting durations that are less commonly used.

 

Two General Approaches

 

From all of this, there are two general arguments that are made with respect to which time frames should be most closely watched and considered when new position strategies are put in place. Some traders tend to believe that the most common charting time frames (hourly and daily), because this will allow you to have an idea of the same price levels and pattern structures that are being watched by a majority of the market.

 

There are, however, those with a contrarian view who suggest that this is the totally wrong approach, as these time frames will prevent you from anticipating the next market move ahead of the majority. These traders might, for example, choose to use a 3-minute chart, rather than a 5-minute chart. This rationale has less to do with watching a shorter time frame than it does with watching a different time frame, and allowing you to focus on patterns differently as they begin to emerge.

 

Charting Limitations

 

Unfortunately, a direct answer to the question is difficult to construct as any chart will have some limitations given the fact that we can never include all necessary information. So, how can these limitations be reduced? And how can we use multiple time frames in conjunction with each other so that trading goals can be accomplished on a consistent basis?

 

In many cases, using different time frames together will create conflicting signals. For example, Bullish patterns might emerge on a shorter-term while a Bearish trend is shown on the longer-term time frames or vice versa. In these cases, it can be difficult to know which signal is more valid, and which should be trusted when determining trading bias. It is for these reasons that it is important for traders to plan for which time frames will be used as trading strategies are developing.

 

Using Multiple Charts at a Time

 

As a general rule, traders will benefit from using more than one time frame at a time, as this will give a broader perspective of what is happening in the near and long term. Additional information is never a bad thing (unless it becomes too confusing) so traders should keep in mind that multiple time frames are preferable but too many time frames can give a “muddied” picture.

 

Longer-term time frames will give traders a larger sense of where the majority of price momentum is headed. But since past price movements will not necessarily tell you what will happen next, an addition of a shorter-term perspective will usually provide a highly valuable of when entry opportunities are presenting themselves within that larger trend.

 

This implementation of multiple vantage points can prove to be one of the best ways of spotting trade signals as the new patterns emerge. An additional benefit can be seen when the shorter-term time frame gives you a specific price level that enables you to maximize risk to reward ratios. This is generally a requirement for traders looking to implement “swing” trading strategies, but can be applied to any strategy as long as the information that is being given does not become a distraction and confuse more than inform.

[henryduncan12 10]

Thanks Richard to share detailed information about "Selecting Multiple TIme Frames". I also had much confusion to choose the time frames.