Time Frame Trading: Meaning and Guide
By opening any trading platform you will have seen a series of settings identifiable by the abbreviations M1, M5, M15, M30, H1, H4, D1, W1 and MN. There are the types of Time Frame available on the software you are using.
These settings allow you to set a graph on a particular time interval which usually ranges from 1 minute up to a month.
In this guide we will see what time frames are, what they are for and how they are used in trading. We will analyze in detail:
- How to use the time frame
- Which time intervals to select
- What to pay attention to
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Time Frame Meaning
The time frame is the period of time in which the data of a particular security or asset are analyzed and is usually set to graphically display the price trend in that particular time interval.
Once set, the time frame shows the price trend marked by the selected interval and this can greatly affect the perception of the trend that is being observed.
Trading can be:
- Short term
- Middle term
- Long term
Similarly, the time intervals can be short, medium and long term.
In the graphs below you can see the setting of a 1-minute and daily timeframe chart on a Metatrader 4, a typical and very popular trading platform:
Choosing the right timeframe is essential for understanding a stock’s trend. Shorter time frames are usually chosen when carrying out short-term market operations and gradually increasing time intervals are chosen according to the duration of the operations to be executed.
But the time frame is also used to check a medium-term trend when trading intraday for example, to understand if the short-term trend coincides with the medium and long-term one or are in contrast.
But let’s not put too much meat on the fire, let’s take a step at a time and see how to choose the right time frame and how to set it.
How to choose the right Time Frame
The choice of time frame is very important when trading, because it helps to understand price movement, trend, volatility and many other factors, which together with trading volumes, are essential for doing technical analysis correctly.
A good trading strategy is essential to be profitable and above all to earn steadily with this discipline.
But each strategy has its ideal time frames, the time frames in which the strategy is most effective. Usually when trading on a certain time frame you also look at the upper and lower time frames.
The higher ones show the trend and the lower ones the volatility.
Setting the time frame on a trading platform is very simple, every software, from any broker, will have a series of buttons that indicate the time from 1 minute to 1 month. There may be differences in the time frames, the 2-minute one is not always present, but in principle the setting is similar for all platforms.
To choose which time frames to use, you need to study and practice a lot. In the next paragraphs we will give you some tips to learn the use of time intervals more quickly, all completely free of charge.
Study the professional traders with eToro
The best way to understand the motivations behind the choices of time frames is to look at what the most experienced traders are doing, even better: to copy them.
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In its trading platform you can set the main time frames in a very practical way. But to better understand how, eToro offers an investment system that has a dual function:
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Here are some of these experienced traders with their past returns:
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To understand which time frames to use, you need to study the basics of trading. But not on an expensive trading course, we offer you a great and totally free Trading Course.
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The latter is confirmed by a regular CySEC license, issued to trade throughout Europe.
But it is the services that make this intermediary an excellent choice for learning the use of time frames.
First of all, you will have two trading platforms that offer different ways of setting time intervals, but they are very useful for understanding how to manage them and how to view them:
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- Web Platform on the go with mobile compatibility
While analyzing the different platforms in Demo (without risking money) you can put to good use what you learn from the Trading Course developed by Trade.com
This is a pdf that lays the foundations of technical analysis by explaining trading, volatility, strategies and obviously the time frames, very clearly and without too many technicalities.
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Time Frame Trading
Many wonder what the right time frame is in trading but the answer is not unique, each strategy needs its time intervals, there is no best interval but there are more or less suitable time frames depending on the type of trading strategy that is used.
So let’s try to list the most common types of trading:
- Scalping: Requires very fast operation, with trades lasting from a few seconds to a few minutes.
- Intraday trading: When an operation opens and closes within the same day. It is also called Day Trading.
- Swing Trading: It is based on trades that last for a few days or weeks.
- Position trading: When a trade is open for months or even years.
Now let’s see which time intervals are best suited to each type of trading.
Best Time Frame for Scalping
The most commonly used time interval for scalping is between 1 and 5 minutes. You can use the time interval of 1 minute, 2, 3, or 5 minutes on the graph.
Some scalpers also use a 15 minute time frame, but very few go beyond that. The trades are very short-lived and it makes no sense to know the medium-term trend when trading this way.
At a strategic level, many traders who do scalping make technical analysis in 5 minutes, enter the market but then reduce the time interval to follow the operation and look for the optimal exit point from the trade.
Best Time Frame for Intraday Trading
Day traders usually operate with time frames ranging from 5 minutes to 60 minutes. The most used time intervals are those at 15 minutes and 30 minutes.
To analyze the trend, an intraday trader uses the daily interval, but during trading it rarely moves beyond 60 minutes.
For a dai trader it is always better to go in favor of the primary trend, which is why it also evaluates the higher time frames.
Short selling is inherently risky but should never be done if the trend visible on the daily time frame is bullish.
Always better to swim in favor of the current, against the current it is much more difficult, right?
Best Time Frame for Swing Trading
Swing trading is a much less hectic operation than the previous ones and the time frames used are usually those of 1 hour or 1 day.
The choice depends on the strategy used. To decide the entry point, the 1-hour chart is convenient, but to analyze the trend, we rely on the daily one.
At closing time it is best to go down with the time interval on the graph, even up to 15 minutes for an optimal exit point.
Best Time Frame for Position Trading
Position trading is a very slow way of trading, with trades open for long periods, sometimes for years.
In this case it is not always possible to distinguish a position trader from a long-term investor, for whom the time frame is secondary.
However, in position trading you look at the daily chart and switch to the weekly chart for the trend, sometimes even to the monthly one.
To enter the market you usually go down the time frame, as well as to exit the trade, in order to optimize profits.
This type of operation borders on fundamental analysis. Technical analysis is not enough when making such long operations, it is always better to understand the market and the fundamentals behind the price movements.
Now you have a clearer view of what time frames are and how they are used in daily operations.
When performing technical analysis, the time interval cannot be ignored, because its choice affects the entire evaluation of the graph being analyzed.
We must not fossilize on a single interval, as you have noticed in each strategy, various intervals are evaluated, because only one would give a too limited view of the performance of the stock we are trading.
The most effective strategies include an operational time frame, a higher one to analyze the trend and a lower one to study the entry and exit from the market.
But you also don’t have to change your mind about your operation by looking at other time frames that are not directly linked to the strategy used, it would only create confusion!
We know it may sound complicated but if you look at how the most experienced traders operate you will immediately understand how to set the correct time intervals. eToro Copy Trading is essential to get started, and don’t underestimate the fact that you can replicate the returns of top-level traders!
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This is the time interval in which the prices of the stock we are looking at are analyzed on a technical analysis chart.
There is no better time frame, just one more suited to a specific operational strategy.
In each platform you will see settings with the names: M1, M5, M15, M30, H1, H4, D1, W1 and MN, which correspond to the settings ranging from the single minute up to the month.
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