Aside from deciding on their market position, another dilemma for beginner traders is the time frame to use. A time frame filters your price chart, only showing the price actions during the selected period.
Setting up the right time frame can change and improve your trading journey. Learn here the different time frames and the proper way of looking at them.
Beginner traders often fall into the mistake of only analyzing small time frame. Why? Because most of them want to profit as quickly as possible. With this thinking, they only focus on the short-term market movement.
However, that’s simply wrong. They fell victim to the market noise, giving them false signals and making them overlook the actual and primary market movement.
Market noises? They are the insignificant price fluctuation. These noises are deadly because they don’t follow any pattern at all. These can also prematurely trigger your stop-loss order, making you miss out on the real market opportunities.
Aside from the market noise, trading short time frame also has these downsides:
Remember: Smaller time frame = more risks, less profit per trade. The smaller the time frame, the more difficult it is for you to monitor the actual behavior of the market.
Does that mean there’s reason for you to trade short time frame? No.
If you’re scalding or trading intraday, focusing more on a short time frame is more ideal because it provides you with the short-term price movement. However, this doesn’t mean you should only look at short term charts.
One way to analyze the market is to look at the underlying trends, which is impossible if you’re only looking at short time frame charts. A short time frame is best to be used together with other, longer time frames to further analyze and come up with profitable trades.
By zooming out of your price chart, you gain a broader, clearer market perspective. This includes having an idea about the major support and resistance levels, primary trends, and the significant price movement.
How? Simply because high time frames consolidate the price actions that happened for a longer period. With such data, longer time frames give you higher reliability compared to shorter time frames. It pushes back the market noises, like the short-term, insignificant price movement.
With a high time frame, you can better and comprehensively assess the underlying factors that move the market. This is greatly beneficial for identifying significant price levels, trends, and potential trading opportunities.
But is this enough reference to analyze the underlying market trend?
The golden rule when using time frames is to always look at multiple frames, despite the comprehensive data one may provide you.
Analyzing multiple time frames multiply your potential returns. When you look at multiple time frames, you don’t just see the big picture, you get to look at the entire picture.
Trading using multiple time frames will help you stay in your position longer and keep you from losing trades.
That is because you get to see multiple sides of the market. Remember, there will be trends that are only analyzable when you look at different time frames.
So again, only looking at one time frame would bring you nowhere near profitable opportunities. You should always look at the bigger picture to analyze and come up with the right position.