Different time frames

Multiple time frames in trading

As we saw before, when we observe a Japanese candlestick, we will have as information the opening, closing, maximum and minimum price. Regardless of the time frame we are looking at.

The candlestick information is exactly the same “in that time frame”, but it will be different in a lower or higher time frame. If we look at the same asset, in different time frames we will see in detail everything that was happening.

For example, we will use the SPY (S&P 500 ETF) to visualise the candlesticks in different time frames, always looking at the period of December 2018.

Time frame: Monthly

chart de trading mensual

Time frame: Weekly

chart de trading weekly

Time fram: Daily

chart de trading daily

And we could go on and on shortening it to hours and minutes.

The first thing we have to do is to set an operational time frame. That is to say, to determine if we are scalpers, or swing traders, etc.

Once this is defined, support our main trading analysis with the analysis of other periods to have a clearer notion of the asset we are observing. For example, if you like to make decisions on daily charts, that will be your trading time frame, and you will only use the upper or lower time charts, to spot the trend or adjust the timing of the market entry respectively.

If you trade in favour of the main trend, the chances of success are higher as long as the weekly (upper) and daily time frames (your chosen operating time frame in the example), are aligned.

However you may discover a bearish price pattern on daily charts, while the long term or main trend is up. This is known as a market correction or market oscillation. Remember that the market is not linear, it has swings, which also represent an opportunity.

The aim is to improve decision making, to avoid as few mistakes as possible.

Focusing on a single time horizon is likely to result in a lot of wrong trades, which can lead to money losses.