What’s the best timeframe to trade?
At some point or another every new trader asks, ‘What’s the best timeframe to trade?’ And we’re afraid there’s no easy answer because it really depends on your own personal trading style and strategy. However, what we can do is set out the different options and hopefully leave you in a position where you can more easily see which timeframes you’d like to focus on more than others.
If you’re a long-term trader, daily, weekly and monthly charts will probably suit your style because it gives you the bigger picture of market movements without short-term market noise. Usually, long-term traders leave their position open for days, weeks or months and they do not watch the markets every day.
They are less vulnerable to sudden price movements and market volatility and perhaps like to employ a lot of fundamental analysis. Ideally, weekly charts can help long-term traders to spot trends and the daily charts to find entries. This is a good approach.
If you’re a short-term trader (also sometimes called a swing-trader), hourly or four hour charts are probably best. They provide a closer picture of daily price movements due to shorter timeframes. Generally, short-term traders leave positions open for few days or a week and they monitor the markets on a daily basis with the mixture of fundamental and technical analysis.
Mostly, they prefer trend following strategies and trying to catch big market movements. A short-term trader will look at the daily charts for grading trends and the four-hour charts for entries. Again, using multiple timeframes like this is a good approach.
Intra-day traders can look at timeframes as short as one minute! An intra-day trader is more vulnerable to sharp market volatility thus they analyse the markets on a frequent basis. Typically, they open and close positions within a day. If you are keen for excitement and numerous trading opportunities during the day, then this will appeal to you.
As mentioned above, there is no harm at all in looking at a mixture of timeframes. Ideally, traders choose a main timeframe and choose another one or even two timeframes above and below it. The purpose of this is to define trends with longer timeframes, to get a signal on the main timeframe and refine the entry point on the shorter timeframe (for example).
These multiple timeframes can be used by all types of traders mentioned above. For example, a swing trader, who focuses on hourly and four-hour charts, could use a weekly chart to identify the primary trend and then analyse shorter timeframes to choose the right moment to pull the trigger on a trade.
Get an overview
It is important to remember though, that the trend depends highly on the timeframe being used. As an example, you can see an upward trend in a daily chart but a downward trend in an hourly chart. The longer the timeframe being used the wider the amount of data being viewed. So, on a daily timeframe you can usually capture two to six months data (or more), whereas an hourly timeframe will give you only a few weeks of data.