What is time frame in technical analysis?

What is time frame in technical analysis? If you are in the financial markets or you are interested in discussing the analysis of these markets, you have probably heard of time frame or time frame or phrases such as “one hour chart”, “four hour chart”, “daily” and “weekly”. has eaten. It is no exaggeration to say that learning time is one of the first and most important lessons in technical analysis. In this article, we first define the time frame or time frame and then explain how to reduce the risk of transactions by choosing the right time frame and examining them correctly.

What is time frame?

Time Frame refers to the time during which a Price Bar or Candle is formed in the chart. This interval may vary from one second to one year or even longer, depending on the amount of data available. For example, if our time frame is 5 minutes, each price bar indicates price changes in 5 minutes. To better understand this concept, see the image below:

In the picture above, we see the price chart of Bitcoin against the dollar. As you can see, the time frame or time frame is on 1 hour (1). This means that each of the candlesticks (red and green bars) shows the price changes in one hour. You can also see in the image above that there are 12 minutes and 8 seconds left until the last candle closes (2).

Timeframe is actually a slice or part of the time that the analyst chooses to study and analyze the behavior of a market or a currency. In general, a time frame determines two things for the trader:

• The amount of risk in the transaction
• The time it takes for a trader to analyze the outcome of a trade.

For example, if a trader uses weekly Time Frame, he will be much less risky, but he will have to wait several weeks to several months to make a profit and reach the target.

Conversely, if a trader analyzes and trades in 1 minute timeframe, the result of the trade will be known in a few minutes, but this is very risky and it is very rare for a trader to analyze in 1 minute timeframe.

In addition to being a tool for trend confirmation, timeframes are very useful and practical for identifying critical levels. The resistance seen in the daily chart for more than a year is much more important than the level of support in the 5-minute chart, which is valid for only a few hours.

If you trade on a daily and continuous basis, it will always be useful to monitor price movements at different time frames, because then you will find consistency and accompaniment at different time intervals.

Sometimes you see the right position to enter a trade in a small period of time, for example in a time frame of 5 minutes, but by looking at larger time periods you will find that the price trend in the daily and one-hour charts is in the opposite direction.

Traders can be considered successful in trying to increase the number of wins. Also at a higher level, it can be said that trading is entirely a risk management game. Trading with multiple time intervals involves both, as it first gives you the confidence to choose the options with the highest probability of winning, while at the same time keeping you from trading in vain and against the market path.

One of the important things to keep in mind is that you have to have more decision-making power and speed to trade in low timeframes (like minutes), whereas in higher timeframes you have more time to see the details. Another point is to observe the proportion between the movement in the timeframes and the matching of the expectations from the movements in each timeframe. Naturally, the price movement power in one minute time frame will be different from the daily.

Why is it necessary to use multiple time frames?

For a number of major reasons, it is necessary to use multiple time frames and review them continuously. These are some of the reasons:

Receive confirmation

We have said that successful trading is associated with increasing the success rate of trades and reducing their risk. Therefore, it is wise to assess their risk / reward ratio before entering into any transaction. In fact, the ultimate goal is the multiplicity and prevalence of average profitable trades over unprofitable trades.

One way to increase your chances of winning a trade is to confirm your trading strategy along with price movements over several different time periods. For example, if you see a buy position in the 15-minute timeframe, but in the higher timeframe a predominant downtrend is detected, the probability of winning your trade will be reduced and in return the risk will be increased. Note the following diagram on the 15-minute time frame:

In the chart above, we can clearly see the downward trend in prices. New ceilings and floors are much lower than their previous ceilings and floors. Also, the latest downward movement in prices has been accompanied by a large volume. Due to the low volume of transactions in the consolidation phase, it can be seen that the downtrend is continuing. For many traders, this is a great opportunity to enter into a sell trade (Short). But if we go to a higher time frame, such as a weekly time frame, we might change our minds.

According to the chart, we see that the price has moved in a very strong upward trend over several years. Institutions such as mutual funds, hedge funds and asset management companies are buying shares in the company every month. Given this view, are you really willing to enter into a sales deal? If you are a short-term investor, maybe, but if you are planning a long-term investment, you should not expect a price reduction given the weekly time frame. Therefore, it would be more rational and prudent to pursue buying positions in this asset at high time frames. This may seem obvious, but if we go back in time and look at our trading history, have we confirmed price movements over several different time periods? If not, go back to some of your failed trades and see if you have struggled with the trend.

Get a different view

Sometimes the trader is so engrossed in one time frame and its fluctuations that he forgets what the chart will look like in another time frame. So he may stare at the 5-minute chart all the time and not notice that the trend is reversing over a larger period of time.

What appears to be an uptrend in a time-chart may be a continuation of a long-term downtrend in the daily timeframe.

Sometimes looking at multiple time frames will completely change the trader’s bias towards one of them. The trader may be looking for a starting point for a buy trade, but looking at a different time frame will lead him to the sell position.

Opportunity to trade

You may have heard of the Pareto Principle, the 80/20 Act, or the Vital Minorities Act. This interesting law is a universal principle and generally states that “80% of the effects of anything come from only 20% of the causes of that work.” For example, in marketing according to this principle, it can be said that only 20% of your customers make 80% of your profit.

The Pareto principle can also be invoked in transactions. Approximately 80% of profits come from 20% of transactions. If we look at the state of our trades over the course of a year, we find that what determines our main gains or losses are the few significant trades we have made over the course of a year. Identifying these important trades, which are actually 20% of trades, can be crucial for the trader. This is a subset of capital management and risk management.

Using multiple time intervals is a great way to identify winning 20% ​​trades. Sometimes a situation may continue for periods of, say, 1 or 5 minutes to longer intervals. Failure of a resistance in a 5-minute chart may turn into a resistance break in a one-hour chart, and eventually we will see a break in the daily chart. The longer and longer these time periods are in a chain, the higher the trading profit will naturally be, because breaking a daily level of a similar pattern at intermediate time frames (such as hourly) will be more important.

In this case, you have entered the market even earlier than the traders who start their trading process. So these trades that make the most of your annual profit will give you the opportunity to stay even longer in these trades.

Identify vital levels

You may find a level in the price chart of an asset in 5 minute timeframes that has repeatedly played a supporting role for the price. By looking at the higher timeframes, you can gauge the importance of this level and see if it is a key location or just a short-term level.

Levels of support and price resistance are formed by the frequent trading of traders at these levels. In fact, most of the time, these are large financial institutions that are accumulating or settling their positions at these levels. The difference between a support level on a 5-minute chart and a similar level on a weekly chart will be obvious.

The image below shows the price chart of an asset over a 50 minute period. At $ 177, we see a significant resistance level in the price.

According to the daily chart of the same asset, this resistance no longer seems to be a significant level.

How to use different time periods to make decisions

Let’s start with an example. You will notice the confrontation between buyers and sellers according to the price movements in the following 5-minute chart in Apple stocks.

Buyers are trying to push the price out of the channel, but the trading volume does not confirm this move. Look at the important $ 200 support, every return to this level has been accompanied by a small volume. A novice trader may enter the market in fake and invalid price breaks above $ 206 or above $ 200 support.

However, we have not seen a bigger view of the price. An important principle is the use of small time frames in the context of long-term price movements. By doing this, we enter the trades with more confidence. Even watching a one-hour time frame will give us a different perspective, see the chart below.

Fake price breaks take on a different meaning in this time frame. Although the initial shocks are being broken, the price is still building higher ceilings and floors (green and red arrows), meaning that the uptrend is still intact.

In the daily price chart, we see that Apple stock prices have been on an upward trend throughout 2019. Although this is not the strongest uptrend, the odds will not work in your favor if you enter trades that are against the trend.

What is the best time frame for a deal?

Choosing the wrong time frame is one of the reasons that new traders entering financial markets such as the digital currency market do not perform as well as they would expect. In the dream of overnight wealth, these groups start trading at small intervals such as 5 minutes and finally give up after consecutive breaks.

The easiest way to determine the right time frame is to understand what kind of trader you are and what your trading personality is.

For example, a trader with one-hour charts may be able to analyze and trade more easily. On the other hand, an hour interval is never a good choice for another trader. This method is very slow for him and he will probably get bored before he enters into a deal. His preference is a 10-minute chart, as he will have enough (but not too much) time to make decisions based on his strategy. Someone else may be wondering how some people trade on a one-hour chart, because they think price movements are so fast! This person trades only on daily, weekly and monthly charts.

It is normal for all new traders to try different time periods in the beginning and we need some time to find the right time period. To better understand the types of trades, in general, trades and traders can be divided into several categories:

Scalp Trader

Trading in this method takes a few seconds or minutes. Scalping is one of the most lucrative trading methods that depends on the very high skills of traders and requires a lot of time from the trader. The trader enters the market with a large volume at one point and leaves the market quickly and in a matter of minutes. In addition to the high profitability of this method, the risk will naturally be high.

Day Trading

Entry and exit of this type of transaction is done during one or more trading days. A daily trader looking for a quick profit may trade more than ten times a month. This type of trader often uses hourly time frames.

Momentum Trading

In this type, the trader starts buying currencies whose prices are rising and sells them when they seem to have reached their peak. The risk of this model of transactions is early arrival and late exit from the market. This type of transaction usually takes from a few hours to a few days.

Swing Trading

This type of trading is a way to make a profit in a currency or stock in the short and medium term over a period of days to weeks. The time period considered in these transactions is from one week up. It is worth mentioning that fundamental analysis also has a special place in these transactions.

Position Trading

In this type of transaction, a person buys an asset for a long time (months or even years). Traders ignore short-term price movements in order to benefit in the long run. Weekly and monthly timeframes are suitable for this type of transaction.

HODL

HODL means buying and not selling a digital currency (asset). The above is often focused on technical analysis or a combination of fundamental and technical analysis. This method relies more on fundamental analysis.

In general, if you are looking for a quick trade in the day, you can look at the 5-minute charts (M5). This method is the same as the scalp method. If you are planning to enter into a trade and save it for a few days, it is better to refer to 15-minute, 30-minute and one-hour time frames. Higher time frames such as four-hour or one-day and weekly will be useful for longer investments.

So before you take any action in the market, make sure you know what you want to do first, what strategies you have chosen, how much risk you are willing to take, and how long you will stay in a trade.

Elder Climate Time Period Analysis Strategy

Alexander Elder Trading Strategy, also known as the Elder Tracking Strategy, is a combination of several indicators (or oscillators) with trend-tracking tools and three different time frames to optimize trades. In fact, this system is an answer to the problem of the usability of a number of indicators in certain market conditions. For example, trending indicators perform only well in trends and produce false signals in the neutral market (range or side), or oscillators are more responsive in the neutral market. This is why identifying the different phases of the market is so important.

As the name implies, three views will be applied to each transaction. These three views used in Alexander Elder ‘s strategy can be summarized as follows:

• The first view is used to create a macro trading perspective and identify the main trend.
• In the second view, indicators are used to identify price corrections against the main trend. In this view, the trader identifies price patterns.
• The third view is used to schedule the entry of trades using short breaks in the direction of the main trading process. This view is generally used to find entry and exit points for transactions (entry and exit trigger).

(Alexander Elder)
The rules of trading with the Alexander Elder strategy are based on time frame analysis of multiple frames. The first Time Frame starts with a higher degree and then in the next steps, we enter the smaller time frames.

In the following, we will examine the main features and rules required for this strategy.

According to the rules of Dr. Alexander Elder, the first view starts with a longer time interval than when you want to trade. For example, if your preferred time frame is a daily chart, the analysis begins by looking at a higher time frame, such as a weekly chart. At this time frame, according to the following indicators, the main price trend is identified. If this is an uptrend, the trader will be looking for signals to enter into buy trades. Conversely, if this is a downtrend, we are looking for sell signals. By going through these steps, trades that are contrary to the main process will be discarded.

For example, if the price trend in the weekly timeframe is upward, in the second timeframe, the daily timeframe, we will use oscillators or other tools to seek corrections and price declines to enter into buy trades. In other words, we have to look for pullbacks, or, as Alder puts it, “waves.” Finding these points will help the trader to identify the best time to enter the trade.

(Alexander Elder)
In Al-Dar trading system, the third view is used in order to better schedule the entry and exit of transactions. So, in the example above, the third Time Frame will be four hours. When the trend in the third view is in the same direction as the trend in the first view, this will be an optimal opportunity to enter trades. With Stop Loss floating, you can use short-term price breaks in the trading process to reduce risk and optimize trades.

The Elder strategy also uses a technique to balance the information received from different time intervals. In this technique, a coefficient between 4 to 6 is used to classify and arrange time intervals. This coefficient helps the trader to divide the chart into smaller units and find the desired three-time frame. The method will be to first select the larger view (first time frame) and by dividing it by coefficients of 4, 5 or 6, two more time frames will be obtained.

For example, if your first timeframe is a daily chart, the second timeframe is divided by 6, which will be a 4-hour chart. Now to find the third time frame, we have to repeat this one more time. So the next time frame will be approximately 45 minutes, which we select for one hour for convenience. Note that if the exact time interval is not reached after shredding the timeframes, we use the nearest timeframe as a general rule. The table below shows a set of these Time Frames.

Time view of transactions	First time frame	Second time frame	Third time frame
long time	Weekly	Daily	Four hours
midterm	Daily	Four hours	One hour
short term	Four hours	One hour	15 minutes

last word

In this article, we discuss the importance of market analysis over several time periods. Even so, owning one is still beyond the reach of the average person. In summary:

• Compare and confirm price positions and movements in the short term with long-term intervals.
• Do not limit yourself to just one time period, this will limit your forecast of the future price.
• Use several time intervals to check long-term support and resistance levels. Awareness of these levels can help you identify the amount of input volume when the price moves near short-term critical levels.

What is time frame in technical analysis?