What is Time Frame?
Stock markets are open on all working days and trade for few hours. For example in India trading time is from 9.15 AM to 3.30 PM. During this time each stock is traded (that is either bought or sold). Action takes place every second (in liquid stocks or major stocks like HDFC, SBI, Reliance etc).
Each trade action can be displayed in Graphs. So one can see price action at different period of interval. For example below time intervals are present in most trading software
- Price action per minute (Minute Chart)
- Price action per 5 minute (5 minute chart)
- Price action per 10 minute (10 minute chart)
- Price action per 15 minute (15 minute chart)
- Price action per 30 minute (30 minute chart)
- Price action per 1 hour (Hourly Chart)
- Price action per Day (Daily Chart)
- Price action per Week (Weekly Chart)
- Price action per Month (Monthly Chart)
The price action interval of which you want to see the chart is called Time Frame. For example if you want to see price action per day then it is called Daily Chart or Daily time frame.
Now price action of each period has its own significance. In this article we will discuss each time frame importance and which one to consider while making a trade or investment decision.
Time Frame Tips
There are some rules which one should keep in mind while using different time frame charts. These facts are core to any analysis you perform based on these charts.
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Trend Determination
Higher Time frame is more important in underlying trend determination. A stock or Index can be in negative trend in short term but may be in positive trend in long term. This is very realistic scenario.
The longer trend will prevail in long run. The long term trend will continue ending the short term negative trend. This is the way market works
To know the long term trend one may use Monthly Chart or Weekly Chart. The short term trend is determined using Daily or Hourly or any other small time frame charts.
Long Term and Short Term are Relative
Above I shared different popular time frames one can see the price action of any Index or Stock. Now which time frame can be termed as long term and which can be termed as short term. Often this is the question people ask shall we use long term price chart or short term price chart?
Daily chart is taken as standard chart. Anything beyond that is long term time frame and anything lower than that is short term time frame. Having said that daily chart can act as long term chart for person viewing the hourly or minute time frame chart.
So the time frame with which you are comparing helps in determination of long term and short term.
Which Time Frame to use for Intraday Trading?
This is most important Question asked by Trader. Intraday Trading means one is buying and selling on same day or at max the next day. The answer varies upon trading strategy one follows but typically for Intraday trading
- One can use Daily Chart to determine long term trend of Stock or Index.
- One can use any time frame lower than daily time frame for short term trades
- I personally do not advice using too short term time frame like below 15 minutes but many traders have used in successfully. But anything below 15 minutes requires quick action from your side so is not advisable to start with.
Which Time Frame to use for Swing Trading?
Swing Trading is different from Intraday trading. Here buying and selling may have difference of one week or more than one week. It may be slightly more or less than that as well.
In Swing Trading Traders try to make profit by taking advantage of movement against the long term trend of the Stock. Here the time frame will be mostly daily chart.
- One should use Weekly Chart for Long term trend determination
- One should use Daily Chart for Short term trend determination
- Trade is taken if Daily Chart trend is not inline with Weekly chart trend.
Which Time Frame to use for Investment?
Investment is long duration trades. There is no hard rule that you have to sell within a year or month or week. Personally I have many stock holding which are more than one year or even older than that (few are more than 3 years or more).
So investment is not something time defined. If you want to make investment decisions then you need to consult the Fundamentals of the Company.
The entry and exit points can be determined by technical analysis. For this you should take Monthly and Weekly chart into account.
- Fundamental Analysis of Company is more important
- Exit and Entry decisions should use Fundamental Analysis as well
- From Technical point of view Monthly and Weekly chart can be consulted for Entry and Exit point determination along with Fundamental Analysis.
My Opinion – Time Frames
I personally prefer Daily time frame for my Intraday trades. This has became a habit for me. I do not like very short term time frame as it gives false signals very often.
Daily charts also help me plan my trade better and one day before actual trading days.I generally analyze the chart during trade time and enter or exit trades based on my analysis.
I have better success rate with Daily chart and planning ahead of trade. I look at daily chart and then decide of my trade instead of looking at short term chart. Sometimes I carry forward my position to one additional day depending on time of my trade and position profit or less.
This is personal choice and one should use different time frames to decide his or her trading strategy. I have only used 1 time frame chart as it is easy and much better for me. It is working for me and analysis is easier for me.
Many use multiple time charts as suggested above for their trade setup which is working for them. So one should try different ways and stick to the one which works for them.