Candlestick charts and its timeframes

Unlike the Noiseless charts, which are free from the influence of time, Candlestick charts have an element of time in them. This allows the trader to analyze the chart over certain timeframes.

Selecting the best timeframe to use for trading is dependent on 3 subjective things:

1. The trading style of the trader: Whether the trader is a scalper, intraday trader or a swing trader etc.

2. Personality type and risk tolerance of the trader: Whether the trader has high/low risk tolerance and can be in the trade for a short time or a long time.

3. The amount of time the trader can spend in front of the screen: Some trading styles require constant monitoring, and some don’t require much.

It is recommended that the trader first spend some time answering the above 3 factors before selecting the timeframe to use.

5 Types of Timeframes on Candlestick charts

Timeframes on the candlestick charts can be categorized in 5 types:

1. Scalping TF

2. Intraday TF

3. Swing TF

4. Positional TF

5. Investing TF

Observe that each of the timeframe is based on a unique trading style.

Scalping

Scalping involves entering and exiting a trade within a span of few seconds or minutes. It has a very short holding period. This is best suitable for someone who can spend all their time observing the charts when the trading hours are active. The trader with this trading style usually doesn’t care about the price action of the whole day. The trader only care about the price action of the next few minutes. The trader prefer small move with large quantity and precise entry & exit.

The ideal Timeframe for this trading style is 1 minute TF or 3 minute TF.

The chart on this timeframe plots a candle every 1 min or 3 min respectively.

Intraday

Intraday has a longer holding period than scalping. The position is taken based on the view of the entire day. the trader is concerned with the price action of the whole day. The trader performs all the analysis a day before and forms a view about the markets/ instrument. The entry is usually at the start of the day and exit is usually before 3 PM.

The ideal Timeframe for this trading style is 5 min TF and 15 min TF.

The trend analysis is done on 15 min TF charts and the entry and exit is based of the 5 min TF.

Swing

A swing is referred to the price action from one bottom to the next top or from one top to the next bottom. i.e from one impulse move to its corrective move. The holding period is usually for a few days or few weeks.

The ideal Timeframe for this trading style is 2 hour/ 75 min TF and Daily TF.

The analysis is done on the Daily TF chart and the entry & exit is done on the 2 hour or 75 min chart.

Positional

Multiple swings make a positional trade. This means that the holding period is usually for a month or a few months. This trading style is great for someone who cannot spend much time in front of the screens.

The ideal Timeframe for this style is Weekly TF and Daily TF

Weekly TF is used for trend analysis and plotting support and resistance levels. Daily TF is used for entry and exit.

Investment

Investment has the highest holding period. Investment refers to holding the position over many positional move. This can mean holding the position for a few years.

The ideal Timeframe for Investment is Monthly TF and Weekly TF

Analysis is done on Monthly timeframe and the entry and exit is done on Weekly TF.

The level of risk tolerance differs with the trading style. Lower the timeframe, more the risk as the volatility is high. With this logic, Scalping requires more accuracy, precision and higher risk tolerance. It is wise to start from Investing and slowly reduce the timeframe.

I have further discussed this concept in my video