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1 What is the Best Time Frame to Trade? on 30th September 2013, 4:06 pm


f the answer were a particular time frame, the whole world would probably trade accordingly.
To begin with, it must be clear that although observed through different time scales the price series is the same, and going to lower time frames is like zooming our perspective of the price action.
For the purposes of orientation and interpretation, the choice of a distant or close vision responds to very similar criteria to those we use in our day-to-day lives: if you walk down the street looking to the ground, it's easy we run into a lamppost, while if we only look on the horizon we can stumble upon anything on the floor. It is clear that we must keep a global overview while observing the detail at the same time.
In trading, as in other professions, there is a time scale we use to analyze and a time scale we act upon. The later corresponds to the distance that helps us work better. A computer programmer has a shorter distance in his work place than a taxi driver who has a larger visual field. Also traders make a predominant use of a certain distance to price action accordingly to their trading style.
Depending on their goals traders will act in a certain time scale and this will be their time frame to trade. They may detect trading opportunities in a large time frame, and effectively trade in a shorter time frame where they better manage the risk of position. Obviously, there should be a reasonable relationship between the two time frames, between the potential area to capitalize on the bigger chart and the terrain used to trade on the smaller chart. Analyzing the bigger picture on the daily and execute the trades on the 5 minute is probably  too big of a distance.
Determining how far you need to zoom in the charts depends on your trading approach. You can start answering yourself some questions:
- How do I adapt to a 24 hour market?
- Am I available (or do I need) to pay attention to the market at peak hours?
- Does my strategy requires to pick exact entry points or are entries not so price sensitive?
- Does my strategy requires me to be in front of the charts for long periods?
Therefore, the time frame you choose to work with should reflect the trading concept you're looking for. It should not be too large, to avoid losing too many opportunities, nor too short because of the higher whipsaws within small time frames. The smaller the time scale is, the more random behavior price action shows. Besides, it's easy to lose track of what is happening if you do not keep an eye on large charts.
There are many traders who indeed use very small time frames, but what most of them do is to use small charts to define entry and exit points to manage the positions, while the opportunities have been spotted in larger time frames. Except in some cases, the majority of the so-called 'scalpers' do not exclusively rely on small time frames.
Ultimately, what is intended by combining large and small charts, is to reduce the impact of randomness and improve the trading edges. It cannot be emphasized enough that trading without an edge is the same as throwing a coin to decide in which direction to trade.

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