Chart Timeframes
A note on time frames
A time frame is defined as the time duration during which one chooses to study a particular chart. Some of the popular time frames that technical analysts use are:
- Monthly Charts
- Weekly charts
- Daily or End of day charts
- Intraday charts – 30 Mins, 15 mins and 5 minutes
One can customize the time frame as per their requirement. For example, a high-frequency trader may want to use a 1-minute chart instead of any other time frame.
Here is a quick note on different types of time frames.
| Time Frame | Open | High | Low | Close | No of Candles |
|---|---|---|---|---|---|
| Monthly | The opening price on the first day of the month | The highest price at which the stock traded during the entire month | The lowest price at which the stock traded during the entire month | The closing price on the last day of the month | 12 candles for the entire year |
| Weekly | Monday’s Opening Price | The highest price at which the stock traded during the entire week | The lowest price at which the stock traded during the entire week | The closing price on Friday | 52 candles for the entire year |
| Daily or EOD | The opening price of the day | The highest price at which the stock traded during the day | The lowest price at which the stock traded during the entire day | The closing price of the day | One candle per day, 252 candles for the entire year |
| Intraday 30 minutes | The opening price at the beginning of the 1st minute | The highest price at which the stock traded during the 30-minute duration | The lowest price at which the stock traded during the 30-minute duration | The closing price as on the 30th minute | Approximately 12 candles per day |
| Intraday 15 minutes | The opening price at the beginning of the 1st minute | The highest price at which the stock traded during the 15-minute duration | The lowest price at which the stock traded during the 15-minute duration | The closing price as on the 15th minute | 25 candles per day |
| Intraday 5 minutes | The opening price at the beginning of the 1st minute | The highest price at which the stock traded during the 5-minute duration | The lowest price at which the stock traded during the 5-minute duration | The closing price as on the 5th minute | 75 candles per day |
As you can see from the table above, the number of candles (data points) increases when the time frame reduces. Based on the type of trader you are, you need to take a stand on the time frame you need.
The data can either be information or noise. As a trader, you need to filter information from noise. For instance, a long term investor is better off looking at weekly or monthly charts as this would provide information. While on the other hand an intraday trader executing 1 or 2 trades per day is better off looking at the end of the day (EOD) or at best 15 mins charts. Likewise, for a high-frequency trader, 1-minute charts can convey a lot of information.
So based on your stance as a trader, you need to choose a time frame. This is extremely crucial for your trading success because a successful trader looks for information and discards the noise.
Key takeaways from this chapter
- Time frames play a very crucial role in defining trading success. One has to choose this carefully.
- The number of candle increases as and when the frequency increases.
- Traders should be in a position to discard noise from relevant information