What is Time Frame in Trading? Trading Strategies

These time frames can be hourly, daily, weekly, monthly or yearly, and are necessary to identify the trends and develop trading strategies, including an effective time trading strategy.
For instance, below are the general timeframes that various types of traders rely upon:
Intraday: 15 min/30 min
Swing trader: 2 hour/1 day
Position trader: 1 day/1 week
However, is it possible that you can use multiple time frames to improve your chances of success? The answer is yes.
The multi-time frame trading strategy uses two different charts of different durations of the same stock. These durations depend on the duration of the trade.
Using this time trading strategy, traders use long-term price charts to identify trades on short-term time charts.

How does a Multi Time Frame Trading Strategy Work?

An intraday trader may track the 2-hour time frame and the 15-minute time frame price charts. Similarly, a swing trader can look at a 3-hour chart along with a daily chart.
Here, it is essential to judge what a stock is saying in the longer time frame and shorter time frame. This means determining the trend that the stock price chart depicts in the longer and shorter time frame.
Traders can use signals from this chart to do the following things:

• Confirm reversal if trend on longer-term time starts following trend on shorter-term
• Refute reversal and/or confirm continuation if longer-term trend does not follow shorter-term trend.

This approach is central to a robust time trading strategy.

Example.

Here’s the Nifty daily chart from May 2021 through to October 2021 when the market was in an uptrend.

The uptrend in the above example is confirmed by the Supertrend as well as the RSI staying above 50. Traders can use their own signal such as moving averages, MACD or even chart patterns.
However, as you can see in your below 2-hour chart from the same timeframe, the Supertrend confirmed short-term downtrends multiple times during the same period, highlighting the importance of a proper time trading strategy.

Things to Consider While Using Time frame Based Trading Strategies

So what happens when the trends shown in both the charts, i.e., long duration chart and short duration charts, are different? As in our example, if the longer time frame is giving a buy signal while the chart in the shorter time frame is showing a sell signal, what should you do?

In such a case, remember the following points:

1. For a swing trader, short term sell signal combined with a long-term buy signal can be a handy buy-on-dips market when using a good time trading strategy.
2. Conversely, a long-term sell signal combined with a short-term sell signal means you are in a sell-on-rise market.
3. A confirmation that the longer-term trend has changed will be confirmed when it starts following the short-term trend, as we can see towards the end of the chart in the above example.

In conclusion, understanding and utilising different time frames in trading is useful for identifying trends and developing effective trading strategies. By using a multi-time frame trading strategy, traders can Potentially improve their chances of success by analysing both long-term and short-term price movements.