Time Frames

What are Time Frames?

In order to consistently make money in the markets, traders need to learn how to identify an underlying trend and trade around it accordingly. The two primary variables for technical analysts are the time frames considered and the particular technical indicators that a trader chooses to utilize. A time frame refers to the amount of time that a trend lasts for in a market, which can be identified and used by traders. Time frames shown on charts range from one-minute tick charts, to monthly, quarterly, or even yearly, time spans. The most common time frames that technical analysts most frequently use include:

  • 1-Hour (1H)
  • 4-Hour (4H)
  • 1-Day (1D)
  • 1-Week (1W)

The time frame an investor or technical analyst selects to use to make informed trading decisions is generally determined by that individual trader’s personality and trading style. Day traders, traders who open and close positions within a single trading day, tend to favor analyzing price movements on charts with smaller time frames, such as but not limited to: 5-minute (5m), 15-minute (15m), and 1-hour (1H). Long-term traders and investors who hold market positions for a significant period of time are more inclined to analyze the market using higher time frames, such as: 4-hour (4H), daily (1D), weekly (1W), and the monthly chart (1M).

Price movements that occur within a 15-minute time period may be very significant for a day trader who is looking for an opportunity to realize a profit from fluctuations in the market due to news during one trading day. However, that same price movement viewed on a daily or weekly time frame from an accredited investor will not mean anything even in the slightest, as said investor will continue holding their position and go about with their day as if nothing happened. In this next section, we’re going to take a look at Bitcoin on 4 different time frames and analyze the different information all of them have to offer. 

Looking at the BTC (Bitcoin) chart on the Gemini Exchange on different time frames we can get a better grasp on where the price of Bitcoin is heading in the short-term and long-term. Pictured in this example are the 1-hour (top left), 4-hour (top right), daily (bottom left), and weekly (bottom right). For this example, I am going to be viewing these in a specific order. We’re going to breakdown this Bitcoin chart using a top-down analysis, going from the highest time frame to the lowest time frame. There are many advantages to using a top-down analysis, as you can get a full grasp of the longer term view of the market, with all of the minuscule fluctuations in the full matrix of the bigger chart. 

Starting off with the 1W time frame, located in the bottom right corner, it is evident that Bitcoin has had a very nice previous year with 17 consecutive green (my chart painted yellow) candles. From here, it only makes sense that Bitcoin is slightly selling off a bit for the previous 2 weeks, as many investors are realizing their massive gains. With this in mind, let’s zoom into the daily time frame. Looking at the 1D time frame of Bitcoin now, located in the bottom left corner, we can breakdown this most recent price action in further detail. Without marking a single line on the chart, we can see that Bitcoin has somewhat of a support / accumulation area around the $34,000 level, as there are multiple hammer candles holding the line there. Now after looking at this chart and the weekly, we identified that this downwards selling pressure isn’t a bear market, but rather just a short-term correction as investors are realizing gains. Zooming in even deeper to the 4-hour time frame (4H), we can’t really gather too much information on the long term view of the market, but can identify where the market is heading the short-term. At the moment, Bitcoin seems to be a falling knife on the 4-hour with support placed just underneath the $32,000 level. Lastly, looking at the 1-hour time frame, we can verify the falling knife that was identified on the 4-hour is valid. After analyzing Bitcoin on all 4 different time frames pictured, it is evident that in the short-term Bitcoin is a falling knife, while in the longer-term it seems to be itching for another leg upwards.

How to Trade on Multiple Time Frames

Advanced traders always do a top-down analysis and look at multiple time frames in order to get a good grasp of the market. A top-down analysis is where you start your technical analysis from the biggest time frame possible, whether it be monthly, quarterly, yearly, or per decade. From the initial biggest time frame, traders start to go to in order laddering down to the smallest time frame before entering their position. A trader that starts the top-down analysis on the monthly would then go to the weekly, daily, 12-hour, 4-hour, 2-hour, 1-hour, 30-minute, 15-minute, and 5-minute before making the day trade. Refer to the example listed above, where I analyze Bitcoin from a top-down standpoint on 4 different time frames. 

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