While charts carry historical data for many years back, with past quotes becoming less significant over time, it’s natural to limit your analysis to one (often, more than one) timeframe, which provides enough information to perform a trade.
Defining your main timeframe gives you the perfect grounding for identifying the trend and market reversals, and for refining your trade’s entry and exit points with graphical tools and indicators. Choosing the right timeframe is therefore essential for any good technical analysis, which should capture as much relevant data as possible while minimizing false signals.
There’s a variety of timeframes to choose from, starting from a couple of minutes end extending to years, but there are steps you can take to narrow your options. Reading this article, which compares the pros and cons of different timeframes, is a good start.
Make a choice based on your trading preferences
While looking through various instruments on IQ Option platform, you will observe that some of them have a different selection of timeframes to others. The reason is simple. Assets with lower volatility, such as Commodities and ETF’s, are generally traded on longer terms and their timeframe shall be chosen accordingly. Options, on the other hand, are well suited for short-term trades and many traders opt for smaller time frames while trading these assets.
Choose the timeframe that suits your trading style, taking into consideration the following aspects. The larger the scale, the more reliable are the signals observed and the fewer of them will be observed. Conversely, on a smaller scale, you will have more incentives to open and close the trade, often driven by market noise (random price movements that are not reflective of overall market sentiment). Settle for the timeframe that would optimize the quantity and accuracy of the signals based on your personal preferences and trading experience.
Since smaller timeframes are tended to provide market noise, they can be confusing to rely on when it comes to finding entry and exit points for your trade. It’s all too easy to misunderstand the signal and fail to distinguish an actual market reversal from a random price movement. It’s imperative, therefore, that beginner traders settle for bigger timeframes. If you trade on FX Options, for example – try to start from 3 hours and above and ensure you are comfortable trading on larger scales before you move on to smaller ones.
Use multiple timeframes for a bigger picture
Defining your main timeframe plays a big part, but it may seem reasonable to look at the chart from different perspectives before you invest. Adding one or several additional timeframes for the same asset may be just what you need in your analysis to make an informed decision, as you’ll benefit from having a bigger picture and confirming your signals.
It is common to complement the main timeframe with the one above it and the one below it. The bigger scale will show you the primary trend, as well as primary support and resistance levels. It’s particularly useful, as these levels will be dominant to the ones of smaller scales’ when tested by the price chart. On the other hand, the smaller scale will provide you with more detailed information showing additional signals to confirm the ones obtained from your main timeframe.