How to choose the right trading time-frame for superior returns?

From an intraday trade perspective, technical analysts use 5 mins, 10 mins, 15 mins, 30 mins, or 60 mins time frame on charts

Avdhut Bagkar | Business Standard
25th February

How to choose the right trading time-frame for superior returns?

One of the most crucial aspects of trading is risk management and developing a trading model which facilitates uncertainty management. In order to do this, market participants use various tools to assess the market conditions. These tools assist traders in taking informed decisions that make trading and investments smoother and more secure.

For better understanding of the market conditions, participants set up their trading models in different time frames or have different strategies for different trading goals. These can be classified as trading for intraday, weekly or 5-7 days or 10-15 days, or for that matter, even a month. Various time frames serve a variety of purposes and have different price targets.

Intraday/day trading

From an intraday trade perspective, technical analysts use 5 mins, 10 mins, 15 mins, 30 mins, or 60 mins time frame on charts. One can club two to three time frames to reduce the trading noise and develop a trading view. There is no formal structure for the use of a specific time frame for intraday, however, one needs to see for himself/herself as to which one best suits their own trading behaviour. In this structure, the daily chart also helps provide a confirmation.

Immediate trend: trading for a weekly or 5-7 day outlook

Traders must ascertain the trade position in order to minimize the risk and develop patience for the target. Determining the holding period after entering a trade signifies a weak trading model and a possible flaw in the structure. Such a scenario may result in huge losses. To construct a proper model, analysts look at daily and weekly setup/charts to take positions for a week. If a daily chart frame signals a trend or a trigger and it is compatible over the weekly time frame, the chances of the signal turning out to be a success seems legit.

Holding a position for 15 days to a month

While aiming for big returns or a big up move, chartists look for a strong confirmation. This may include a move on intraday, daily, and weekly charts simultaneously. Besides, analysts also review the monthly charts to ascertain the broad trend. All the time frames need to provide a signal in the same direction in order to formulate a trading perspective.

Conclusion

Although, there are various aspects involved in identifying a right trade, unless one has a defined trading system, he/she cannot build a systematic trading behaviour. And in that strategic module, choosing the right time frame for varied goals plays a significant role.

(Disclaimer: The analysis has been done by a Business Standard reporter who is a certified technical analyst. The analysis does not represent the views of Kotak Securities.)

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