Multiple time frames for trade entry and exit: a guide

Multiple time frames for trade entry and exit: a guide

When it comes to trading, time frames are your friend. These tools are designed to let you range back over previous trading data so that you can identify trends and make informed decisions about when to enter and exit the markets.

It’s possible to look at everything from the last 15 minutes of trading to the previous year and beyond. Many traders find themselves getting hung up on the question of which time frame is best. But this misses the point: in reality, it’s sometimes best to use multiple time frames at once. This article will share some information about how to juggle multiple time frames in a way that works for you.

What is a time frame?

First off, it’s essential to look at exactly what constitutes a time frame in the trading and investment spheres. A time frame is a way of looking at past trading data to establish a trend. For example, if a 15-minute time frame is applied, it may appear that a given instrument – say the GBP/USD forex pair – is showing a bearish trend. It may also be forming a particular formation or pattern. For example, it may show an engulfing pattern, suggesting that a price drop is on the way.

The point of looking at the data in this way is that it provides evidence to inform your broader trading strategy. If you’re a day trader, for example, it’s likely that you’ll need to look out for time frames that are pressing and urgent in the here and now: a one-hour time frame, for example, is likely to be more fruitful to you than a one year one. All good brokers should offer time frames as a standard service – although it’s wise to check out Wealthify reviews and others to get a complete picture of this in advance.

Clashing trends

Start experimenting with time frames and you’ll quickly notice the potential for conflict and clashes. Take the above example of the GBP/USD pair showing a bearish trend in a 15-minute time frame. The very same pair could, if the trader “zooms out” to a longer time frame like a one-day view, be showing a bullish trend – which raises an apparent contradiction.

At first, this can throw a newbie trader off as it can be hard to contextualise the competing flows of information. How you might ask, can contradictory information be useful? The immediate answer is that it may be wise to fit the timeframes around your chosen strategy, as outlined above. If you’re hoping to hold the stock for the long term to experience capital appreciation, the one-year trend is, of course, more important than the one-day trend – and vice versa. But it’s also possible to use all this complex and potentially clashing information to get a fuller picture, no matter the strategy.

Strategic use of information

It doesn’t have to be a case of one time frame or another when you’re placing trades. Sometimes, short-term time frames can be used to make actual trading decisions – while long-term time frames can be used to influence overall strategic direction. For example, if you’re trading long term, it may be prudent to look at the longer-time frame – perhaps a month or a few months – first to work out the possible bigger picture and decide on the direction in which to trade.

But the day-by-day timeframes can still be used. Even though you’ve made your decision about whether you think the market is bullish or bearish, monitoring for the ideal entry point is still valuable. You don’t have to enter the market straight away once you’ve decided that you’re going to trade in a particular direction. Instead, you can use the shorter-term information to enter at a time that is profitable for you.

Ultimately, time frames are complex beasts in the trading world. It’s not always apparent what the best course of action is when it comes to using them – especially if the information is contradictory or unclear or if you’re not experienced in juggling more than one. However, it’s essential to make the most of these tools, even if it seems complicated on the face of it. By bringing together different time frames and using them as jumping-off points for trade entry and exit, it’s possible to increase your chances of making better and more informed trading decisions.