Time Frame Analysis – Understand Time Frame Analysis From Umesh Sharma

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Time Frame Analysis

What is a Time Frame in Chart Analysis & How can we use it? 

Financial instruments such are shares, bonds, debentures, ETFs and a lot more are traded every day in the stock market. Before a trader puts their hands on any financial instruments, they tend to analyse them using certain parameters and then form strategies. 

To analyse any instrument, usually, 2 approaches are used. Fundamental Analysis and Technical Analysis

Fundamental analysis involves analysing the basic and intrinsic value of the asset. For example, the fundamental analysis of Infosys shares involves analysing the financial soundness of the company by looking into its financial statements like Balance Sheet, income statement and cash flow statement. Using fundamental analysis, Investors and traders determine all the economic and financial parameters and predict the future of the share price.

While Technical Analysis is completely on the opposite end. Here, ‘history repeats itself is the approach being followed. Investors and traders look at the statistical trends of the security to predict its future.

The heart and soul of Technical Analysis lie in the Candle Stick chart. The price movements of every financial instrument over a period of time can be represented through a candlestick chart.

This is where the Time Frame Analysis comes into play. One must understand the time frame in stock market analysis to build new strategies and up their game in technical analysis of any security. For now, we will talk about using time frame technical analysis in Equities. 

The time duration one candlestick represents on a chart is called a time frame. The candlestick shows the opening and closing price and the candle wick indicated the high and low price during the chosen time window. 

You can change the time frame one candle will represent. The longer the timeframe, the more zoomed out would be the candlestick chart look. You can make candles of 1 month, 1 week, 1 day, 4 hours, 1 hour, 30 minutes and so on up to even a minute. The formation of candles varies in different time frames because they indicate different opening and closing prices. The major time frames for swing trading are 1 month, 1 week, 1 day, 1 hour, 30 minutes, 15 minutes and 5 minutes.

The 4 hours’ time frame is not of much use to equity traders but can be useful for forex or commodity trading. This is because the share market operates for only 6 hours a day but commodities or forex market is open for 24 hours.

You may use the monthly timeframe to check the overall trend of the stock and if you wish to take a long position in the market let’s say for 1 year. But if you are doing intraday trading, then the monthly candles may prove to be useless. The stocks could be in a bull run for months but that won’t guarantee the increase in share price the following day. The stock may face a little fall tomorrow, who knows? Weekly candles are the time frame for swing trading where you need to take a longer position in the stock let’s say for 2-3 months.

The daily candles, that is the 1day time frame is most crucial for short term traders. For intraday traders, they fulfil one purpose, to explain the market structure and the formation of the most recent candle. The position of the stock the previous day helps to predict the next possible pattern.

Then moving to 1hour time frame to check the levels. The 5-minute time frame is used by most short-term traders who are keen to keep a hawk’s eye on the movements of stock prices and take the position for a very short time.

At last, the investor has to use multiple time frames to analyse the market and predict the price of the share. 

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