We discussed timeframes in this chapter. I would request you to read it once again so that you remember it.
Choosing a timeframe is probably the biggest dilemma for a new investor when looking for trading opportunities. There are several timeframes that you can choose from – 1 minute, 5 minutes, 10 minutes, 15 minutes, EOD, weekly, monthly, and yearly. It can be confusing to see so many options.
The longer the time frame, the more reliable the trading signal will be. For example, a bullish engulfing pattern would be far more reliable on a 15-minute timeframe rather than a 5 minute one. Therefore, keeping this in mind and the length of your trade, the time frame for each trade has to be chosen.
How do you determine the length of your trade?
If you are a new trader or if you are not an experienced trader, I would suggest you to avoid day trading. If you trade, think that you will hold the position for a few days. This is called ‘positional trade’ or ‘swing trading’. A swing trader usually keeps his position open for a few days. The best look-back period for a swing trader is 6 months to a year.
On the other hand, a scalper is an experienced trader; Usually, he uses timeframes of 1 minute or 5 minutes.
Once you start trading a few days properly, you can gradually move towards ‘day trading’. I believe it will take you some time. The more disciplined you are in, the less this time will be.
Lookback period
Look back period means how long you want to look at the past candles before making a trading decision. For example, a look-back period of 3 months means that you are looking at a candle for today against the background of at least the last 3 months of data. By doing this, you will be able to understand the change in the price from the last 3 months properly and take the right decision today.
What is the right look-back period for swing trading? I would suggest that a swing trader should look at at least 6 months to a year of data. Similarly, it would be better for a scalper to look at the data of the last 5 days.
While calculating the S&R level, you should increase the look-back period by at least 2 years.
Continue Reading
Gaurav Heera is a well known name in the field of stock market analysis and education. His distinguished career, which spans more than ten years, has cemented his reputation as an expert with unparalleled knowledge and innovative strategies for navigating the intricate landscape of the financial markets.
