How to choose the right time units for successful trading?

Have you ever been disappointed because you were caught off guard by a market movement when a promising trading signal appeared on your chart? The reason for this disappointing scenario could very well be the neglect of time units in trading. Asset prices develop differently depending on the time units used. A bullish trend on a 4-hour time unit may turn out to be a range or even a bearish trend on a daily time unit. So the question is which time unit to favour. It is important to look at asset prices from several different time perspectives.

What is a time unit in trading?

Time units in trading are different time intervals used to analyse financial data in the markets. They are essential for understanding asset price fluctuations and developing effective trading strategies. Each candle or bar on a chart represents a certain period of time (an hour, a day or even a minute).

Each unit of time has different characteristics that can affect traders' perception of the market. For example, long-term charts (daily or weekly) give an idea of price movements over a long period of time. This helps to identify major market trends, important support and resistance levels, and potential pivot points. Short-term charts, such as intraday (minute or hourly) charts, provide more detailed information about short-term price movements. These charts can be useful if you want to enter and exit positions quickly and take advantage of rapid market movements.

How to choose the right units of time?

The unit of time not only allows you to analyse price movements over a period of time, but also serves as a reference point for determining the frequency of your trades. If the unit of time used for analysis is large (month, week or day), trading will take the form of long-term investing, known as swing trading. On the other hand, if shorter time units such as m1, m5 or m15 are used, the holding period will be shorter, which is closer to very short-term trading, otherwise known as scalping. There is no perfect time unit for trading. It all depends on your trading style and how much time you can devote to it. The best time unit is the one that suits your strategy and where you can perform the best.

Time units for medium and long term trading

Swing trading is a particularly flexible and versatile trading style. It allows you to hold positions for hours, days or months. The aim is to identify recurring trends (patterns) in order to anticipate price movements. To make trading stress-free, choose larger time units. The larger the time unit, the less you will have to constantly monitor the market. This approach is also useful for those who are new to technical analysis. 

Deciphering charts can be time-consuming at first. By choosing a larger time frame, you get the time you need to observe the market and place orders. This will give you an idea of the trends in the market or in the financial instrument you want to trade. Once you spot a familiar pattern and decide that you understand the likely direction of price movement, you can move to a smaller time frame to refine your entry point.

Time units for short-term trading

Intraday trading, also known as day trading, takes place over the course of a single day, as the name suggests. All positions are closed in the evening of the same day. This approach requires in-depth technical analysis of the markets in order to make trades in a timely manner. This means taking the time to observe the charts. Time units of one hour (H1) and fifteen minutes (m15) are convenient for analysing trends and identifying changes in direction in the markets.

Time units for very short-term trading

Scalping aims to capitalise on small market movements. Positions with this approach last only a few minutes or even seconds, no more. Therefore, time units ranging from a few seconds to a maximum of 5 minutes are used for scalping charts. You can also choose charts based not on time, but on the number of trades (ticks).

By carefully studying the charts, you can follow the market price fluctuations in real time and choose entry and exit points for your trades. The advantage of scalping is that it can be practised for a limited period of time. You get in and out quickly. However, as a rule of thumb, the smaller the unit of time, the more information you get at the same time. And this excess information can lead you to take positions on false signals. This is why scalping requires extreme concentration and serious preparation.

Method of three units of time

The three time unit method is a method that involves examining a financial asset on three different time scales before making a trading decision. By using the three time unit method, you will get an overview of the market on different time scales. This will help you better understand the underlying trends and make a better trading decision. For example, if all three timeframes show bullish trends, this can be a strong signal to enter a buy position. On the other hand, if the trends are bearish on all timeframes, this may say that it is better to avoid long positions and look for selling opportunities if the signal allows. Depending on your trading profile, your three time units will not be the same.

Conclusion

Choosing time scales wisely is a key skill for a successful trader. Ignoring time unit analysis can lead to losses and missed opportunities. For the best strategy, use high time scales to analyse trends and low time scales for optimal entry and exit points. Regular practice and training will help you adapt to the market and develop your skills. Go for it!