Time frame theory

Discussion in 'Technical Analysis' started by pipdaddy, Jul 25, 2009.

  1. pipdaddy


    Hey people,

    I have heard people talk about trading in higher time frames to avoid the market "noise" or to better identify the true trend.

    I, however, have a suspicion / untested theory that all of the anomalies that appear in the shorter time frames also appear eventually in the longer time frames - from the 1 min. chart to the Daily.

    Following this logic - Any strategy that could be applied on a Daily chart could be proportionately "tweaked" to work on a 5 or 1 min. chart. Resulting in a system that would ultimately prove its success or failure faster. Therefore, it would be more advantageous to trade on a shorter time frame because a strategy that cannot withstand the test of time would prove that sooner. Similarly, a successful strategy would would reap rewards much faster...???

    Just wanted to get other traders thoughts on this topic.
  2. I agree. If you trade 10 times per year you can have a fabulous or terrible year but statistically it probably means nothing.

    If you trade shorter time frame and you make 1000 trades per year your results will most definitely show you if you can make money or not.
  3. dozu888


    this is generally correct.... shorter time frame does provide a 'faster proof' that your method is valid.

    However, human behavior is not always the same in different time frames.... to me, it does feel like longer time frame charts are easier to read... even for intraday trades, it's better to read the daily chart first and go in with a bull/bear bias, then looking for set up on the intraday basis.

    In any case... once a methodology is validated on the intraday basis, you actually don't need to trade on that time frame any more.

    You read the daily chart, put a swing trade on, it's a much more efficient way to capture those moves.
  4. Noise absolutely does lesson on higher time frame charts.
  5. Markets are highly fractal in nature. I can show you bar charts of daily, weekly, or 5 -minute data, and you couldn't tell which one is which.
  6. JScott


    I will humbly disagree. They are fractal and look near-identical I agree, but for any given security/instrument I believe you can tell the difference upon study - ie, a daily vs 3-minute chart. That's why when a lot of traders say that their setups/approach work on any timeframe, I will bet that they "think" it will, but have never proven it out. I can almost assure you that most stocks/futures have different prices action traits on different timeframes. Why? Because different people are trading the different timeframes. As long as there's a difference, then there's a difference.

    Keep trading.

  7. ER9


    i agree to a point but i think that certain time frames have more significance. for example i know traders who use fibbonacci not because they beleive it really works but because so many other people do that they can have a cummulative effect. in that regard i personally think with some instruments, (mine is ES future) that the 5 minute time frame has more significance only because so many traders use it when viewing that market. they react to what they see happening in that time frame and it possibly has a cumulative effect. iv'e never thoroughly tested this though. its only a hunch based on what iv'e wittnesed so far.
  8. do what the majority do get what the majority get. the mantra of the game of trading.
  9. dozu888


    this maybe the case.... however, the driving force of certain formation on a 5-min may be different from a similar looking formation on the daily... and therefore the the trading dynamic would be different even if the chart looks the same.

    Think of the players in the market... ask yourself, what is the easiest time frame to manipulate the chart?