In strat trading, understanding timeframes is crucial to finding profitable trades. A timeframe is the duration during which trading takes place in a financial asset, such as Daily, weekly, and hourly timeframes.
The hourly chart will show the trading activity within 60 minutes using candlesticks.
Based on the time duration, timeframes are categorized into two types:
- lower timeframes
- higher timeframes
Both types of timeframes have pros and cons. However, I will discuss the importance of higher timeframes, such as daily, weekly, and monthly, so we can use these timeframes to gain an edge in trading.
I will explain the higher timeframes in full detail, so read the full article without skipping any step.
What are higher timeframes?
Higher timeframes, such as daily, weekly, and monthly, show trading activity over longer periods in the form of candlesticks. For example, a daily timeframe will include daily candlesticks showing the trading activity throughout the day. Each daily candlestick represents the market’s opening, closing, and high and low prices over the whole day. In the same way, the weekly timeframe shows weekly candlesticks, and each candlestick represents the trading activity for the entire week.
We can predict the trend for a longer duration by analyzing the higher timeframes.
I hope the term “higher timeframe” is clear. Now, let me explain why we should use higher timeframes to gain an edge in trading and make profitable trades.
Importance of higher timeframes
Higher timeframes provide many benefits in trading that we can use to trade accurately in lower timeframes.
01. Longterm trend
Higher timeframes, like the daily timeframe, provide an accurate and long-term market trend. They show the direction of market makers, which we cannot see clearly on the lower timeframes.
For example, if the daily timeframe trend is bullish, then we should always open buy orders on lower timeframes. You should apply strategies on lower timeframes and then only open buy trades. Then, you will get a high winning ratio and high risk-reward trades.
02. Less market noise
The higher timeframe charts are mostly clear. You can find the trend just by analyzing the highs and lows of candlesticks—it’s easy. We can also determine the sideways market by analyzing the inside or outside bars on higher timeframes.
But on lower timeframes, due to market noise and false breakouts, it’s much more difficult to spot a clear trend or market direction. That’s why we can use a higher timeframe to determine the trend and then trade in that direction on lower timeframes.
03. Strong key levels
The key levels formed in the daily or weekly timeframes act as strong key levels in lower timeframes. For example, it will be very difficult for you to find a key resistance or support level in the 5-minute timeframe because you will see many key levels forming on the chart. However, when you open the daily or weekly chart, you’ll see a few and only strong key levels.
04. Timeframe alignment
Timeframe alignment means aligning with the higher timeframes’ trends. For example, if the Daily, weekly, and monthly timeframes have a bullish trend, then the winning probability of a bullish trade on lower timeframes like hourly will be much higher.
I will explain this topic in detail in the upcoming posts because it is a building block of the strat pattern strategy.
05. Better decision making
Higher timeframes also allow you to make better decisions. You will find enough time to think, and there will be no short-term price moves. Price will move slowly on higher timeframes, making it easy to analyze the market with peace of mind.
However, in short timeframes or during scalping trading, you cannot make better decisions due to short time and many false breakouts.
Analyze the image below
The bottom line
The conclusion is that you should always add a confluence of higher timeframes in trading. It is obvious that we cannot trade on a weekly timeframe because we are intraday traders. However, adding a confluence of higher timeframes will filter the market noise and help you trade only high-probability trade setups.
I highly recommend that traders backtest using the replay feature in trading view and then analyze both higher timeframes and their effect on lower timeframes.
If you have any questions regarding timeframes, you can ask in the comments below.
Boss please is possible to use 4h &1h and 30m to trade and how to go about it please 🙏🏿