Timeframes are to traders what maps are to navigators. Without the right map, you are going nowhere fast. If you are driving from South Beach to West Palm Beach, you need to look at a map of Miami/Ft. Lauderdale, NOT a map of the United States. Personally (and like 99% of traders), I am blind without looking at a chart. I use technical analysis almost exclusively to make my trading decisions. If you are like me, then you spend your entire trading day looking at charts. As such, a trader needs to pick a trading timeframe that is most advantageous to their trading results.
If you are a swing trader, perhaps you use the 60 or 30 minute chart and daily/weekly for trend. If you are an investor/long term trader, then you probably use the daily chart and weekly/monthly for trend.
But if you are a day trader, there are many more options to consider. It is not an easy decision to make. A trader really needs to assess what his/her goals are each day from the market. Are you a trend follower? Do you want to make 1-2 trades a day only? Are you a scalper and comfortable making 10-20 trades a day? How much are you willing to risk on each trade? How comfortable are you holding a position for a longer period of time - i.e. how patient are you? A higher timeframe will give you a higher risk (stop level) and more reward (profit target). But you are in a trade longer than you might like. Maybe most importantly, your system may give the best results at a specific timeframe. A lot of analysis, research, trial and error, and patience are needed to find that right timeframe.
Personally, I have tried them all. 1,2, 3, 5, 10, 15 minute charts for trading and 30, 60 and daily for trends. I have even used Volume charts as well. I have to admit, that up to about a month or so ago, I have been most successful using the 15 minute chart for my trade signals. However, I felt the need to explore other options for a couple of reasons. I am married to eSignal for my trading as all my indicators are customized in the native language (EFS). But I've had a lot of issues with their data service. As most of you who read my blog and follow me on twitter may know, I am constantly frustrated with the freezing of the application during heavy volume periods. The application is not true multi-threaded and it just stops responding. This happens with time based charts and volume based charts too.
The other, and more important reason, is that with summer doldrums here, I am finding that my usually reliable system was giving more false signals than I like. Whipsaws, headfakes, false breakouts are common occurrences during low volume periods. So, I have been experimenting with Tick charts. Right now my favorite settings are a 610 and 1597 Tick charts. Below are some samples of ES from Friday June 26 - the 5 minute, 610T and 1597T charts. What I like about Tick charts, is that you are no longer constrained by periods of low volume like lunch time. The bars form as fast or as slow as the price is moving, and the chart looks 'cleaner' and more symmetrical. On the 1597 setting a bar could take 2 minutes to form or 10 minutes, depending on the action.
The setting of the chart is irrelevant - 610 and 1597 happen to be Fibonacci numbers. It could be 100 or 5000 - it really does not matter. What matters is what you as a trader feel most comfortable with. The bottom line, is that you have to find the timeframe that works best for you. If 5, 3 or 1 minute charts work, then stick with it.
The best news for me is that my eSignal application problems have disappeared with tick charts. Don't know why, and I don't care to know why. That's just fine by me.
Good luck with your trading.
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