Using different time frames provides a number of advantages that can make your trading easier and more profitable. Let’s look at each of them individually:
Advantage 1: Time frames help you find trading opportunities in any market
Sometimes, the market is moving sideways. Upwards and downwards movements alternate randomly, and there is nothing that could help you predict whether prices will rise or fall in the future. Without using different time frames, such sideways movements would leave you without a trading opportunity.
Similarly, there are markets in which trading volume is too low to allow quality predictions, and there are markets in which it is impossible to find trends. These markets would leave you without trading opportunities, too.
A trader that understands time frames, however, can zoom in or out on the market and find environments that offer plenty of trading opportunities. What looks like a boring sideways movement on a one-hour time frame is likely to turn into a number of small upwards and downwards trends when you zoom in on the movement, for example by moving to a 5-minute time frame.
Each of these trends provides you with the possibility to trade the trend as a whole and the possibility to trade each swing individually. On the whole, most traders will get at least four or five trades of a movement that looked untradeable on the longer time frame – not a bad deal.
Similarly, random short-term movements often turn into parts of bigger movements once you zoom out on them.
Switching the time frame helps you to look at the same market from a different perspective. With so many time frames available, there is always one-time frame that offers you the right perspective to find a trading opportunity in any market environment.
Advantage 2: Time frames help you find more trading opportunities
Being able to look at the same market from different perspectives can help you to find more trading possibilities than if you would look at the market from only one perspective.
Even if the market offers you a trading opportunity on your current time frame, there is no reason why you should not zoom in or out once you have invested in this opportunity. By varying your time frame constantly, you will find more trading opportunities, and you will be able to maximize your profits.
Often, these additional trading opportunities result from the opportunity you already invested in, which makes them easy to find and easy to integrate into your trading strategy. If you invested in a swing on an uptrend, for example, switching to a shorter time frame will likely display this swing as a trend in itself. Now you have more swings that you can trade with the same strategy with which that you traded the bigger swing. Switching to a longer time frame will display your current trend as part of a bigger movement, which you can trade, too.
The entire process is easy and straightforward, and it can multiply your profit while only requiring minimal extra effort and knowledge.
Advantage 3: Time frames help you adjust your trading to your personality
While different time frames follow the same basic rules of technical analysis, longer and shorter time frames have unique characteristics that make them the perfect fit for specific traders that mirror these characteristics in their personalities.
Generally, shorter time frames are more nervous and erratic than longer time frames. Consequently, they are a little more difficult to predict, especially for newcomers. Nonetheless, even experienced traders will likely win a little less of their trades than they would on longer time frames.
Shorter time frames can make up for this disadvantage, though. They allow you to find far more trading opportunities than longer time frames, which can help you to maximize your overall profit despite reducing your winning percentage. It pays more to win 70 percent of 100 trades than to win 80 percent of 20 trades.
The deciding factor for whether shorter or longer time frames will help you to make money is whether you can maintain a high enough winning percentage on shorter time frames. If so, great. The higher number of trading opportunities will help you to make more money. If not, however, you might start losing money on shorter time frames.
The key to maximizing your profits is now how much you can shorten your time frame and still make money.
To find this sweet spot, you have to adapt your trading to your personality. Shorter time frames feature more risks but provide higher rewards, which means that they are ideal for traders that like to take risks. Traders that want to keep things safe and prefer straightforward investments, on the other hand, should stick to longer time frames.
By allowing you to adapt your trading to the risk level that enables you to maximize your profits, time frames put you in the perfect position to make money and feel comfortable.
Advantage 4: Time frames help you to understand your current movement better
Even if you know that you can make the most money by trading movements on a time frame of 5 minutes, other time frames still have a lot to offer for you to help you trade better.
Assume that you have found a trend that you want to trade. Knowing this trend by itself provides you with an opportunity, but by double-checking the opportunity with other time frames, you will be able to understand the opportunity better and might learn something that will allow you to avoid an investment that was doomed to fail.
By switching from a 5-minute time frame to a 1-hour time frame, you will understand how your current trend fits into the bigger picture. If the market is nearing a resistance or support or if there is any other nearby event on a longer time frame, you should know this event and understand its consequences before you invest in the trend on a shorter time frame.
If you want to trade an uptrend, for example, switching to a longer time frame might help you to recognize a nearby resistance that will likely force the trend to turn around. You know that this would be a bad investment and can avoid a losing trade. Instead, you might be able to trade a ladder option to predict that the market will not break the resistance.
In this way, longer time frames can not only help you avoid bad trades, but they can also provide you with trading opportunities that are not yet visible in shorter time frames. By knowing that the market is moving in an upwards trend on a longer time frame, you can anticipate how this trend will affect shorter time frames and invest in this effects before they are visible. This way of trading can improve your timing, which will increase your winning percentage and enable you to get better payouts.
Finally, there are some trading opportunities that you should always search for on a longer time frame but trade on a shorter time frame. The most notable example of this trading style is the breakout. The breakout is a strong movement that occurs when an asset has completed a price formation or any other significant event of technical analysis.
If you discover a continuation pattern, the breakout will occur when the asset completes the formation and resumes the previous trend. At this moment, many traders realize that the market has resumed its original direction and that they could make money by investing in this movement, which will result in a strong but short movement in this direction.
This movement is ideal to win a binary option. The problem is this: if you find the pattern on a time frame of one hour, the breakout will nonetheless only last a minute or two. After that, everybody that waited for the market to breakout has invested in the movement, and the trend will continue at its original speed. This makes it impossible to trade the breakout from such a long time frame as one hour. Your timing would be too inaccurate, and it would be impossible to anticipate the breakout precisely.
To solve this problem, a trader that understands time frames will switch to a shorter time frame. On this time frame, they can find the trend that will take the market out of the continuation pattern, which allows the trader to time their investment accurately and invest precisely when the breakout is about to happen.
With such a spot-on timing, the trader can invest in a one touch option exactly at the right time, which helps them to keep their expiry short and their target price high. The consequence is a higher payout and a higher winning percentage, which will both result in a higher profit. This is the power of understanding time frames