Selecting a Time Horizon for Trading

Photo by Jorge Franco on Unsplash.com

Whenever I try to select a time period for automated trading analysis or I try to plot a chart, I always struggle selecting an appropriate time horizon, a range between a start period and an end period and the right time interval for the task at hand. That’s why my carts always look like crap, in case you wondered.

Do I select 100 time periods, 500 or 2,000? Do I select 1 minute data, 5-minutes or 15-minutes? So I did a bit of research and gained a bit more clarity, so I wanted to share my insights.

This story is solely for general information purposes, and should not be relied upon for trading recommendations or financial advice. Source code and information is provided for educational purposes only, and should not be relied upon to make an investment decision. Please review my full cautionary guidance before continuing.

Moving between Time Periods

In the video What is THE BEST Time-Frame for Trading Forex?!, Andrew Lockwood, a 30-year Forex trading veteran of the YouTube channel ‘ForexSignals TV’ used a good visualization or what it means to move between time periods.

He states that candlesticks show price action within a particular time period. Moving from one period to a higher period, basically just hides the details of the first period.

To give you an example, let’s say we select a candlestick chart for a 1-minute period as shown below. There are 5 individual candlesticks. When we move to a 5-minute OHLC chart, these 5 individual candlesticks are aggregated into 1 bar and the information (open, high, low, close) is transferred.

The 5-minute chart still shows the same information but with less detail. So the first question to ask oneself when selecting a time interval is ‘how much detail do we need for what we are trying to do?’.

Selecting a Macro Time Period

In the video ‘How to chose the best time-frame for trading’, David Frisby provided a clue on how to select the overall time horizon we should consider. David Frisby is MoneyWeek's main commentator on gold, commodities, currencies and cryptocurrencies.

He states that speculating horizon is 1-2 weeks, an investment horizon is 1-2 years. So when speculating, there is really no need to pull out all the price information from 1964 till today. So, another question to ask is ‘What kind of trading are you interested in?’.

So naturally there are a few other factors to consider.