Whether you are a day trader, a swing trader or a positional trader, the first thing that pops up in your mind is what time frame to trade on. The time frame that you are most comfortable trading on is your base time frame. This will help you understand the other two time frames that you should be trading with.
Once you know what your base timeframe is the next step is to know what should be the minor and the major time frames. This is the time frame above and below the base time frame. So suppose your base time frame is a 5-minute chart then your major time frame chart will be a 15 minutes chart and the minor time frame chart will be a 1 min chart. This same principle can be applied to various time frames and for different types of traders.
What does each time frame tell you?
The major time frame is basically where you will need to check the trend of the asset you are trading in. This will give you an idea of whether you want to be a buyer or a seller on this particular security. Once you understand that then look for a base time frame and here you need to know where to be a buyer or a seller. You will be looking for pull-backs here to enter the trade. The lower time frame is used to fine-tune the entry levels that you have marked on the base time frame.
You may also be a breakout trader. In such a case you want to ensure that the breakout trade that you take is in line with the major time frame. If you are taking a long breakout but the major time frame is in a downtrend then you are likely to be stopped out.
The most powerful and high probability trades are those when all the three-time frames are moving in the same direction. Check out the full review.
Entry and exit on the base time frame
Make sure that your entry and exit is in the base time frame. You cannot use a 15-minute chart to plan your entry and then a 5-minute chart to plan your exit. This does not work out. If you do this then you will be stopped out of the trade soon or will get out of the trade very fast, only to see that the price moves high in your trade direction. The minor and the major time frames are like add-on indicators but all your trading decisions need to be made on the base time frame only.