Time Frames in Swing Trading Explained
To determine the best time frames for swing trading, you need to understand how much time you are willing to spend on your PC, what type of swing trading you choose and how much you want to earn. H1-H4 is the most comfortable time frame that combines the benefits of short and long intervals.
Swing trading is a type of a trend strategy that implies opening positions in the direction of the trend at the best price at the end of correction. Any trend consists of small local drawdowns of various depths. The strategy is based on the assumption that the price will return at least to the level of the latest extreme after a correction, and in the best case scenario will draw a new high, and continue to do so until another correction turns out to be so deep that a change in the direction of the trend occurs. Success of this strategy largely depends on the chosen time frame. Long-term trends of high time frames are more stable, but harder to identify. For short time frames, the trend movement consists of candles that are shorter in pips and therefore the yield per trade is lower.
In this review, the following issues will be discussed:
How a time frame impacts the performance of a strategy.
What types of swing trading there are in terms of time frames.
What time frame is the best for swing trading.
The review also analyzes practical examples of one swing trading strategy on different time frames.
Why does Swing Trading Time Frame Matter?
Trading theory classifies strategies by several grounds, depending on the used time frame and used system of trading:
Depending on the time frame, there are day (intraday), medium and long-term strategies. Long-term strategies are also called investing.
Depending on the system of trading, there are scalping, swing trading and position trading strategies. Scalping is considered a day trading strategy. Position trading (trading strong individual movements in a long trend) is possible both in the medium and long term. Swing trading is a universal strategy that can be used in scalping or day trading and in position trading.
A lot depends on the chosen time frame. First of all, it impacts the yield rate of one trend or correction movement. On the M15 time frame, one candle on average equals 10-15 pips, on the day interval, a candle could reach up to 80-100 pips depending on the asset volatility. The movement from the end of correction to the closest extreme (high) is generally the same: 3-7 candles (although this is provisional, as trend movement can vary in strength). On the other hand, on the D1 time frame, the correction lasts for 3-5-7 days, while on M15 you can catch several such corrections in a day and make a profit on several price waves.
The other thing is the time required for continuous search of signals and monitoring of the chart. The higher the time frame, the more time traders have to search for signals and confirm them. In order to make an average minimum daily profit on short time frames, a trader needs to sit in front of the screen and monitor the chart without taking any breaks. Accordingly, the risk of a mistake is higher. Several candles are enough for day intervals. On the other hand, you can use shorter time frames to make money on local fundamental volatility.
Typical Time Frames in Trading Strategy
Let’s slightly deviate from our topic. The table below shows dependence of trading methods on time frames. It will help you choose the suitable format of strategy and their combination.
| Trading Strategy | Position holding time | |
|---|---|---|
1 minute |
Scalping, Day Trading |
1-15 minutes |
5 minute |
Scalping, Day Trading, Fundamental analysis trading |
5-60 minutes |
15 minute |
Day Trading, Swing Trading, Fundamental analysis trading |
60 minutes - 2 swings |
30 minutes |
Day Trading, Swing Trading, Fundamental analysis trading |
60 minutes - few swings |
1 Hour |
Swing Trading, Trend trading |
1 Day - Few days |
4 Hours |
Swing Trading, Trend trading, Positional trading |
1 Few days - few weeks |
1 Day |
Swing trading, Positional trading, Long-term investing |
Few weeks - Few months |
1 week |
Positional trading, Long-term investing, Carry Trade |
Few weeks - few years |
Best Time Frames in Swing Trading
Practically any time frame is good for swing trading, but there is a strategy type for each of them. On short-term time frames, the decision making speed is important, while on long-term time frames, swing trading can be combined with position trading. Below, we will discuss the benefits and drawbacks of the main time frames for swing trading.
15, 30 minutes
The M1 time frame is not used in swing trading. It is practically unpredictable and it is difficult to seek confirming signals on it. There is little time on the M5-M15 intervals to find the signals to enter and exit, but because of the rush, novice traders often make mistakes, either finding false signals or missing the moment of entry. Time frames are convenient from the psychological point of view. Correction movement of the 4th candle is 1-2 hours, and therefore a trader can see the effectiveness of the open position right away. The essence of the strategy is to find a clear short-term trend on the H4-D1 time frame (for example, the Three White Soldiers or Three Black Crows pattern) and open positions on the M15-M30 intervals at the end of correction movements, increasing the position.
👍 Pros
•You can catch several price movements in both directions in one day. Under the right circumstances, you can take the medium-term trend movement, moving from swing trading to position trading.
•A good time frame to trade based on fundamental analysis. The impact of a news release on the trend on average lasts several hours – you can catch both the main movement and the drawdowns.
This time frame is often chosen by professional traders who like active trading strategies.
👎 Cons
•Strong emotional strain. You need to continuously monitor the chart and seek confirming signals. There is not much time to search and therefore the probability of a mistake is higher.
•Requires good reaction. You need to open positions before the signal turns into a belated one.
Example.
The Example of short time frames
This example shows how difficult it is to work with short time frames and why you need to instantly determine the entry point. It would have been possible to earn a profit on the intraday trend movement only on one correction of the two provided that you opened a position right after the reversal.
The strategy principle is as follows:
1 – Opening a buy position after a weak reversal pattern (weak Pin Bar) forms.
2 – Bearish pattern Engulfing. Position reversal or closing.
3 – Increasing the long position opened at point 1 or opening a new position, if position 1 was closed at point 2.
4 - Bearish pattern Engulfing. Repeat the actions in point 2.
5 – Bullish pattern Engulfing. Reversal of the position or increasing an open buy position.
Only the section between points 2 and 3 could have caused a loss.
1-4 hours
This is the most comfortable time frame for novice traders that is considered the happy medium. There is enough time to make decisions, relatively stable trends that are less dependent on fundamental factors and market makers and a relatively quick result. There are several strategy options: you can combine it with position trading, building up the volume of the position at the end of each position, or reverse position at the start of corrections or at the end of them.
Example.
The Example of a medium time frame
A strong upward trend with a multitude of corrections is observed on the H1 interval for a period of 12 days. Considering that one candle corresponds to one hour and the average body of a candle – 20-25 pips, you could have easily earned 50-80 pips in 1-2 days, earn on the position reversal at the top points of the trend waves and at the end of corrections (bottom extremes) or on building up the position volume at the end points of downward corrections.
1 day
This is the interval for long-term strategies. It is convenient because you can catch many drawdowns and upward movements on one upward trend. If a general trend appears, it is stable. And since the value of a pip is the highest here, you can successfully catch even the smallest drawdowns.
👍 Pros
•It is enough to monitor the chart several times a day. Traders are required to notice the reversal on time, which can be traced using levels and patterns on lower time frames. 15-20 minutes once every 3-4 hours is enough for thorough analysis.
•Profitability. The average length of one candle is 50-80 pips in 4-digit quotes.
•You can open positions for several assets simultaneously, but you need to monitor correlation. If the correlation is straight and there is a drawdown on both assets, there is a risk of a Stop Out.
👎 Cons
•A large deposit is required. The task of a trader is to accurately see the reversal points on the trend and correction. If for some reason, they were missed, there should be enough deposit to withstand a drawdown of at least 1-2 candles without violating risk management.
•A strong trend appears rarely. You may have to wait for several months.
•Additional expenses for swap.
Example.
The Example of a long time frame
On the upward trend that lasts nearly three months, there are 7 points for buying on local correction and 7 points for closing positions. Some signals are more evident, and some less. However, on the daily time frame, even 2-3 candles of profit is a good result.
What Time Frame is Actually the Best?
The examples above show that the choice of a time frame depends on the answers to the following questions:
How much time are you prepared to spend on your PC? Is trading just an additional source of income? Then you need the daily interval. If you are an active trader, your interval is М15-М30.
What type of swing trading do you choose? On short intervals, corrections are used only for buying additionally after the end of correction or opening a new position in the direction of the trend. On long intervals you can also earn on short-term corrections by turning the positions against the trend.
How much do you want to earn? The risk is lower on long-term trends, but the profitability depends on the signal frequency and they are rare. In theory, short-term trends can bring more profit, if you exit the market correctly and catch each reversal. Profitability depends on your skills.
H1-H4 is the most comfortable time frame that combines the benefits of short and long intervals. The choice is yours!
How to Use Multiple Time Frames in Swing Trading
The strategy of using several time frames implies analysis of the senior interval and opening positions on the smaller one. The task is to find the beginning of the trend on the day interval. For example, breakout of support and resistance levels, formation of reversal patterns – any signals that will confirm at least 3-4 candles of directional movement. Such movement gives a guarantee of a trend consisting of 36-48 candles on H1, where there will definitely be corrections.
Why is swing trading more beneficial than long-term trading? For example, you open a buy position with the length of 1 candle and the size of 50 pips on the day time frame. Your earnings are 50 pips. There are 24 candles on the hourly interval. The price went up 35 pips, you closed the position, the price dropped by 20 pips on the correction – you opened a position. At the end of the 24th candle, you closed the position. Your profit: 35 + (50-15) = 70 pips.
Best Forex Brokers in 2024
Now you know a few things about swing trading. Are you ready to practice on a demo account? Below are brief reviews of brokers that offer the best trading conditions and full features.
FAQs
Why is the time frame important in swing trading?
Profitability, used instruments and the time dedicated to trading depend on it. In long-term time frames, the trend is more stable, but the signals are more rare. On short-term time frames, the volatility is higher, but the signals are more frequent. For long-term intervals, oscillators, Fibonacci Levels, and patterns are suitable. For short term intervals, news, support and resistance levels are used.
What are the trading options in swing trading?
There are two options:
Opening a position on the trend – closing at the start of the correction. Opening a position at the end of correction in the direction of the trend – closing the position at the start of the next correction.
Opening a position on the trend – building up the volumes of the position at the end of each correction in the direction of the trend.
You can develop your own system built on using correction movements.
What time frame is the best for swing trading?
H1-H4 is a good time frame: there is time for making a decision, and you can earn on position reversal, the signals are relatively frequent, and you can work with several assets simultaneously.
What makes swing trading better than other strategies?
Every type of strategy has its pros and cons, and everybody chooses based on personal likes and goals. Compared to trend (position and long-term) trading, swing trading allows you to earn more by “missing” correction movements or entering the market at the best price on corrections. However, it also requires more attention to the chart and carries higher risks.
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Team that worked on the article
Oleg Tkachenko is an economic analyst and risk manager having more than 14 years of experience in working with systemically important banks, investment companies, and analytical platforms. He has been a Traders Union analyst since 2018. His primary specialties are analysis and prediction of price tendencies in the Forex, stock, commodity, and cryptocurrency markets, as well as the development of trading strategies and individual risk management systems. He also analyzes nonstandard investing markets and studies trading psychology.
Olga Shendetskaya has been a part of the Traders Union team as an author, editor and proofreader since 2017. Since 2020, Shendetskaya has been the assistant chief editor of the website of Traders Union, an international association of traders. She has over 10 years of experience of working with economic and financial texts. In the period of 2017-2020, Olga has worked as a journalist and editor of laftNews news agency, economic and financial news sections. At the moment, Olga is a part of the team of top industry experts involved in creation of educational articles in finance and investment, overseeing their writing and publication on the Traders Union website.
Olga has extensive experience in writing and editing articles about the specifics of working in the Forex market, cryptocurrency market, stock exchanges and also in the segment of financial investment in general. This level of expertise allows Olga to create unique and comprehensive articles, describing complex investment mechanisms in a simple and accessible way for traders of any level.
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Mirjan Hipolito is a journalist and news editor at Traders Union. She is an expert crypto writer with five years of experience in the financial markets. Her specialties are daily market news, price predictions, and Initial Coin Offerings (ICO). Mirjan is a cryptocurrency and stock trader. This deep understanding of the finance sector allows her to create informative and engaging content that helps readers easily navigate the complexities of the crypto world.