Glossary
Timeframe
The period each bar or candle on a chart represents, from one minute to one month, and by extension the horizon a trade is meant to play out over.
A timeframe is the amount of time each bar on a price chart covers. On a 5-minute chart, every candlestick shows the open, high, low and close of five minutes of trading; on a daily chart, of one full session; on a weekly chart, of a week. The same stock can look like it is rising, falling and going sideways at once, depending on which timeframe you look at, so choosing one is the first decision in any chart reading.
How it works
Shorter timeframes show more detail and more noise. Longer ones compress the same data into fewer bars, smoothing out intraday swings and making the larger trend easier to see. Indicators inherit the chart's timeframe: a 14-period RSI on a daily chart covers about three weeks of trading, while on a 5-minute chart it covers just 70 minutes.
Matching timeframe to purpose
Traders usually pick a timeframe that fits how long they intend to hold. Day traders work with 1- to 15-minute charts, swing traders with daily charts, and longer-term investors with weekly or monthly ones. Many use multi-timeframe analysis: a higher timeframe to set direction, a lower one to time entries. A common rule of thumb is to keep the two about four to six times apart, such as weekly with daily.
Signals on short timeframes appear more often and fail more often. A support level that holds on a weekly chart carries more weight than one visible only on a 2-minute chart.