How to Pick a Timeframe
The timeframe used for forming a chart depends on the compression of the
data: intraday, daily, weekly, monthly, quarterly or annual data. The
less compressed the data is, the more detail is displayed.
Daily data is made up of intraday data that has been compressed to show each day as a single data point, or period. Weekly data is made up of daily data that has been compressed to show each week as a single data point. The difference in detail can be seen with the daily and weekly chart comparison above. 100 data points (or periods) on the daily chart is equal to the last 5 months of the weekly chart, which is shown by the data marked in the rectangle. The more the data is compressed, the longer the timeframe possible for displaying the data. If the chart can display 100 data points, a weekly chart will hold 100 weeks (almost 2 years). A daily chart that displays 100 days would represent about 5 months. There are about 20 trading days in a month and about 252 trading days in a year. The choice of data compression and timeframe depends on the data available and your trading or investing style.
Daily data is made up of intraday data that has been compressed to show each day as a single data point, or period. Weekly data is made up of daily data that has been compressed to show each week as a single data point. The difference in detail can be seen with the daily and weekly chart comparison above. 100 data points (or periods) on the daily chart is equal to the last 5 months of the weekly chart, which is shown by the data marked in the rectangle. The more the data is compressed, the longer the timeframe possible for displaying the data. If the chart can display 100 data points, a weekly chart will hold 100 weeks (almost 2 years). A daily chart that displays 100 days would represent about 5 months. There are about 20 trading days in a month and about 252 trading days in a year. The choice of data compression and timeframe depends on the data available and your trading or investing style.
- Traders usually concentrate on charts made up of daily and intraday data to forecast short-term price movements. The shorter the timeframe and the less compressed the data is, the more detail that is available. While long on detail, short-term charts can be volatile and contain a lot of noise. Large sudden price movements, wide high-low ranges and price gaps can affect volatility, which can distort the overall picture.
- Investors usually focus on weekly and monthly charts to spot long-term trends and forecast long-term price movements. Because long-term charts (typically 1-4 years) cover a longer timeframe with compressed data, price movements do not appear as extreme and there is often less noise.
- Others might use a combination of long-term and short-term charts. Long-term charts are good for analyzing the large picture to get a broad perspective of the historical price action. Once the general picture is analyzed, a short-term chart, such as a daily chart can be used to zoom in on a narrower range of time (e.g. the last few months).
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