How To Choose A Candlestick Time Period on a Chart

selecting time period on charts

Beginner traders and investors often get confused about the time period to set while performing technical analysis.

Depending on the trading style and strategy, you should choose from the following time periods:

  1. Monthly
  2. Weekly
  3. Daily
  4. Intraday (represented in minutes and hour/s)

Another thing the beginner must know is that volumes are extremely important, and therefore must be tracked.

Here is how you should align each time period to your investment strategy:

MONTHLY CANDLE CHARTS

Monthly charts should be used by long-term investors. Such charts display price data that spans over several years, and should be used to spot multibaggers.

Monthly charts should NOT be used by traders, unless that trader wants to discover a long term buy.

Here are a couple of examples:

month time period on chart for finding multibaggers
Note the Nifty monthly candlestick chart. It has formed a bearish engulfing candle, which suggests the market will move south in the medium term.
Note that the fall is supported by rising volumes, a bearish sign.
That said, DIIs can step in to support the market and reverse the trend.

Inventure Growth multibagger

The story of Inventure growth is presented in two charts. This chart represents the period 2012-2016. The stock listed in 2012 and hit a high of 80+. Thereafter, something happened and a huge bearish engulfing candle formed (See (1) on the figure). The stock crashed and never recovered. Now, let’s check the next chart.

buy Inventure growth
This Inventure Growth chart covers the period 2016-2018. As you can see the stock fell from 22 levels right down to 11 levels and large sales were pressed in quite a few months. I’ve drawn a channel and Friday’s rise sort of shows that Inventure has broken out from a channel. If the rise sustains, Inventure will head to 22, and if it crosses 22 convincingly then it can head to anywhere between 23 and 80. And if it crosses 80, then it can head anywhere.

WEEKLY CANDLE CHARTS

Weekly charts are used by medium term investors (6 month holding).

Let’s check the weekly chart of Essel Propack. You may want to understand candlestick formations before attempting to understand this interpretation:

How to interpret weekly charts
Check the last two weekly candles. These are with long wicks at the bottom, which indicate bullishness, and that too with volumes. (read the article), Second, the life high is 316, and that the stock is trying to break out of a range (channel). So, for a medium term investor the interpretation is that if Essel breaks out of 267-269 range, it can head to 316 (first target) within the next 6 months.

DAILY CANDLE CHARTS

Daily charts are typically used by short term investors and traders who’d like to hold stocks for  periods ranging from 3 weeks to 5 months. These charts can also clue investors on to stocks with long term potential. Set the number of days to at least 120-150 while viewing these charts.

In this example, I tested Inventure Growth on a 1-day chart to check if it generated a bullish signal.

Inventure 1 day chart bullish englfing
Inventure’s one day chart features a massively bullish candlestick. It confirms the medium-long trend bullish trend (see weekly charts above).

INTRADAY CHARTS

These charts are used by day- and BTST traders. There are different ways to use these charts:

INTRADAY 1-HOUR CANDLE CHARTS

The one hour charts typically give an indication of the day’s (or a major part of the day’s) trend. For example:

how to interpret 1 hour technical charts
Hourly candles are numbered 1-5 on this chart. Had you followed the hourly charts of Reliance on Friday, you would have observed that Candle No. 4, a bearish candle, had kind of engulfed Candle No 3. This is referred to as Bearish Engulfing in technical parlance and it is a bearish signal. Had you acted on this candle and shorted Reliance, you would have made a clean 5 bucks (926-921). It is also interesting to note that the last green candle was supported by very thin volumes.

15-MINUTE CANDLE CHARTS

The 15 Minute charts typically give an indication of a trend that should last up to 120 minutes (15 X 8). For example:

how to interpret 15 minute candle charts
(Though I have not counted-numbered the candles right, this example will suffice) RIL opened positive as depicted by Candle 1. Candle 2 was almost bearish engulfing, and had you taken the cue, there was plenty of money on the table as you can see from the subsequent candles. AGAIN, Candle No 12 was bearish engulfing, and again there was plenty of money to be made had one taken a short. Therefore, in intraday trading, a 15-minute candle chart is more effective for flitting in and out of trades, whereas a 1-hour chart suggests the trend for the day and if validated by closing candles, gives you effective BTST opportunities. ALSO: Candle No 19 in which the price didn’t fall much saw heavy volumes and the low of that candle was defended.

IMO, any candle time period below 15 minutes may not be a reliable indicator. However, 5 and 10 minute candle time periods can be studied to form an opinion which should be validated by 15-, 30- and 60-minute candle charts.

Well, this is what you need to know about how to reconcile candlestick time periods with your investment style.

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sunil.tinani

9 Comments

  2. Check the last two weekly candles. These are with long wicks at the bottom, which indicate bullishness, and that too with volumes. (read the article), Second, the life high is 316, and that the stock is trying to break out of a range (channel). So, for a medium term investor the interpretation is that if Essel breaks out of 367-369 range, it can head to 316 (first target) within the next 6 months.

    if Essel breaks out of 367-369 range
    i doubt its instead 267-269?

    Reply

  3. 15-MINUTE CANDLE CHARTS
    The one hour charts typically give an indication of the day’s (or a major part of the day’s) trend. For example:

    I think there is some mistake in writing under the 15minute candle chart.

    Reply

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