What Are Time Frames and Time Horizons?

A time frame represents the length of each candle on your chart (e.g., 5-minute, 1-hour), while a time horizon refers to the duration of the market waves you're analysing. It's important to match your trading decisions to your trade’s time horizon. The last thing you want to do is make short-term decisions on a trade that’s supposed to be long-term! 

When many traders think of time horizons they often think of time frames. The time frame is part of it, but they aren’t quite the same. Let’s start with time frames. 

Time Frames

If you look at your charting software, you’ll see there are a range of time frames available for you to pick from. 5-minute, 1-hour, 1-day, and everything in between. The time frame you're looking at represents the duration of each individual candle. 

On a 5-minute time frame, each candle is 5-minutes of time from the open to the close. On a 1-hour time frame, each candle is 1-hour, and so on. 

If you look at the market waves on the 5-minute chart, and the waves on a 1-hour chart, the waves on the 5-minute will last a shorter amount of time. That means that a 5-minute chart is going to be a shorter time horizon. 

So what’s the difference between a time frame and a time horizon?

Time Horizons

If we look at each time frame, there are different waves which last different amounts of time. The longer waves are usually referred to as the macro waves, and the shorter waves are usually called microwaves. 

These would be examples of two different time horizons, even though they are on the same time frame. A time frame refers to the time period of each individual candle, but a time horizon refers to the length of each wave. 

Which of the two determines our trade time horizon? It’s the waves in the market. We want to make decisions based on the time horizon we're trading. 

The time frame is correlated to your time horizon. You don’t want to use a daily time frame if you’re planning an intraday trade. You’d be better using a lower time frame, such as the 15-minute where the waves are more pronounced. 

This brings us onto goldilocks waves. If you have a particular time horizon in mind that you want to trade based on, you’ll want to find the best wave structure for that. The goldilocks waves are the wave structure that’s perfect for that time frame. 

If the waves are too big for a time frame, there might be too much happening in between each wave creating unnecessary noise which could distract you. In that case, you can try a higher time frame. 

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If the waves are too small for a time frame, there might not be enough information within each wave, they are too small for the time frame. In that situation you would use a lower time frame. 

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The waves are not too noisy, not too basic, they're just right. We refer to these waves as the Goldilocks waves after the story of Goldilocks and the Three Bears.

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Rather than picking a specific time frame to follow, you can pick a time horizon and match the time frame to that. 

If you’re looking for a trade for 1-2 days, then perhaps the hourly time frame will have the perfect wave structure for that. If you want to trade over a week or two, the hourly could still work, or perhaps the daily. You can look at the wave structure and determine which one is best. 

In general, on any time frame, there are two scales of waves we want to analyse. We have larger Goldilocks waves, which we can call the macro waves, and smaller Goldilocks waves, which we can call the microwaves.