In StockHero, one of the essential concepts that you need to learn is called Trading Frequency. Trading frequency (TF) determines the interval in which the trading bot reads the market signals.
Trading Frequency, or TF as we shall call it hereon, is similar to what you see in a trading chart. They are often segregated into the following periods:
15-minute, 1 hour, 4-hour, 12-hour, 24 Hour (1 Day)
Theoretically, there is no hard rule to say that you cannot view a 5-minute TF. Some trading tools offer TF right down to the second.
The concept of TF is essential because it determines if you are a trader who prefers to trade often or someone that bids his time to enter at the lowest point in the market.
The shorter the TF, the more often the bot will read market signals. Consequently, the more trades the bots will make. Conversely, if the TF is long (such as 4 hours), the bot will not read the market signal as often as a 15-minute TF. As a result, the bot typically enters a trade much later than a bot that reads a 15 m TF.
Let us illustrate this with an example. Bot A is set up to read a 15-minute TF and to enter when the RSI level hits 30. Bot B is set up to read a 4-hour TF and to enter when the RSI level hits 30. If the price for stock C is to plummet within a 5-minute window and hits below RSI 30, Bot A will execute the trade. Bot B will stay where it is because it does not read the market signal as often. Let’s say that C’s price continues to plummet an hour later, Bot A would have exhausted its resource and cannot average down. But now, Bot B would be reading the market signal and buying C at a lower price than Bot A.
So, is Bot B’s setup better than Bot A’s? Not really. It all depends on the strategy and risk profile of the trader. Obviously, Bot B is in better shape based on the example above. However, what if the price of C does not plummet and then continues its ascent? Bot A would have made a profit while Bot B would not have entered any position.
In general, the shorter the TF, the higher risk it poses since the bot will trade more often, and a trader may frequently not be able to catch the trough. However, if one pairs a short TF with a tight Take Profit, one should be able to have any small profitable trades.
The higher the TF, the lesser risk it carries since the bot will typically ignore short-term market “noise” and only buys when a long-term trend is forming or confirmed.
A good trader would set up his stock trading bots to have a mix of short and long TF in order to trade short-term volatility and benefit from long-term capital gain.
Read more on Trading Frequency in StockHero’s User Guide.