Every bot in StockHero will require a parameter called Trading Frequency. It ranges from 5 minute to 1 day. What exactly is a Trading Frequency? In essence, it is the time period for a single candlestick to form and complete. Four 15-minute candlesticks will make up one 1-hour candlestick. A daily candlestick consists of six 4-hour candlesticks.\
As an aspiring algorithmic trader, understanding what is a candlestick is important. A candlestick consists of several data points – OHLCV. O for open price, H for highest price. L for lowest price. C for closing price and V for volume.
Candlestick charts are widely used in trading to help traders analyze the market and make decisions about buying or selling assets. These charts provide a visual representation of price movements over a period of time, and can be used to identify patterns and trends. However, the frequency of the candlesticks can greatly impact the level of risk involved in trading.
It is imperative that you understand the following paragraphs.
When it comes to trading using candlestick charts, the frequency of the candlesticks can vary from as little as a tick (second) to several hours or days. The shorter the time frame, the more volatile the market tends to be. This means that trading using a 15-minute candlestick chart can be riskier than trading with a 4-hour candlestick chart.
One of the main reasons for this is that shorter time frames are more prone to false signals and noise in the market. For example, a sudden price movement on a 15-minute chart could be the result of a temporary market reaction or a large order being executed. This can lead to traders making decisions based on false signals and ultimately losing money.
On the other hand, trading with a longer time frame, such as a 4-hour candlestick chart, can provide a more accurate and reliable view of the market. With a longer time frame, the market tends to be more stable and less prone to sudden price movements. This can provide traders with a more reliable trend and better opportunities to make informed decisions. However, the disadvantage is that a trading bot configured to trade on a 4-hour trading frequency will not trade as frequently as a 15-minute candlestick. On some instances, it can even take a bot days or weeks to make an entry.
Another advantage of trading with a longer time frame is that traders can usually buy at a lower price. This is because longer time frames tend to have more stable trends, which means that prices tend to move more slowly and consistently over time. This can provide traders with more opportunities to enter the market at a lower price and potentially a higher chance to make a profit.
In conclusion, while trading using 15-minute candlesticks can provide traders with more frequent signals and opportunities (exciting as it is but riskier), it also comes with greater risk. Trading with a longer time frame, such as a 4-hour candlestick chart, can provide traders with a more stable and reliable view of the market, as well as better opportunities to buy at a lower price.
Ultimately, the choice of time frame will depend on the trader’s individual goals, risk tolerance, and trading strategy.
Tips: Try running a few bots in StockHero, each with different Trading Frequency, to gauge your actual risk tolerance.