Choice of a suitable time frame must be aligned to the type of strategy to be traded.

Using a shorter time frame (e.g. 5min, 15min) introduces more noise into the price series making it difficult to find the trend. It is more suitable for scalping, short term arbitrage, mean reversion type of strategies in general. Shorter time frame responses quickly to price changes, results in shorter holding periods and likely more trades are generated. Statistically the more trades generated, the closer actual mean returns match “population mean returns” or “theoretical mean returns”. In simpler coin toss analogy, even when toss of the coin is statistically 50-50, there can be 10 heads in a row for 10 tosses of the coin. However when we toss 1000 times, the proportions of heads should lean towards 50%. This same concept applies to trading. We need more observations of trades to determine the actual risk and returns of the system. Shorter time frames is more sensitive to execution quality where slippage matters more.

Using a longer time frame (e.g. weekly) puts more emphasis on the trend and less emphasis on other components such as mean reversion. Longer time frames also react slower to price changes. Longer time frame is not as sensitive to execution quality and slippage rarely matters.