Effect of timeframes on a strategy
When it comes to creating a trading bot, the first thing you need to decide is what time frame your bot will operate on. Each time frame has its benefits and drawbacks, which we'll discuss in more detail below.
Higher time frames are generally less noisy and more delayed than lower time frames. This makes them easier to use when building a bot strategy, as there is less of a need to constantly monitor new information as it becomes available.
On the other hand, lower time frames are noisier but also more responsive to new information released by the market. It is important to keep in mind, however, that bots trading on lower time frames are also more prone to losses.
Consider a scenario in which an important story breaks out at 1:30 p.m., affecting the price of the cryptocurrency bot trades. One bot is active on a four-hour time frame and its trading windows are from 9 am to 1 pm, 1 pm to 5 pm, 5 pm to 9 pm, and so on. Because its trading window from 1 to 5 p.m. has already begun, it cannot incorporate this new information into its trading strategy for this period. As a result, the news may only be acted upon after 5 pm, when the bot's next trading window begins. Therefore, longer reaction times make higher time frame bots more delayed and less noisy. At the same time, another bot with a 5-minute time frame can immediately act on the news at 1:35 pm. This implies that lower time frames are very responsive to new information, however, they also have a lot of noise.
In the end, as long as the bot understands the fundamentals and market conditions affecting its assets, it can be successful using either a higher or lower time frame.