Every trader has a different perspective to markets and different goals, hence the selection of time frames depends on the traders’ choice. Traders tend to use the long-term chart to define the trend, the intermediate-term chart to provide the trading signal and the short-term chart to refine the entry and exit.
Below is discussed an example to show how different time frames can show different price actions.
Let us take an example of trading currencies and their trend in different time frames.
Taken EUR/USD trade, 5-minute chart implies a bullish trend by showing the pair trading over 100 SMA.
Again the same currency pair EUR/USD, this chart, that is a longer time frame or trend actually indicates a bearish trend as prices are falling.
By observing the same pair in this longer-term chart, it can be seen that there is bullish trend contradicting the 1-hour chart.
At last, a daily chart that is as far longer time frame proves the bullish trend wrong by showing the bearish trend as prices keep on falling.
As shown in the above example, different time frames provide different signals, traders are advised to analyse multiple time frames or at least next higher time frame to make sure the trading decision taken provides good returns. By analysing narrower time frames, traders get help in entry and exit points and longer term charts help them to affirm their idea or speculation. To conclude, multiple time frames can give a broader perspective and understanding of trends to traders to make an ideal trading decision.