What is Time Frame in Forex
The length of time you are going to remain in a trade is what we call the “timescale” or Forex timeframes. You will need to decide on your timescale when you start Forex trading . There are three types of timescales; long term, medium term and short term.
KEY TAKEAWAYS
Main Forex Timeframes
Traders use different time frames to trade forex, but the most common are long-term and short-term time frames, which are passed on to trend and trigger charts. Trend charts refer to long-term time frame charts that help traders recognize a trend while a trigger chart selects possible trade entry points.
Long Term Timescale
This timescale implies anything from a few weeks to a few months. If you choose to stay in a trade long term, you will need to examine daily as well as weekly charts.
The positive thing about long term trading is that you will not need to watch every peak or valley occurring in the market, and you will have more freedom to step away from your computer.
The most important consideration when taking longer term positions is to reduce your position size to compensate for the bigger price movements over the longer period.
You must still establish your stop loss levels in advance to prevent losing too much money from an unexpectedly large market move. You need to be patient, and you must have sufficient capital to support the considerable price changes of the market.
A feature of long term trading is the charging of Swap or Roll Over by the broker. This can be a profit or loss for the trader and is the difference in the interest rates between the currencies making up the pair.
When trading long or medium term this interest on the market exposure can erode or enhance your profitability and must be carefully considered in the direction you are looking to trade.
Medium Term Timescale
The length of a medium term timescale can be a few hours or even a few days. You will need to examine hourly, 4 hour and daily charts to evaluate your trades.
With medium term trading there are more trading opportunities, and it is acceptable to take slightly larger positions than with long term trading.
The disadvantage is that you can hit stop losses overnight, and you will need to watch the market more frequently. Medium term traders may leave positions on, over days but will not leave positions open over a weekend when significant news events can cause prices to move significantly and gap – missing stop loss levels.
Short Term Timescale
This timescale can be a few minutes to a few hours. You will need to examine 15 minute, 30 minute and hourly charts to evaluate your trades.
Short term trading provides a large number of trading opportunities, you can take larger positions, and you know of your success or failure very quickly. Because of the larger position sizes it is even more critical to have stop loss levels in place on the trade as the market can move very quickly. A short term trader will typically not leave positions open overnight and certainly not over a weekend.
Best Timeframe to Trade Forex
The best timeframe for Forex trading is multi-timeframe analysis.
Multi-timeframe analysis involves monitoring the same currency pair at different time intervals. While there are no real restrictions on the number of frequencies monitored or on the choice of specific frequencies, there are general guidelines that most practitioners will follow.
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Using three different periods gives a fairly broad view of the market, studying fewer time frames can lead to significant data loss, and using more periods usually leads to overanalysis.
A simple strategy might be to follow the "rule of four".
This means that the medium term must be determined first, and it must represent the standard for how long the average trade is held. From here, a shorter time interval should be chosen, which should be at least one quarter of the intermediate period. With the same calculation, the long-term timeframe should be at least four times larger than the intermediate one.
It is extremely important to choose the right time frame when choosing a range of three periods.
Obviously, a long-term trader who holds positions for months is unlikely to find use for a 15-minute, 60-minute and 240-minute combination. At the same time, a day trader who holds positions for several hours and rarely more than one day will not find much advantage in daily, weekly and monthly trades.
It is also useful for a long-term trader to follow the 240-minute chart, it is important to watch for strong changes and not base the analysis on the 240-minute chart.
Best Timeframe for Scalping
Scalping is making money on rapid fluctuations in the price of an asset. The meaning of this method is to close a large number of transactions with little profit, which ultimately brings tangible income. For scalping trading, it is recommended to use a one-minute timeframe.
Also, trading in short-term timeframes takes the whole day of the trader and is accompanied by a rather high psychological load, so it is better not to use this method of trading for beginners.
For scalping, traders need a timeframe that can be divided into smaller sections, such as a five-minute timeframe.
Then enter a position based on a technical analysis of the price of the currency, looking at things like the moving average and whether it is trading above or below the moving average.
If it trades above the moving average, you are selling the currency, and if it is trading below the moving average, you are buying it.
If you are a beginner trader, you can use the 15 minute time frame which will give you a better idea of how to trade.
In fact, the most common scalping timeframes are:
This is done through a multi-time frame analysis which consists of the following:
Best Time frame for Day Trading Forex
It is better for traders to follow the movement of quotes in one-minute and 15-minute timeframes, such time periods are well suited for traders who are going to close deals on the day they open.
What time frame to use when day trading is an important choice, but there isn’t one definitive answer. The right time frame will vary by person, the strategy they use, and how they like to spend their trading time. There are some benefits and drawbacks of each day trading time frame.
Bottom line on Forex Timeframes
Using multiple time frame analysis can greatly increase the chances of a successful trade. Unfortunately, many people ignore the usefulness of this technique when they delve into the realm of Forex trading. It may be time for many traders to revisit this method because it is an easy way to ensure that a position benefits from the direction of the underlying trend.