Many traders struggle how to choose the best chart time frame to trade forex. Moreover, many traders make losses due to the use of the wrong time frame. Therefore, using the right time frame is mandatory to ensure profit from Forex trading. In this article, we will see the guidelines with the ways to choose the best time frame in forex.
07 January, 2020 | AtoZ Markets – Many traders don’t put special consideration on the time frame that they mean to trade or expect to hold a position. They may set a stop loss and take profit order levels without considering any time frame. However, without any specific time frame, the overall trading decisions may go wrong.
This article will guide you into the subject of what the best time frame for Forex Market is. It will also find the answer to that question, depending on the trading strategy you prefer to employ to manage your trades.
Is it Important to Choose the Best Chart Time Frame?
Choosing the best time frame is one reason beginner forex traders don’t perform quite well as well as they should is on the grounds that they’re typically trading an inappropriate time frame. New forex traders expect to make easy money; therefore, they usually begin trading smaller time frames like the 1-minute or 5-minute.
At that point, they give up getting disappointed when they come to know that the time frame doesn’t accommodate their personality. Therefore, you should realize which time frame you should exchange on as a forex trader. For some forex traders, they feel most great trading the 1-hour charts.
This time frame is longer, yet not very long, and exchange signals are less, yet not very few. Trading on this time frame encourages us to give more opportunities to dissect the market.
Alright, so you’re most likely asking what the ideal time frame is for you. All things considered, in the event that you had been focusing, it relies upon your personality. You need to feel great about the time frame you’re trading in.
The Three Basic Trading Time Frames
Most analysts and traders will agree that trading time frames can be broken into three general categories. These are commonly known as the short, medium and long-term time periods.
The primary thing that appears to be critical is, traders don’t have definitions of all time frames. Maybe the best way to clarify this variety is that the time periods depend on the trading strategy that a trader has.
Thus, if a trader utilizes a trading method that will, in general, have a moderately short holding period will prefer smaller time frames. For instance, where all positions are closed before the end of the trading day, the time frame related to trade will be shorter than the time frame used by the swing or pattern trader.
Chart Time Frame Depends on the Trading Strategy
The best chart time frame in Forex trading is not the same for every trader. A scalper usually uses a smaller time frame while the long term trader uses daily and weekly time frames. Let’s have a look in detail.
Scalping is a strategy that is often popular among market makers. In this trading strategy, they can quickly offset the risk of positions due to the bid/offer spread they quote. They can also grab small profits by simply quoting prices to other forex brokers. Other scalping traders consist of individual and retail traders with access to very tight market spreads.
The time frame for scalp traders is generally very short since traders liquidate positions when they make a small profit. On the contrary, if the market is moving against them, scalpers tend to cut their positions.
In the day trading strategy, traders need to take positions during their pre-determined trading day. This would typically be specified by traders ahead of time in their trading plan. By the end of their trading day, day traders would need to close all of their positions regardless of profit or loss.
The time frames used by all day traders generally range from several minutes to hours. However, it depends on market dynamics and the trader’s objectives. Day trading allows the trader to have no open positions to worry about overnight.
As its name imports, this type of strategy is based on trading ranges. Traders usually identify such patterns using technical analysis methods. Moreover, traders often use clear levels of support and resistance on an exchange rate chart. Once traders identify levels, they can enter positions according to their strategy. The Most preferred day trading strategy is buying from the support and selling from the resistance.
The timeframe for range traders differs widely and starts from a few hours to a trading session and beyond. Traders wait for their position to settle in the lower or higher end of a range. Therefore, traders need to either wait for the position to go to the target level. Conversely, they take a loss if the position has gone in the opposite direction.
This trading strategy typically involves using technical analysis for the intermediate-term to determine entry and exit points. Additionally, traders establish their positions based on this analysis. Like the range trader, the swing trader’s time frame varies from a few days to a week or so. Additionally, many swing traders use multi-day price patterns in the market.
This is the longest-term of the trading strategies. Trend traders identify the overall trend of the market to establish a position.
Therefore, they wait for the trend to play out. Trend traders usually use both technical and fundamental analysis to identify the over/ undervalued currency.
Choosing the Best Chart Time Frames
Selecting the best chart time frames to trade forex depends on the trader’s level of experience, types of trading strategy, and how they approach the market. Therefore, it is difficult to provide any specific rules as it varies with the trading strategy. However, there are some guidelines that trade should follow:
Best Chart Time Frames for New traders
As new traders are not familiar with the overall risk associated with the Forex market, they should stick to the higher time frames.
- For new traders, it is recommended to use longer time frames by taking a swing trading or trend trading as a strategy. It is important since their reaction times tend to be longer due to their inexperience in the market.
- Another reason for recommending the long terms strategy to novice traders is that the newest traders tend to be impatient. Therefore, they may close their positions without having to wait for profitability. Nevertheless, it is true that short-term trading is considerably difficult compared to the long term trade. Additionally, it takes the trader quite a long time to master. They need to evolve their emotions to the point where they can be successful.
- If new traders start trading with a longer-term outlook, this will generally reduce their trading frequency. Therefore, this will teach them the importance of operating trade strategically. Once their trading methods have proven, they can then move to shorter time frames if they wish.
- Furthermore, many profitable traders use multiple time frames as a part of their technical analysis to get a sense for the short, medium and long term picture for that pair. Therefore, regardless of the preferred chart time frame, using a multi-timeframe analysis is also recommended.
- New traders should be aware of the shorter time frame they trade-in to minimize the trading frequency. The frequency of trading mistakes also tends to increase with a trading frequency that needs to control.
Best Chart Time Frame for Experienced Traders
- Besides new traders, Trading higher time frames also reduce the impact of short term variability or noise that an experienced trader should follow. Short term volatilities sometime create panic among the traders that influence to make a wrong trading decision.
- When using a long term strategy, traders can use weekly time frames to establish a long term outlook. Therefore, use the daily or 4-hour chart to better the time and level of positions.
- Until this longer timeframe analysis is mastered, new and experienced traders should avoid trading the shorter time frames. As the trader gets familiar with market variability associated with the shortening time frames, they can become more experienced in the forex market.
- For day trading, scalping and other short term trading, many traders use the 15 minutes, 5 minutes, and even 1 minute or tick charts. Market volatility tends to increase significantly as the trader operates in these shorter time frames. Therefore, trading in a shorter timeframe often requires more focus and concentration. For trading with the smaller time frame trader should aware of trading psychology strongly.
Besides the chart time frame, traders can use trading parameters that are specifically designed for a strategy. For example, there is a trading system with a 100-tick chart where a move occurs after 100 transactions. If a trading pattern is based on the size of a price move, then the time frame is not important. Therefore, you can use a Renko chart, which enables you to base the chart on price movement.
How do you want to choose the best chart time frame to trade Forex? Let us know in the comments section below.