October 16, 2017
A time-frame in forex refers to the period in which a candlestick forms on the chart. There are many time-frames available in forex trading, from the 1-minute TF to the monthly TF, and anything in between such as 30-minutes, 1-hour, 4-hours, daily and weekly time-frames. A smaller time-frame is essentially a zoomed-in larger time-frame, as the following charts show. A candlestick on the left (daily) chart represents one day of trading, while a candlestick on the right (4-Hour) chart represents 4 hours of trading. Six of the 4-Hour sticks form a daily candlestick.
What Time-Frame is Best for You?
The best time-frame to trade depends pretty much on the trader’s personality. Some traders that like excitement and fast-paced trading would choose the 5-minute, 15-minute or 30-minute charts, while others prefer the daily and weekly charts. However, keep in mind that the market can act very unpredictable on shorter time-frames, and create a lot of false signals.
New traders to forex usually rush to make profits and choose very short time-frames, which leads to overtrading and accumulation of losses. You should always practice first on a demo account and choose which time-frame suits you best before moving to a real account.
Breakdown of Time-Frames
Which time-frame to choose depends again on you. Long-term and fundamental traders tend to stick to longer time-frames, such as the daily or weekly. This gives them enough room to analyze the market from a fundamental aspect, but the larger price swings on those charts also require a larger trading account and wider stop-losses.
Swing traders usually use anything between a 30-minutes to a 4-hour time-frame. They hold trades for several hours to a few days, and have more trading opportunities compared to long-term traders. As a drawback, the transaction cost also raises with more positions.
Intraday traders use short time-frames, such as the 1-minute, 5-minute or 15-minute time-frame. Trades are held during the day and exited by market close. This gives a lot of trading opportunities, but also increases the transaction costs that need to be paid. The unpredictable market behavior on short TFs makes intraday trading also more difficult and risky than swing and longer-term trading.
The following table presents the major advantages and drawbacks of the mentioned trading styles.
Using Multiple Time-Frames in Trading
Using multiple time-frames when analyzing the market is a powerful technique in forex. Price tends to act different on shorter and longer time-frames, and trends that are established on longer time-frames may not be recognized on shorter ones. Furthermore, support and resistance levels are stronger on longer TFs, but you can get better entry and exit points on shorter TFs. This is why you want to have the bigger picture of the market by analyzing multiple time-frames simultaneously.
When you open your preferred time-frame, let’s say the 4-hour time-frame, jump to the daily to see how the price is acting and if a trend is established, and then switch to the hourly TF to get better entry and exit points. This way, you get more information from the market than just looking at the 4-hour chart.
Test Your Knowledge: What is a Time-Frame in Forex?
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What is a Time-Frame in Forex?
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Which of the following timeframes is NOT readily available on most charting softwares:Correct
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The Commitment of Traders report measures the net long and shortCorrect