One of the many reasons why traders fail in Forex is because they didn’t know which time-frame is best for them to trade on.
Did you know that your personality plays a big role in which time-frame you should be using for trading?
What is a time-frame?
Before you go on choosing the right time-frame for you, it’s important to understand what a time-frame is.
Time-frame refers to the period that a forex trader chooses to operate in. The time-frames in Forex can encompass seconds, minutes, hours, days, or even months. As a forex trader, you may choose to use one time-frame or multiple time frames to analyze and track your trade.
Charts as a guide to time-frames
When we are trading the financial markets, we look at charts to check the price patterns, the direction of prices (also known as trends), or merely for technical analysis. And when we look at the charts, we do so in different formats; the candlestick representation, the line chart, the bar charts, and so on.
The bar chart or the candlestick representations (which are almost the same) represent a period of time. For example, if we are looking at the daily [time-frame] chart using the candlestick representation, each candlestick represents price movements or fluctuations in that particular time period.
In this illustration, you can see that the candlestick shows where the market opened and where it closed. It also shows the high and low. The candlestick shows you all the price action of that particular day.
When we are trading and looking at the charts, we don’t have to just look at what happens in one day. We can drill down to the very last minute or even check how the prices have gone for the whole month.
What is the best time frame to use?
This probably is one of the major obstacles any newbie trader has to face when trading the markets.
The question, ‘what is the best time frame to use’ is a bit more complex than you may think. It is not appropriate to say the one-time frame is better than the other without proper analysis. This is because everyone’s circumstances and objectives are different.
Say, if you have a day job and have a limited amount of time to stay in front of the screens, you may be looking at trading on the higher time periods, maybe the daily or the monthly time-frames.
On the other hand, if you have plenty of hours throughout the day to spend in front of the screens looking for those opportunities (scalping). You’re looking to exploit your trading edge over a large number of trades; you might be looking at the minute or hourly charts.
Also, your objectives are very important when choosing the best time frame to trade in the forex market. If you are a long-term trader who doesn’t always like to watch the markets, you may be considering the daily, weekly, or monthly charts. The plus side is that you have more time to spare, and you won’t have to worry about paying too much in spreads or commission to your broker. To do this, though, you will have to muster an incredible amount of patience. Don’t let the fluctuations drive you nuts. You got to learn to HODL.
Now, if you aspire to become a short-term (Swing) trader, you should consider using the hourly or daily charts. This gives your portfolio more chance of growth as you can take several trades each day. The downside? Well, it can be costly, as you have to factor in the commissions, spreads and swap rates.
Lastly, let’s look at the most adventurous of the bunch, the Intraday traders, also known as Scalpers. If you are an Intraday trader (or those who like to scalp), you should consider the high-action, minute to hourly time-frames. This gives you more trading opportunities, but it can also be costly, and earnings may not be quite substantial.
Another thing to consider is the amount of capital on hand.
Shorter time frames lets you make better use of margin and have tighter stop losses.
Larger time-frames, on the other hand, require bigger stops, thus bigger capital. This prevents you from facing margin calls or stop-outs.
The Bottom Line
One thing that all the objectives have in common is the desire to make money.
The determining factor on which time-frame to use comes down to one thing and one thing alone; the psychological side of trading.
Psychology plays a huge part in trading. Quite often, bad psychology is the killer of most trading accounts.
Trading on the short time-frames, that is, for example, buying and selling of the one-minute or the 15-minute time period can be very emotional, seeing money coming in and going out of the account in such short period of time, especially on larger trades. You’d open a larger position, hoping for the best, and then as you watch the trade, you’ll see how a slight movement can either make or break your trading account. It’s nerve-wracking! I know!
If you’re new to trading, I will suggest that you leave all that noise to a more experienced trader that has a better grip on their emotions and trading psychology. Trading, after all, comes with its own challenges. You don’t have to make it even more challenging by increasing your emotional involvement on the shorter time-frames. Instead, take a step back and trade of the higher time periods, the 4-hour or the daily charts. Sure, it’s not going to be as exciting as the 5-minute chart but it will be all worth it in due time! Remember – trading is all about that long term success!
Once you’ve proven yourself and your skills as a trader, only then should you be looking at trading on the lower time-frames, hunting for those quick profits.
You also have to consider the actual trading strategy you are going to be using. There are strategies for all conditions and all levels of traders, which include the Swing Trading strategy, the 5-minute Scalping strategy, and other trading strategies, many of which you can find inside our trading room, where we not only teach them but trade them live right in front of your eyes! It is important to ensure that the strategy you are using is optimized for the particular time period you wish to use.
Be sure to check out our Trading Room to learn more about these strategies. I and my co-mentors stream live, several times a day where we show how we trade these strategies right in front of your eyes, we provide trading ideas and discuss trading opportunities with the members of our vibrant community!
Now that you have an idea of which time frame could best work for you, I hope that you’ll take the steps in making adjustments to your trading. I’d be thrilled to hear about it! Feel free to hit me up inside the Trading Room!