What Does Time Frame Mean in Forex Trading
The time frame in trading is the type of x-axis (time axis) on the time-price trading chart. In general, the time frame on the Metatrader chart usually can be M1, M15, M30, 4H, Daily, Weekly, Monthly.Based on
Below is an example of the M1 chart and Daily Chart:
The blue rectangle on image is the option to switch from one time frame to another.
Engaging in the usage of various forex time frames can most assuredly provide good assistance to traders in regard to finding the trends that are bigger as well as price activity that is more granular. Let it be noted that there can be the deriving of diversified points of view if there is the usage of various time frames in regard to the same pair of currency. Doing so can possibly be beneficial for the conducting of analysis or this may also be a hindrance when conducting an analysis. As a result, it is necessary to possess a clear comprehension concerning forex trading time frames right from the start of conducting trades.
What tends to be the key time frame used in forex trading?
Time frames that are utilized in forex trading generally are categorized as being short term, medium-term, or even long term. Traders can implement the usage of all these trading time frames. Or they can resort to just applying one longer one along with one shorter one when it comes to the matter of conducting an analysis for possible trades. Though longer time frames can be proven to be helpful for the sake of the identification of the setting up of a trade, it is noted that the shorter time frames are beneficial when it comes to the issue of timing the entries.
The long term time frame is for those who have a position trading style. The trend of the long term time frame tends to be weekly. The trigger of the time frame is regarded as being daily. The medium-term time frame is for those who possess a swing trading style. The trend of the short term time frame is daily and the trigger of the medium-term time frame is a period of every four hours. The short term time frame is for those who engage in day trading. The trend for the short term time frame is every four hours and the trigger for this short term time frame is hourly.
So what are the trading time frames?
What is the best time frame to trade forex? There is no best time frame in forex trading but some trading styles use usually some time frames more often. As mentioned above, the time frame you will want to choose will greatly depend on which trading strategy you would like to use. In this article I will go over 3 main forex trading time frames, which are:
1) Position trading time frame – Daily, weekly, and monthly chart time frame.
2) Swing trading time frames from 30 minutes chart till the Daily chart time frame.
3) Day trading time frames – from 1-minute chart till 30 minutes chart time frame.
Position trading time frames
The position trading strategy can vary greatly. It can range from daily to yearly under the “long term” definition.
This trading timeframe is often avoided by new traders, due to the fact that the trades stretch over longer periods of time. This means that it will take a long time before trades are realized. This can also be a benefit since many traders with a short term approach (day traders) use strategies which can be problematic. Day trading takes a significantly longer period of time to learn the right strategies.
Traders who use the position trading time frame (long-term approach) can look to the monthly chart for trends and the weekly charts to spot buying opportunities.
Position trading example
So now that you know what it is, let’s go over an example scenario. First, you would look at a monthly chart and analyze it to see the general trend. In this exam2ple, let’s say that the chart trend shows lower highs and lower lows, therefore signifying a downward trend. After seeing this, you could look to enter a position on the weekly chart. You could determine good entry points by looking at price action as well as technical indicators.
Swing trading time frame
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The next trading time frame is known as swing trading. After you get comfortable using long-term charts, you could consider switching your approach to a slightly shorter time frame. This means less holding time, however, this can introduce a lot more variability and price fluctuation so proper risk management is important.
Swing trading is basically right in between day trading (a short-term approach) and position trading (a long-term approach). Most swing trading strategies involve the open and close a position in a matter of days. Swing trading is a relatively popular approach to trading the markets as it offers the benefits of both styles of trading without all of the drawbacks.
Swing traders will typically check the charts a few times a day in order to identify if any big movements occur. Unlike day traders, they are not glued to their screens all day. This offers lots of flexibility since they will not have to always watch the markets while they are trading. Swing traders will usually take a position once an opportunity is identified. They can then set alerts so that they can view how the position is doing at a later date.
A benefit of swing trading compared to long-term trading is that swing traders look at the charts often enough to identify good opportunities. These would likely not be seen as much for long term traders since they tend to use weekly charts.
After a trade direction has been identified most traders will switch their charts to the 4-hour view. This will allow them to identify good entry points. Traders will often analyze these charts to look for resistance levels. A good entry position could be when a candle closes above the said resistance level.
Day trading time frame
The last timeframe we will go over is the day trading time frame. the day trading time frame is perhaps the most popular one which new traders are excited to get into.
That being said, day trading can be the most difficult trading timeframe to find profitability. New traders practicing day trading will be required to make frequent buying and selling decisions. New traders that are inexperienced and are required to make frequent trades open themselves up to the possibility of more losses than if they were to go with a more long term approach.
The day trading approach relies on small market fluctuations. This often requires day traders to be stuck staring at their screen in order to identify good trades. Long hours staring at a screen can cause fatigue. This short term approach also offers a smaller margin of error.
When it comes to day trading, there is generally less profit potential. This means tighter stop levels. Tighter stop levels can sometimes mean more losing tradings compared to a longer-term approach. I advise that you first get comfortable with long term trading and swing trading before trying to get started with day trading.
In what way does analyze time frames make an impact on forex trades?
It cannot be denied that there are many advantages in relation to engaging in the usage of various forex trading time frames. They become clear when comparing forex versus stocks. Due to the powerful liquidity of the market pertaining to forex, traders are able to access short term time frames and can view information that is meaningful. On the other hand, when it comes to a stock that does not possess a high level of liquidity, the trader may not really benefit from a short term time frame, as it will not provide much new information in such cases that there has been no change of the price.
It is realized that another benefit pertaining to the usage of forex trading time frames is that the forex market runs twenty-four hours per day each day of the week. Traders are presented with varied market conditions when they apply the usage of various forex trading time frames during distinct trading periods. Take into consideration, for example, that this can allow for the ranging of markets during the Asian trading period. Or during the US and European crossover period, this can allow viewing of the markets that are trending. Traders are thus empowered to tap into the profitability of the characteristics of these distinct markets when they engage in the usage of different time frames to locate beneficial entries.
It is common for those who are new to trading on forex to wonder if there is a certain forex trading time frame that is more powerful than others. Principally, accessing the best time frame when it comes to trading on forex will be dependent on the preference of the trading style of the trader and the strategies that are implemented.
The best time frames for day trading and swing trading are different. Day trading strategy uses lower time frames such as m1, m15, and m30 chart time frame and swing trading higher time frames such as H4 and daily chart.
Overall, picking a trading timeframe will depend on your goals and trading style. All trading timeframes offer the potential for great profitability as long as you are educated and comfortable on the positions that you are taking. Also, keep in mind that you don’t have to use just one trading time frame. I like to use several time frames during trading and then I feel comfortable. The choice is yours.