We can analyze the trading time frame from two aspects, a chart point of view and a general point of view.
What Does Time Frame Mean in Forex trading?
The time frame in forex trading is a chart specified time in which traders open and close their positions. Based on n time frame strategy, trading can be long-term, medium-term, and short-term. Chart time frames in the trading platform can be M1, M15, M30, 4H, Daily, Weekly, Monthly, etc.
One minute chart time frame tracks price movement in five-minute increments; hourly chart time frame tracks price movement in hourly increments, etc.
Below is an example of the M1 chart and Daily Chart:
The blue rectangle on the image is the option to switch from one time frame to another.
Engaging in the usage of various forex time frames can most assuredly assist traders in finding the more significant trends and more granular price activity. Let it be noted that there can be deriving diversified points of view if there are various time frames regarding the same pair of currency. Doing so can be beneficial for conducting analysis, or this may also be a hindrance when conducting research. As a result, it is necessary to comprehend forex trading time frames right from working trades.
Time frames utilized in forex trading are generally categorized as short-term, medium-term, or even long-term. Traders can implement the usage of all these trading time frames. Or they can also resort to just applying one longer one and one shorter one when it comes to analyzing possible trades. Though more extended time frames can be proven to help identify the setting up of a trade, it is noted that shorter time frames are beneficial when it comes to 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 short-term time frame trend 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 short-term time frame trend is every four hours, and the trigger for this short-term time frame is hourly.
What is the best trade frame?
There is no best time frame in forex trading, but some trading styles usually use some time frames. There are three main time frames types:
1) Position trading time frame – Daily, weekly, and monthly chart time frame.
2) Swing trading time frames from 30 minutes charts to the Daily chart time frame.
3) Day trading time frames – from 1-minute chart till 30 minutes chart time frame.
What is position trading?
Position trading represents a trading style where traders keep their positions open from several weeks up to several months or several years. Position trading strategy is usually based on fundamental analysis and uses a broad stop loss.
The position trading strategy can vary greatly. It can range from daily to yearly under the “long term” definition.
New traders often avoid this trading timeframe since the trades stretch over more extended periods. This means that it will take a long time before trades are realized. This can also benefit since many traders with a short-term approach (day traders) use strategies that can be problematic. Day trading takes a significantly more extended period to learn the right system.
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
Swing trading is a trading style that attempts to capture gains in any financial instrument over a few days (more than one day) to several weeks. Swing traders primarily work on four-hour (H4) and daily (D1) charts, and they may use a combination of fundamental analysis and technical analysis to guide their decisions.
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The following 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 more variability and price fluctuation, so proper risk management is essential.
Swing trading is right between day trading (a short-term approach) and position trading (a long-term system). Most swing trading strategies involve the open and close position in a matter of days. Swing trading is a relatively popular approach to trading the markets as it offers the benefits of both trading styles without all of the drawbacks.
Swing traders will typically check the charts a few times a day to identify any significant movements. Unlike day traders, they are not glued to their screens all day. This offers lots of flexibility since they will not always watch the markets while they are trading. Instead, swing traders will usually take a position once an opportunity is identified. They can then set alerts to view how the position is doing at a later date.
A benefit of swing trading compared to long-term trading is that swing traders often look at the charts to identify suitable 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 that new traders are excited to get into.
That being said, day trading can be the most challenging trading timeframe to find profitability. New traders practicing day trading will be required to make frequent buying and selling decisions. New traders who are inexperienced and needed to make regular 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 screens to identify profitable trades. Long hours staring at a screen can cause fatigue. However, 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. However, tighter stop levels can sometimes mean more losing tradings compared to a longer-term approach. Therefore, I advise you to get comfortable with long-term and swing trading before starting day trading.
In what way does analyze time frames make an impact on forex trades?
It cannot be denied that there are many advantages to engaging in various forex trading time frames. They become evident when comparing forex versus stocks. Due to the market’s robust liquidity about forex, traders can access short-term time frames and meaningful view information. On the other hand, when it comes to a stock that does not possess a high level of liquidity, the trader may not benefit from a short-term time frame, as it will not provide much new information in such cases that there has been no change in the price.
It is realized that another benefit of the usage of forex trading time frames is that the forex market runs twenty-four hours per day, each day of the week. Therefore, when applying various forex trading time frames during distinct trading periods, traders are presented with varied market conditions. For example, consider that this can allow for the range of markets during the Asian trading period. Or during the US and European crossover period, this can enable viewing of the trending markets. Traders are thus empowered to tap into the profitability of these distinct markets’ characteristics when they use different time frames to locate beneficial entries.
It is common for those new to trading on forex to wonder if a specific forex trading time frame is more potent than others. Principally, accessing the best time frame for trading on forex will depend on the preference of the trader’s trading style and the implemented strategies.
The best time frames for day trading and swing trading are different.
What is the common time frame for day trading?
The most common time frame for day trading is 30 minutes time frame. 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 significant profitability as long as you are educated and comfortable with 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.