Trading is a complex process. The fact that there are several dimensions adds to the complexity. You might find a trading setup that looks a great buy in one timeframe and a good sell according to another timeframe. Learning about different timeframes and how they work is essential in profitable trading. Let’s find out more on the topic in our detailed guide on timeframes.
A timeframe is a chart setting that you can set on a trading platform and receive information about the price performance of any given asset within the chosen timeframe.
In Forex, you will be presented with minute, hourly, daily, weekly and monthly timeframes. If we are using 5-minute timeframes on the candlestick chart, a new candle will form every 5 minutes.
Why is Timeframe important for traders?
- Using the correct timeframe will give traders an advantage.
- Each strategy needs a specific timeframe.
- Scalper traders in general use a minute timeframe to get faster market updates.
- Many traders watch various timeframes simultaneously to increase their chances of success.
- It’s important to note that smaller formats such as minute timeframes have more market noise and consequently, patterns produce lots of false signals.
Thorough Timeframe explanation
The most widely used chart in Forex is the candlestick chart, where price movements are shown in the form of candles. The time frame is what determines how often these candles form. Simply put, if a trader is using a 1-hour timeframe, a new candle will form on the chart every one hour.
There is no universally accepted single best timeframe to use as each timeframe has its own usage. But in general, it is suggested that traders use 1-minute to 1-hour timeframes if they are day-trading. 1 minute chart patterns are highly unreliable due to market noise.
Those that want to swing trade or invest long term use Daily, Weekly and Monthly timeframes. These timeframes are best for spotting chart patterns as in lower timeframes things get unpredictable and chaotic when it comes to chart patterns.
Example of Timeframe in Forex
Now let’s see how to use different time frames in currency trading. Let’s say we are intraday position trading EUR/USD. Which means that we are only placing an order if price action offers a good trading setup. In order to increase the predictability of our trade, we use multiple time frame analysis. In this case, 1 day time frame is a great period for a chart to determine general trend direction. 4h and 1h time frames are great for finding local trends and chart patterns. While higher time frames give us an idea about a price direction, we will use a 15 min time frame for finding an entry. We will only enter a trade if all 3 timeframes are giving a buy or sell signal simultaneously.
FAQs on Timeframe in trading
What is the best timeframe in Forex?
There is no single best timeframe in Forex as every trader and strategy requires a different timeframe. Day traders in general use 5-minute to 1-hour timeframes, high frequency traders use 1 minute charts. Swing traders use 1h, 4h, daily, weekly and monthly timeframes. In addition, many traders use various timeframes simultaneously to conduct technical analysis. The practice is called multiple timeframe analysis.
What timeframe is best for scalping?
Scalpers generally trade within a day. Consequently, daily timeframes help them to find general market direction and much smaller time frames such as 5 min, 15 min, 30 min and 1h formats help them to find trading opportunities.