Timeframes for Forex Newbies
admin on August 27th, 2011
One of the many questions you’ll have to ask yourself when you get into Forex is, “What timeframe should I trade?” You’ll soon discover this question is a little more complex than that. You’ll not only have to figure out what timeframe to place your trades on, but what timeframe(s) you’ll be looking at to place those trades.
Forex timeframes include 1 minute, 5 minutes, 15 minutes, 30 minutes, 1 hour, 4 hours, and daily, weekly, and monthly charts. The timeframes referenced here are the amount of time it takes on each chart for a single candle to be drawn. That means there is a new candle drawn on the 1 minute chart every minute, while on the hourly chart, a new candle appears only on the end of every hour, and so on.
Before you do anything, you should spend some time observing the market on different timeframes. Pick just one currency pair and spend some time just watching how that pair moves on a variety of timeframes. You’ll notice some patterns as you do this. Currency pairs tend to be more volatile and choppier on lower timeframes. On higher timeframes a lot of this choppiness is eliminated. You also will discover after a while that you can visualize one timeframe on top of another. For example, open up a daily chart on any currency pair, and then open up the hourly chart on that same currency pair. Scroll to the same date, and you’ll see how each daily candle is made up of 24 hourly candles. Similarly each hourly candle is made up for four 15 minute candles, and each 15 minute candle contains fifteen 1 minute candles.
Some Forex traders look at just one timeframe and trade that one timeframe. Others look at a huge number of timeframes to place a trade on just one timeframe. Most walk a path that’s in the middle and look at several timeframes to trade one timeframe. One good strategy would be to trade the daily chart, but to plan your trade using the hourly chart. That way you can see the details of what happened during the day to create the daily formation you’re going to be trading off of. Depending on the conditions you see on the hourly chart, you may or may not want to trade the daily formation. Looking at multiple timeframes creates context. A lot of people also choose to look one level up too; if you see that the market is in a particular weekly trend, you might think twice before trading against that trend on the daily chart.
Should you trade faster or slower timeframes? This is entirely up to your personal preferences. Every trader has a unique personality. If in doubt though we recommend you start on a slower timeframe. It gives you a less choppy trading environment, and you’ll also have a lot more time to correct your mistakes. If you try scalping your first go around, you’ll probably lose all your money in minutes! But if you try trading daily charts to begin with, you’ll have days or weeks to remedy problems and work toward profitability.
If you have any questions or comments about using different timeframes in Forex trading, please reply using the commentary form below.