Today you will learn what a Forex timeframe is, the best time frames to trade forex that suits your trading style, what are the differences between short-term, medium-term, and long-term timeframes, as well as get familiar with different styles of Forex trading and can download timeframe indicators that will be useful in almost any strategy.
What Is a Timeframe?
A timeframe is a period of time during which a candle or bar is formed on the chart. So, on a 5-minute timeframe, the chart consists of Japanese candlesticks, the duration of which is 5 minutes. On a 30 minute chart, it takes 30 minutes for one candle to form. For the first five minutes, the candles on both charts look the same, but after 10 minutes on the 5-minute chart, another candle will be added to the first candle, while the same candle will form on the 30-minute chart.
Thus, on the one-minute timeframe, you can see a detailed change in price dynamics for a specific period of time, and on a higher timeframe, you can see the prospect of price changes over a longer period of time.
What Timeframes Are There in MT4?
You can combine all timeframes in the MetaTrader 4 trading terminal into three large groups:
1. Short-term timeframes with duration less than one hour (M1, M5, M15 and M30);
2. Medium-term timeframes with a duration of one day or less (H1, H4 and D1);
3. Long-term timeframes longer than one day (W1 and MN).
Which Timeframe to Choose for Forex Trading?
Technically, there are no best time frames to trade forex and no need to track all time frames for successful trading. The choice of timeframe depends on the trader’s individual characteristics. Now let’s look at the main trading styles used in trading and their advantages and disadvantages.
1. Scalping is trading on small timeframes from M1 to M5 with holding positions for a very short time. This is a very dynamic and stressful trading style that requires constant attention from traders and high market volatility.
The benefits of scalping:
- for scalping, a minimum deposit of $ 100 is suitable with the possibility of its rapid acceleration.
Disadvantages of scalping:
- it takes a whole day to trade;
- only currency pairs with low spreads are suitable for scalping (I recommend choosing a broker with a low spread (ECN accounts);
- the release of economic news has a strong impact on the price;
- high risk of losing the deposit.
2. Day trading is intraday trading, the essence of which is that all transactions are closed at the end of the day, without transferring positions to the next day. Intraday trading is carried out on timeframes from M15 to H1. Unlike scalping, there is less market noise on the hourly timeframe, which means it is less likely that your trade will be closed by stop loss.
The benefits of day trading:
- it takes less time to trade compared to scalping;
- technical analysis works well.
Disadvantages of day trading:
- it is necessary to follow the release of economic news;
- sometimes false breakouts of support/resistance levels occur.
3. Swing trading is a medium-term trading that involves holding open positions for several days. Swing trading usually uses H4 and D1 time frames. It takes no more than half an hour a day to analyze daily charts, and the profit per trade can exceed several daily earnings on minute timeframes.
The benefits of swing trading:
- a minimum of time is required for the analysis;
- no need to constantly be in front of the trading terminal and monitor transactions;
- technical analysis works great on the daily timeframe;
- since deals are opened infrequently, you can ignore the size of the spreads;
- there is no need to follow the release of economic news.
Disadvantages of Swing Trading:
- on the daily timeframe, signals to enter a trade do not appear as often as during day trading;
- due to large stop losses, a deposit of $ 500-1000 is required.
4. Position trading is a style of trading when trades are opened very rarely and held for several months. Positional trading is more suitable for patient traders (investors) who want to find the right moment to enter a trade and hold it until the global trend ends. For positional trading, you need to combine the D1, W1 and MN timeframes. At the same time, fundamental analysis plays a key role in determining the trend, and technical analysis is already used to find an entry point.
The advantages of position trading:
- completely free trading schedule;
- no need to monitor the size of spreads and the release of economic news.
Disadvantages of position trading:
- you need to pay an additional commission for transferring positions to the next day (swap), so it is better to open a swap-free account with a broker ;
- a large deposit of $ 10,000 or more is required, otherwise the game is not worth the candle (what’s the point of keeping one deal for six months with a $ 100 deposit?).
Often, when analyzing timeframes, it is necessary to keep track of the higher timeframe. For example, if you trade on an hourly chart, then trades should be opened in the direction of the global trend on the daily timeframe. However, it can be inconvenient to switch between charts, especially if you are constantly scalping. And if you are still trading several currency pairs at the same time, you can get confused altogether. Indicators of the higher timeframe will come to your aid:
1. The MiniCharts indicator allows you to set up several small charts in one window, both lower and higher different timeframes. Download MiniCharts indicator.
2. The Mcandle indicator overlays the candlesticks of the higher timeframe on the chart with the lower timeframe (in the indicator settings, the “TFbar” parameter must be set to a value in minutes to display the required timeframe on the current chart: for H1 – 60, for H4 – 240, etc.). Download Mcandle indicator.
In this article, you learned the best time frames to trade forex depending on your strategy, how to analyze timeframes, and what auxiliary indicators of a higher timeframe are. I hope that this article was useful to you. I wish you successful trading!
Read also the article “Best Currency Pairs to Trade“…