What is the Best Time Frame for Trading Forex?
"Is there a best time frame for forex trading?" is a common question that traders often ask, especially novice traders in the forex market. The truth is, there is no one answer, it all depends on the preferred trading strategy and style.
Traders use many different time frames to speculate in forex trading. The two most common are long-term trading and short-term trading which transmit to trend and trigger charts. Trend charts refer to long-term trading time frame charts that help traders identify trends, while trigger charts select trade entry points. This article will explore these forex trading time frames in depth, while offering tips that best suit a trader's trading goals.
Main Time Frames of Forex Trading
Traders use different strategies which will determine the use of time frames. For example, a day trader will use a much shorter trading period than a swing trader. Here are the basics of different trading styles.
Position Time Frame Trading
Trading time frame positions vary for different trading strategies. This can fluctuate from daily to yearly under the definition of 'long term'. Many new traders tend to avoid this approach as it means a long period of time before a trade is realized. However, for many accounts, trading with a short-term approach (day trading) can be much more problematic to execute successfully, and it often takes traders longer to develop a trader's strategy.
The position trading approach (long term) can look to the monthly chart to assess the trend, and the weekly chart for potential entry points.
Example of position trading
Once the trend is determined on the monthly chart (lower highs and lower lows), traders can look to enter positions on the weekly chart in various ways. Many traders use price action to define trends or enter positions, but indicators can also be used here.
Time Frame Swing Trading
Once the trader is comfortable on the long-term chart, the trader can then look to move a bit shorter in the trader's approach and desired hold time. This can introduce more variability into the trading approach, so risk management and money management should be addressed before moving to shorter time frames.
Swing trading is a fun medium between long term time frame trading and short term scalping approaches. One of the best benefits of swing trading is that traders can benefit from both styles without having to bear all the losses. As a result, this makes swing trading a very popular approach in the market.
Swing traders will check the chart several times per day if there is a big movement happening in the market. This gives traders the advantage of not having to watch the market constantly while the trader is trading. Once the opportunity is identified, the trader places the trade with the stop attached and monitors at a later stage to see the progress of the trade.
Another advantage of this approach is that the trader still looks at the charts often enough to catch the opportunities. This removes one of the drawbacks of long-term trading where entries are generally placed on weekly/daily charts.
Swing Trading Example
For this approach, the daily chart is often used to determine the general market trend or direction and the four-hour chart is used to enter trades and place positions. The daily chart shows the recent swing high and low respectively. Traders usually swing trading back in the direction of the previous trend.
Now that the direction of the trade has been identified, swing trading will then reduce the time frame to four hours to look for entry points. In the example below, there is a clear level of price resistance that swing traders will see when entering a long position. Once the price breaks or the candle closes above the specified resistance level, traders can look to enter.
Time Frame Day Trading
Day trading can be one of the most difficult strategies to find profitability. New traders who adopt day trading strategies expose traders to more frequent trading decisions that may not be practiced for a long time. This combination of experience and frequency opens the door to losses that might be prevented if the trader had opted for a slightly longer approach such as swing trading.
The scalper or day trader is at a disadvantage because it requires the price to move quickly in the direction of the trade. Therefore, day traders become attached to the chart as they look for the market trend for the day. Obsessing with charts for long periods of time can lead to burnout. The short-term approach also provides a smaller margin of error.
Generally, there is less potential for profit in short-term trades leading to tighter stop levels. These tighter stops mean a higher probability of failed trades compared to long-term trades. For trading with a short-term approach, it is advisable for traders to get comfortable with the long-term approach of trading and swing traders before moving to very short time frames.
Similar to long-term trading, day traders can look to evaluate trends on hourly charts and find entry opportunities on 'minute' time frames such as five or ten minute charts. One-minute timeframes are also an option, but extreme care must be taken as the variability on one-minute charts can be very random and difficult to work with.
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