The Time Frames of Trading explained by professional Forex trading experts the “The Time Frames of Trading” FX trading team.
The Time Frames of Trading?
Over this series of articles, we will walk traders through the multiple-step process of building a trading strategy. The first installment in the series discussed market conditions. This is the second entry, in which we will delve deeper into selecting a time frame for the strategy.
One of the most common questions from new traders is ‘What time frame works best?’
After all, there are quite a few different time frames we can work with, aren’t there?
Unfortunately, there isn’t an easy or direct answer to this question – as any time frame you choose is going to leave something to be desired. That ‘something’ is the fact that all time frames are lagging; only showing us past prices… which may not be indicative of future prices.
But we can still choose time frames conducive to our goals, and build an analytical approach so that we know the optimal time to employ our strategy and enter trades based on what it is that we want to get out of the market.
And if market conditions do change, risk and money management can help prevent these reversals from completely draining the trader’s account.
Use TimeFrames that Match Your Goals
Often times, traders can get conflicting views of a currency pair by examining different time frames. While the daily might be showing an up-trend, the hourly can be showing a down-trend. But which way should we trade it?
This can provide conflicting signals and counter-productive unrest in the trader’s mind as they are attempting to line up trades. For this reasons, it’s important for the trader to plan the time frames they want to trade as they build their strategies.
In many cases, traders can benefit from using multiple time frames; in an effort to incorporate as much information as possible into their analysis.
Incorporating a longer time frame will allow the trader to see a ‘bigger picture’ of the currency pair so that they may get an idea of ‘general trends,’ or the sentiment that may exist; while the shorter time frame chart can be used for plotting the actual trade. This leads into a very popular permutation of technical analysis in which traders incorporate multiple time frames into their approach.
Multiple Time Frame Analysis
By utilizing multiple time frames in their analysis, traders are getting multiple vantage points into the currency pair(s) that they are looking to trade.
A common way of employing multiple time frame analysis is to use a longer-term chart to analyze the trend or general sentiment in the pair, and the shorter-term chart to enter into the trade. Below are two time frames commonly used by ‘swing traders,’ with the goal of keeping the trade open for anywhere from a few hours to a few weeks.
The Time Frames of Trading Conclusion
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