The time frames, or time units, proposed by the Forex trading platforms are the essential elements for the implementation of an investment strategy based on currencies or CFDs. But what are the different time frames available and how to choose the right one to use for the type of trading you wish to implement? Here you can find the answer to those questions.
A timeframe: What is it?
A ‘Timeframe’ is a unit of time with which we analyse a trend; they are displayed in the form of charts by the brokers.
These units of time and their choice are of paramount importance as it is necessary to use the right time frame according to the life duration of your positions. But the choice of a time frame also depends on the asset that you trade and its level of volatility as certain assets move quickly with a high volume whereas others take more time to gain or lose points.
It is important to remember here that timeframes serve above all to identify the trends within other trends.
The use of time frames in the interpretation of trends:
When we observe a rising or falling trend on a daily chart, it is important to bear in mind that this trend is itself composed of micro-trends over very short terms that, placed end to end, give the global trend over the long term.
According to the expected duration of your trade and the moment you take position, it is primordial to take into account the different timeframes. For this we generally implement a particular method of analysis that takes into account the different periods and ensures the best presentation of observed movements.
Timeframes according to the trading method:
According to your strategies and the Forex trading method that you use, you can choose the most appropriate timeframe. We can therefore associate different trading styles with timeframes in this manner:
- For a strategy of Forex Scalping, with targeted profits of between 2 and 10 pips, you would best opt for a time frame of 1, 5, or 15 minutes.
- For intra day trading with targeted profits of between 10 and 50 pips, time frames of 5 or 15 minutes or those for 1 or 4 hours.
- For day-traders with profits set for between 50 and 100 pips, the time units from 1 to 4 hours would be preferable.
- Finally, for Swing Trading, with profits of over 100 pips, the preferential time frames would be Daily, Weekly or Monthly.
How to choose your timeframe:
Among the advice to follow for correctly choosing your time frame, we must reiterate that if you only have a little time for trading then it would be preferable to choose longer time frames with a strategy of day-trading or swing-trading.
On the contrary, if you prefer to trade over short periods with a sustained and attentive eye on the market you may wish to opt for scalping or intra day strategies and choose short time frames.