The timeframes offered by various FOREX trading platforms are essential elements to your trading plan and investment strategy. One of the most common questions from traders is “What time frame works best?” There are a few different time frames you can work with, so let’s see how you can use them to identify FOREX market phases.
How to use different timeframes to identify FOREX market phases
How important is a timeframe in trading
A timeframe represents the length you choose to measure a variable that evolves over time – here we will talk about the FOREX market, so about currency pairs. There are a many timeframes you can use, such as 5min, 4h, daily, weekly and monthly charts, among others.
These timeframes and their choices are extremely important for a FOREX trader, since it is necessary to use the right timeframe based on the length of your positions and your trading profile. A swing trader will not use the same timeframe as a scalper.
But choosing a timeframe also depends on the asset you’re trading and the level of volatility. On the FOREX market, currency pair prices can often change rapidly with high amplitude, and you can gain or lose PIPs very rapidly – especially the major currency pairs that are composed of the most traded currencies, such as the EUR, USD, JPY etc.
It’s important to remember here that timeframes are primarily used to identify trends within other trends. When you observe an upward or downward trend on a daily chart, you should keep in mind that this trend is itself composed of micro-trends in the short-term, which, put end-to-end, gives the overall long-term trend.
Depending on the length you will keep your trade open and on when you enter the market, it’s essential to take account of the different timeframes you can use. You will often hear about a particular method of analysis that takes into account different periods of time to provide a better understanding of the movements observed: the multi-timeframe analysis.
Instead of focusing on a single timeframe: see the big picture before opening a position
One of the biggest trader mistakes is to focus too much on one single timeframe. It’s especially true for beginners, who wish to make profit very quickly. They will focus on very short-term trading methods, such as scalping, to take advantage of very small movement. Their timeframes will then be 15 min, 5 minutes or smaller.
If you think you’re always using the same timeframe, you should definitely try to get more insight into the bigger picture with a longer timeframe. You need to have an insight into what you might want to trade based on which currency pair has the best upward or downward potential.
Most of the time, a longer timeframe are used to determine the trend, the big movement that occurs on a currency pair: uptrend, downtrend or a range. You are then trying to get the general sentiment in a particular currency pair. Shorter timeframes on the contrary are used to determine entry and exit points – you’re wanting to find an opportunity to enter the market.