Trading on multiple time frames

Choosing the best time frame can be one of the most difficult decisions when starting out trading forex. Timeframes dictate the length of time each bar on a price chart takes to form and therefore how much historical information each chart contains. Often, the choice of timeframe (which range from one minute to one month) is dictated by personal circumstance; how much screen-time we have available, our jobs, family commitments etc. Whilst all time frames essentially convey the same information for any given currency pair, the opportunities and available trades between them can vary enormously. Most new traders are encourages to trade from the daily timeframe to begin with, taking time to spot setups, organise stop-losses and learn the art of entering correctly without the noise and distractions of the lower, faster charts. Whether this is the best strategy is subject to debate and a number factors to consider will influence which timeframe is the most profitable for each individual trader.

Higher time frame trading

If we look at the higher time frames, such as the daily, weekly or even monthly charts, the formation of each bar takes some time and developments in both technical analysis and price action trading take time to form. This helps traders to make calculated and thought-out trading decisions and diminishes the influence of adrenaline that affects decision-making in high-speed trading. Spotting chart patterns, candlestick formations as well as the underlying trend in a market is excellent on these charts and the probability of success is very high using these techniques. However, the downside to waiting several days or months for a pattern to emerge is that there are not a great number of trades available to take. Having said this, the number of pips to be gained from a successful trade on a high time frames are far higher than moves the 5 or 1 minute so these high-probability setups are well worth waiting for.

Lower time frame trading

One of the benefits of trading the lower timeframes is the number of opportunities that occur each day. From the hourly down to the 1 minute charts many new traders prefer to practice on these rather than the daily or weekly timeframes. Since stop-loss positions can be much shorter and trades lower risk in this respect, looking for trade setups on the lower timeframes can be very rewarding. However, the temptation to over-trade is also very high and traders should have a strict trading plan to avoid chasing every market move. An additional problem with the very low timeframes, such as the 5 minute and 1 minute charts, is that there is a tendency for the market ‘noise’ at these levels to distort the price charts. This means that the same setups may not be as reliable at these levels and the use of additional confirmation tools such as indicators and technical signals should be used to confirm the validity of each setup.

Combining time frames for higher-probability trades

Many professional forex traders advocate using multiple time frames in order to get a good overview of the entire market. Whilst trades will be entered below the hourly chart time frame, using the higher time frames for trend analysis and technical analysis will increase the probability of a trade’s success. These higher time frames will ensure trading in the direction of the trend, and avoid trades being taken in to key areas of support, resistance or against a major pattern formation.


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