"As you evolve as a trader, over a period of time you might switch between short term trading and long term trading. If you have any experience in investing, you will know that investors tend to hold their investments over longer periods of time. This is the same with forex as well. If you are trading the smaller timeframes, you are basically speculating the price movement. The analysis used with trading smaller timeframes vastly differs when you trade the longer term charts. At the same time, there are significant differences with the timeframes that you are using in your trading. This article answers the question about which is the best timeframe to trade forex. Because there are so many timeframes to choose from, one can easily get confused. But the truth is that there is no perfect timeframe that will give you success in trading. Forex trading is all about finding a trading system and a trading style that suites your requirements. Read this article to learn more about how timeframes can mean different things and how you need to figure out what style of trading suits you better to conclude the right forex trading timeframe."
In the previous article we touched upon how the time series changes depending on the time frame that you choose. Now a commonly asked question by traders is what time frame is the best to trade forex.
The answer to this depends on you actually. There is no “best time frame” in forex that can trade. Using a specific time frame does not guarantee that you will make more money comparing to another time frame.
What matters is your trading style which depends on the trading strategy that you use. Because not all traders are the same, there are certain differences. Thus the time frames used can also change.
For example, one trader might be able to make decent profits trading off the daily time frame. Another trader is just as comfortable trading the 1-hour time frame. As you can see, it is all about your trading strategy and your trading style that will determine which time frame you can choose.
There are some subtle differences between the time frames though, which we will explain in detail in this article.
The basic forex trading time frames
The most commonly traded time frames in forex are the 1-hour, 4-hour, daily and weekly time frame. While there are the basic time frames, traders can choose custom timeframes such as 15-minutes, 30-minute charts or even monthly charts.
A one-hour time frame shows the price behavior every 60-minutes. On the other hand, a daily time frame will show the entire time period’s behavior of price. This means that with a daily time frame, a new session is formed the next day.
With a one-hour chart, a new time session is formed every 60-minutes. The lower the time frames you go, the shorter the periods become. You can go down to the smallest time frame which is the 1-minute chart. This means that a new price bar or a candlestick is plotted every minute.
Of course, beyond 1-minute, you have something known as a tick chart, which is basically where you set the number of ticks or the number of price movements. After the preset number of ticks are reached a new bar is formed.
The concept of intraday and swing trading
What time frame you use in your analysis basically determines the concept of intraday trading and swing trading.
Intraday trading is commonly used when you analyze the small time frames up to 1-hour. Based on how price evolves during these small timeframes, you can expect trading to be done within the day.
When you switch to the 4-hour chart or even the daily chart, that is when you begin to swing trade. Trading based off this higher chart time frames will mean that you will have to keep your trading positions over a period of time, at times the positions are left open over multiple days.
As evident from the above, the trading strategy that you use will depend on what time frame you are going to use. Shorter time frames are ideal for day trading or scalping the markets. The profits you make off this style of trading is small. The risks are also small.
When you trade smaller time frame charts, it is quite likely that your trading volume will increase. On the other hand, when you trade the higher time frame charts such as H4 or daily or weekly, the number of trades are lower.
At the same time your risks and rewards are a bit higher. Usually, the higher time frame charts are used by longer term investors or swing traders. These trades are usually trend following and can reap huge benefits if you get it right.
When you trade on the smaller time frame charts, you are just trading the volatility that you can see on a intraday basis. This means that you do not focus on the trends but just the intraday price movements that come with it. With intraday trading, you can easily trade the markets without paying too much attention on the trends that are common with longer chart based analysis.
To know which time frame is best for you, you need to figure out for yourself whether you prefer to hold and manage trades over a longer period of time. In this aspect, the H4 and the daily or other higher time frame charts are more suited for this style of trading.
On the other hand, if you prefer to hold your trades over short periods of time and you like the volatility then a short time frame chart is more suited to your style. It can take a while for you to really understand what style of trading you are more comfortable with.