The timeframe is a time period that characterizes the movement of the exchange rate over a certain period of time. The trading effectiveness depends on the correct timeframe.
Traders can analyze price charts on different timeframes. The most popular are M5, M15, H1, H4, D1. On MetaTrader 4 there is an opportunity to use 9 standard timeframes: 1 minute, 5 minutes, 15 minutes, 30 minutes, 1 hour, 4 hours, 1 day, 1 week and 1 month. You can also create your own timeframe.
When switching from one timeframe to another, the volume of one candlestick or bar changes. In other words, the timeframe is the time period of each candle or bar. For example, if you have a minute timeframe (M1), then each candle on the chart will be equal to the interval of 1 minute.
Timeframes can be divided into three groups:
- Short-term –from M1 to M15. On short-term timeframes, intraday trading, scalping are conducted. Such trading requires more time and is characterized by psychological stress. Trading on short-term timeframes is not recommended for beginners.
- Medium-term –from M30 to Н1-H4. On medium-term timeframes, trading is calmer.
- Long-term –from Н4 to D1 and above. Short-term and medium-term timeframes mean speculative trading, while long-term timeframes imply another approach –
The choice of timeframe depends on the trading strategy. There are several types:
Scalpers execute a large number of orders, holding the position for a few seconds or minutes. The total number of operations is not limited. Scalpers constantly buy and sell during the day. A profit of scalper is usually 5-15 pips on a single trade. As a rule, they prefer trading after the publication of key economic news in order to get a quick profit. Scalpers usually work on M1-M5 and 15-minute timeframes.
Intraday trading also involves making transactions within a single trading day, but a fewer amount of orders. The duration of one transaction varies from several minutes to several hours.
Intraday traders buy and sell currencies during the day, making a profit from short-term trends. Movements in such trends are usually 40-60 pips per day. Intraday traders quite often use a trailing stop and can hold positions for several days if they see a good potential in a certain transaction. M5-M30 timeframes are recommended for intraday trading. If you are a scalper, then you need a lower timeframe, if you have 1-2 transactions per day, then you may choose M15-M30.
The position is held from a day to several weeks. There is no need for constant monitoring of price charts. This type of trading is also good because you can choose several instruments and use them for more efficient trading. Traders who prefer this style of trading choose such timeframes as M30-H1 to H4.
Long-term trading is based on making transactions from a week to several months. Do not require instant decisions and constant monitoring. In fact, this style of trading is considered as investing, since it does not pursue the goal of obtaining momentary profits. In the long-term strategy, the highest timeframes are used: from H4 to D1 and above.
Which timeframe to choose
On higher timeframes the psychological stress is significantly lower, there is always time to assess the situation calmly, without haste. Therefore, for beginners it is recommended to trade on higher timeframes, starting from the hourly H1 to D1.
Also, beginners should exclude minute timeframes, as it is difficult to make an analysis on such timeframes due to the “market noise”.
As a rule, every trader has several favorite timeframes, on which he makes an analysis and trades. To determine for yourself on which of the timeframes to trade, test it on a demo account without risking funds. It is a good way to move from a beginner to a more experienced trader. JustForex broker offers its clients practice accounts with trading terms corresponding to real ones. You get the same quotes, monitor the real-time situation on the market.
By Taylor Wilman