Which Time Frame To Trade On

Which time frame to trade on?

Which time frame to trade on?

we need a prior understanding of Japanese candlesticks and multiple time frame analysis.

What is a time frame?

This is a specified period of time where price action is displayed on a chart.

Each candle lasts for a specified period of time with Japanese candlesticks.

Each individual candle should take the specified time to form.

We need to be watchful when we set a particular time period on our chart. It should not show the price over that time period.

For instance, a five minute time frame does not show the price action over 5 minutes.

Each individual candle on the price chart takes five minutes to form.

Weekly chart, which is a larger time frame, will show us the price range over the course of a number of months. However, each candle will take a day or a week to form.

Practice session

Weekly chart example. Show chart

Smaller time frames, such as the 5 minute chart, show the price action over a much shorter range, but each candle takes five minutes to form:

5 minute chart example. Show chart

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Definitions of different time frames

There are differences in opinions on short-term time frame and long-term time frame definitions.

Anything below an hourly time frame can be considered short-term;

anything below a daily time frame can be considered medium-term;

and anything that is daily and above can be considered long-term.

We need to choose a time frame that is convenient to us.

Choosing a time frame

In order to be successful in trading one need not be watchful of every single time frame.

We need to choose a time frame that best suits our nature as there are different disciplines and techniques for different time frames.

Those who trade with patients and without high volatility may prefer trading on higher time frames.

Those who prefer to trade often with heightened market activity may prefer a shorter-term time frame.

We have to choose the time frame that suits us the best.

Short-term time frames

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The duration of short-term trades generally lasts from several seconds to a couple of hours.

Scalping

Scalping is a methodology in which a trader looks a short-term time frame closely and enters and exits in a matter of seconds.

The goal is to make small and frequent trades.

The points to be considered when trading using scalping:

Since scalping is fast paced it requires a close monitoring throughout the day to identify and take trades.

Close monitoring is also required throughout the trade from open to close.

Scalping requires active market sessions. Frequency is more during the London and New York.

Discipline and consistency is required as the scalping system is strenuous.

This method does not ensure positive returns because potential profits can be made quickly.

Day trading/Intraday trading

When the orders are opened, and closed within a single day and the position is not carried overnight, the method is called day trading.

Day trading often happens in a few trades per day. Trading usually takes place in five/fifteen minutes, hourly etc.

It does not rely as heavily on fast price action, such as scalping.

The following points have to be considered before choosing this method.

This method is slower than scalping.

It is not as long as other long term types of trading where we can wait for days or even weeks to identify an entry.

A day trader should keep a close watch on associated economical developments as these can impact the market conditions throughout the day.

Medium-term time frames

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Here, a trader will watch four-hour or daily charts and will try to get an entire picture, finding a few trades per week.

Swing trading

A medium-term trader who may observe at a daily chart to watch underlying trends and decide on specific trades based on, say, a four-hour chart. This is known as swing trading.

Stop losses are profit targets are usually higher.

Patience and consistency is required for a swing trader to wait until the price reaches their take profit or stop loss orders.

This method is more suitable for:

Traders who are unable to check the market every day, but can spend some time to identify entries by analyzing the market.

Traders who wait patiently for the correct entries and trade only a few times per week.

Traders who are confident with their plans and do not change their strategy if there is adverse price fluctuation.

The advantage of this method is that with wider targets, the impact of spreads is very less.

For instance, a 3 pip spread is affordable when projected profits are 50-100 pips.

A swing trader has a wider choice of currency pairs those that are less liquid with wider spreads.

Long-term trading

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A long-term trader patiently waits for opportunities.

The trades are normally held for long periods of time – weeks, months or even longer.

Position trading

The usage of daily, weekly or monthly charts predominantly is known as position trading.

Fundamental analysis can play a major role in making trading decisions as economic conditions may change over the time for which a trade is open.

Points to be considered when selecting a time frame

Personal requirements for trading

Time duration available to trade

Personality type

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Many traders that trade huge amounts of money use technical analysis to enter and exit trades. This also includes financial institutions, commercial and central banks.

Position trading would suit traders who have:

Consistency and patience is required to enter and exit a trade.

Traders who are confident with their plans and do not change their strategy if there is adverse price fluctuation.

Larger starting capital because a long-term trading account normally has to withstand larger losses.

Nut Shell:

An overview of the lesson discussed so far….

We need to choose a time frame that is convenient to us.

The duration of short-term trades generally lasts from several seconds to a couple of hours.

Scalping is a methodology in which a trader looks a short-term time frame closely and enters and exits in a matter of seconds.

When the orders are opened, and closed within a single day and the position is not carried overnight, the method is called day trading.

A medium-term trader who may observe at a daily chart to watch underlying trends and decide on specific trades based on, say, a four-hour chart. This is known as swing trading. It requires less time analyzing charts, but more patience and larger profit and loss projections.

The usage of daily, weekly or monthly charts predominantly is known as position trading. Position traders wait to take a trade that is likely to last for a long time.