Forex Time Frames: Pros & Cons and What Is The Best One to Trade
We all know that in Forex, there are different time charts in use. From the 1-minute time chart all the way to the monthly time charts, traders have a wide array of time frame charts at their disposal. However, the fact that there are many time charts is an indication in itself that there is no such thing as a perfect time chart. If such existed, then we would have no need for several time charts, and every trader will use just the best time chart for trading decisions.
In this article, we will try to identify the pros and cons of the different time frames. This should help traders reading this to know how best to apply each one. Do you need trend detector for each time frame? If so, download free trend detector indicator from here.
The 1-Minute/5-Minute Charts
These are the lowest time frame charts. They are the charts that can be referred to as the scalper’s paradise. Need more information about scalping? Please read my article called: “What is scalping in Forex trading and how to succeed with it?”
Pros: A great advantage of these time frames is that they can be used for scalping, and trading during the per-release price movements on certain news items. They can also be used to trade retracement entries on high-impact news releases when the market moves very rapidly in a space of seconds to minutes.
Cons: Trading use is very limited as these charts are filled with a lot of market noise. Apart from scalping, they are practically useless for any other kind of trading style.
This chart is used by traders who are not scalpers, and not entirely medium term traders. In other words, this chart is used by intra-day traders.
Pros: For those who trade intra-day, it is quite good for use in technical analysis, but should ideally be combined with longer time frame charts like the 1-hour and 4-hour charts for best results.
Cons: It is a short-term time frame chart and does not usually tell the picture of the trend at first sight. As such, it is unsuitable for use as a stand-alone chart for decision-making in Forex. In addition, it is subject to market noise and gives a confusing picture when the market is choppy.
If you are a day trader, then this chart is for you.
Pros: It can be used to trade successfully as it gives a reasonable idea of the market situation. Many trading strategies are built on the 1-hour chart, so even if you restrict yourself to trade from this chart, you will be able to make money from it.
Cons: During periods of market volatility or choppiness, it may give confusing signals. It also is not a very good determinant of the existing trend, and requires consultation with the daily chart for confirmation of the trend.
Longer Term Charts
Charts such as the 4-hour, daily and weekly charts are longer term charts. Many retail traders hardly use them, but they are key charts to use as they are the best determinants of the trend. Trend confirmation is very important in trading, especially if you are going to hold positions for some days.
Pros: Give the most reliable signals as they are true determinants of the trend. Even though signals take time to form, they usually give good pay outs. Take time to form on these charts. Traders can sometimes wait for weeks before a signal develops, especially when using the daily and weekly charts. They also require a lot of patience to trade, and if traders are seeking to make specific targets for the week, then trading off these charts will not help that cause.
These are some of the pros and cons of the different time frame charts in Forex. A trader who knows own trading style can decide which time frame to use for making the best of his trading technique.
Later, we will start describing different trading styles. The first trading style we will start talking about is scalping. Stay tuned, we’ll be right back.
Furthermore, do you know when better not to trade on Forex? If not, please read article about best Forex hours and days for trading.
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