Which is the best Time Frame to use
Earlier, we said that when you select a time frame e.g. 1
hour, each candlestick will be representing the price action of that currency
pair for a period of 1 hour.
But which time frame will be the best for you?
Well, that depends mainly on three factors
- The
amount of time you can dedicate on trading per day or per week.
- Your
account balance.
- The
type of trader you want to become.
1. Amount of free time
If you have a demanding job and a tight schedule, the best
time frame for you will be a high time frame, like 1 day.
This is because in the daily time frame, only 1 candle is
formed per day. Therefore, price action seems relatively slower, so you can
check the market only once per day.
If you have more free-time you can trade lower time frames
like the 1 hour chart where a candle is formed each hour. But you can still
refer to higher time frames to understand the price action better.
2. Trading account balance
If you have a small trading account like $100, you should
use lower time frames like 1 hour.
With a small trading account, a high time frame like 1 day,
can mislead you when you are setting your stop loss, making you to set it very
far from your entry price.
Setting a stop loss far from the entry price increases your
risk especially if you trade a big lot size.
3. Types of traders
There are four types of Forex traders. These are:
- Day
traders.
- Swing
traders.
- Scalpers.
- Position
traders.
Day traders, do not hold
their trades overnight. They use low timeframes like the 15 minutes candles.
Swing traders, can hold a
trade for a few days to weeks. They use a high timeframe like the 4 hours
candles.
Scalpers, are a special
type of day traders whose trades only last for a few seconds to minutes. They
use very low time frames like the 1 minute.
Position traders, are
those whose trades can last for months to years. Most of them are investment
institutions and very wealthy individuals. They use very high time frames like
the 1 week.
Scalpers and day traders like to trade during the London and
the New York session when volatility is very high.
