When trading the Financial Market, be it the Foreign Exchange Market (Forex), commodities, stocks or even crypto-currencies trading, one important feature we all depends on to trade effectively and profitable is the TIME FRAME.
Time frames shows the traders what has happened in the market over a certain period, they show individual traders the emotions in the market and the impact the big guns (market participants) are making in the market.
Let’s discuss about what time frame are.
The word Time Frame may seem a bit strange to newbies and in-experience traders. Time frame refers to the period a forex trader choose to view his chart (the formation of the candle sticks). Time frame varies from platforms (trading terminals) and brokers the popular ones are the 1 minutes, 5 minutes, 15 minutes, 30 minutes, 1 hour, 4 hours, 1 day, 1 weeks and 1 month just as it is shown below.
The kind of time frame a trader uses and chooses to trade with, tells a lot about the trader and his trading style. Some traders do not really know the implication their trading time frame has on their trading result and profit. While some just trade using any time frame that come preinstalled in there trading terminal, others uses what they see other people use.
In this article, I will try to analyse each trader and the kind time frame they should use in there trading career.
Types of Traders
There are 3 (three) types of traders and every trader that trade the financial market falls within this category irrespective of your trading strategy, technique, method or the financial instrument or asset you trade, and they are
- Scalpers (Intraday ) Traders
- Day Traders
- Position (Long Term) Traders
Scalpers (intraday) traders
A high percentage of traders who trade high volatile markets such as forex or crypto, are usually scalpers. This maybe because they were taught that scalping is one easy way of making cool cash over the internet or from the financial market and most times it can be as a result of poor guidance (training) from there mentor, trainer or coach.
Scalpers usually have one motive and that is to enter into the market and go off almost immediately. They aren’t interested to stay long enough to know what is happening between the bulls and bears in the market, either are they interested in staying in a trade long enough to get enough profits.
They are fond of using indicators of various kinds and following the news like their life depends on it (actually there trading account depends on it) just to catch the trend and take a few pips from it, while risking a lot – risking a high percentage of the account to gain little.
Day traders, unlike the scalpers can stay in the market for a while usually from hours to days (one to two days). They aren’t interested in over trading just like the scalpers but are in to make few pips profit for the day and they are off until the next day.
Day traders are not high risk takes but still there risk and money management remains fairly poor as they are willing to go the extreme, if they are sure of the direction of the trend.
Position (Long Term) Traders
These are low risk takers since they trade very often and apply good risk and money management to their trading. These traders barely ever read or listen to news, as they follow the fundamentals of each currency and their country economic policies.
Position traders are comfortable holding their position from days to weeks and most times to months depending on the psychology of the trader.
These traders takes the largest share of profit in the market as they are not disturbed by spikes from news and forex events.
Types of Time Frame
There are various type of time frame as I earlier said before, time frame ranges from 5 minutes to 1 months and each falls within 3 category and these categories are:
- Short Time Frame
- Medium Time Frame
- Long Time Frame
Short Time Frame
The short time frames are used mainly by scalpers, this time frame also help to fuel their desire to trade continuously. Short time frame always shows lot of trade set up and entries, which most of the time ends up being fake and misleading.
Those profitable traders, who trade with these time frame are those who have mastered the techniques that comes with patience, dedication and experience.
These time frame include:
- 1 minute time frame
- 5 minute time frame
- 15 minute time frame
- 30 minute time frame
Medium Time frame
This time frame is used mainly by day traders, who uses it to find trade entries. They are a bit longer than the short time frame. Medium time frame shows what happens with in a day, it filters “noise” from the market but is isn’t very effective to trade like the pro.
There are a lot of professional traders, who have master the method and use it in there trading strategy as well as to teach others – that explains why there is a large usage of this time frame.
These time frame include the following:
- 1 hour time frame
- 4 hour time frame
Long Time Frame
These time frame are used a lot by position traders as they show long term candle stick on the chart. These time frame show a summary of the emotions, anxiety and fear of traders over a certain period of time.
Traders who uses this time frame, rarely trade a lot as it takes time for one of this candle sticks to form. These time frame are perfect for those who wish to hold trades for a longer period of time, which is more than a day.
In summary, each time frame has its advantages as well as its disadvantages and individually, we have things, which we are naturally drawn too and things we can’t just adhere too – the same thing happens to us in trading various financial market.
When I started trading, few years back I saw different time frames to use and learn how to trade but I chose to use the daily time frame, even when I tried my hands on other trading methods that uses the lesser time frame, I still wasn’t comfortable with them so I switched back to the one I was comfortable with and that’s the Long Time Frame.
Depending on each individual endurance level, if one can stay long enough on a trade, I would recommend you trade using Long Time Frame or the Medium Time Frame and if these aren’t suitable for you and you want to quickly enter a trade and exit almost immediately, then you can use the Short Time Frame, I will also recommend you first learn to effectively use the time frame to plan your every trade set up.
In essence, I always advise traders to “find what work best for you and stick with it”