What Time Frame Should You Trade
On a recent lecture on trading I asked one of the audience whom I knew traded spot forex where the trend was
for the Euro/Dollar this week. He immediately replied that the trend was up. I then asked how he knew the
trend was up for all the traders who trade the Euro/Dollar.
You see it's impossible to determine trend until you know what time frame you are talking about. The trend
for that audience member was up because he traded on a daily time frame yet for another audience member the
trend had been up and down several times that week as he only traded on an five minute chart.
One of the main reason I see traders not do as well as they should is that they are trading the wrong time
frame for their personality. In the normal course of events someone learning to trade will either educate
himself by taking a course or reading relevant books.
In order for the person giving the course or writing the book to demonstrate his point he will have to use a
particular time frame. This often becomes the student's time frame by default because that is how he learnt.
In today's electronic world many new traders start off by studying very small time frames such as 1 minute
and 5 minute charts. This often leads them to get frustrated and to become anxious when they trade because it
is the wrong time frame for their personality.
Let me just add here that there is nothing wrong with trading any particular time frame just be sure you are
trading it for the right reasons.
| So what is the right time frame for you? Well, it all depends on your personality. You have to feel
comfortable with the time frame you are trading in. You have to feel at home with that time frame. There is
always a degree of pressure when you trade because there is the real potential for loss or gain and that will
effect you to some degree. You should however not feel that the reason you are feeling pressure or
frustration is because things are happening so fast that you find it difficult to make decisions or so slowly
that you get frustrated. |
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When I first started trading I started out as a Spot FX trader trading on 5 minute charts. I traded on that
time frame for years. Because it was such a short time frame and I was covering so many currency pairs I
always felt a bit unprepared regardless of how much time I spent preparing for the trading day. I also found
that after a few years it was beginning to take its toll on my health as I never seemed to have enough time
to do anything but trade.
From the 5 minute chart I moved to the 10 minute chart and spent a month trading on that time frame. I then
repeated the process with the 30 minute chart, 1 hour chart and 4 hour chart.
I eventually found that trading the 4 hourly charts made a lot more sense to me. As the time frame was much
longer and trading signals fewer I found I had a lot more time to analyze the market and I never felt rushed.
On the other side of the coin I have a dear friend who trades the FTSE who just could not trade in that time
frame. It would be to slow for him and he would get to bored waiting for opportunities. He feels at home
trading a 1 minute chart and always feels as though he knows what's going on and has enough time to make his
decisions based on his trading method.
Yet another friend thinks that the 4 hourly chart is far to short a time period for him as he trades only
daily, weekly and monthly charts. The point is only you can decide what is the correct time frame for your
personality.
You will also have to take into consideration the market you are trading and amount you have available to
trade. Shorter time frames usually means that you can have better use of margin and stops loss orders can be
much tighter.
If you think the reason your trading is not going the way that it should but you believe that your method of
trading is sound, it may just be that you are trading the wrong time frame and it is effecting you
psychologically.
To sum up, if you have a solid trading plan and a sound method of trading your chosen market. You should be
able to take that approach and apply it to any time frame.
The question is if you could make the same amount of money trading any time frame which time frame would you
choose. You will of course have to take into consideration that the time frame you choose does generate
enough trading opportunities for you to be happy with the results.
It is also worth noting that if your trading is going well and you are profitable then don't even think about
changing time frames. As the saying goes ''if it ain't broke don't fix it.''
When you do eventually find the time frame you are happy with you can then start looking at multiple time
frames to help your analysis of the market. We will be discussing multiple time frames in future lessons.
Good Trading
Mark McRae
Information, charts or examples contained in this lesson are for illustration and educational purposes only.
It should not be considered as advice or a recommendation to buy or sell any security or financial
instrument. We do not and cannot offer investment advice. For further information please read our
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