How to Choose the Best Chart Time-Frame

By DailyFx | Updated July 29, 2014 AAA

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Talking Points:

  • Time-Frame should depend on trader’s time available to trade
  • Multiple Time-Frame analysis can also be used
  • Automation allows any trader to trade any time frame.

The topic of “which time-frame to use” on a chart is almost as old as charts themselves. Traders are constantly looking for any edge they can get, so exploring different charting options is fairly common. The truth of the matter is, I’ve seen traders make sustained profits trading 5-minute charts all the way up to Weekly charts and every time-frame in between. So what makes one time-frame better than the other? It depends.

What Time-Frame is Best?

Rather than looking at a chart’s time-frame as a component of a strategy, I believe it’s better to look at a time-frame as it compares to the amount of time you have available to trade. Not everyone has 8+ hours a day to analyze charts and actively trade full-time. Many of us have full-time jobs and families that take up a bulk of our day, and all of us need to sleep at some point. So if you only find yourself available to look at a chart for 20-30 minutes a day, you might want to re-think that 5-minute chart scalping strategy you are attempting.

What we instead need to do is honestly look at the amount of time that we have available each day, and decide what time frame best works with our schedule. For traders wanting to trade 4-8 hours a day, you have the ability to trade any time frame you want. If you are trading 1-3 hours a day, you might be better off trading medium-long term time frames, Hourly charts or larger. If you are trading less than 1 hour a day, then you really should only be looking at 4-Hour, Daily, and Weekly charts.

Learn Forex: Changing the Time Frame on a Marketscope Chart (FXCM)

How to Choose the Best Chart Time-Frame

(Created using Marketscope 2.0 charting package)

The reason we want to trade larger time frames when we have less amount of time to trade is because we want to slow down the charts on our screen as much as possible. A 5-minute chart will have 288 candles in a single day. If we are only able to watch a small fraction of those candles due to time constraints, we are forcing ourselves to trade with only a small fraction of the available data. But when we increase the time frame to something larger, like a 4-Hour or a Daily, we are able to see a majority of the day’s data with a quick glance.

What is Multiple Time Frame Analysis?

Another topic that is popular with regards to time frame, is multiple time-frame analysis. Often times, traders will use more than one time frame on a single currency pair to get a feel for what the pair is doing short, medium, and long term.

One method that I use is starting off by looking at a large time frame to look for the overall trend direction, and then look for trade setups based on a smaller time frame chart in the same direction as the larger time frame. This ensures we are not placing a trade against the overall trend. James Stanley has a great write up on Multiple Time Frame Analysis that I recommend checking out to learn more.

How Automation Unlocks All Time-Frames

And finally, if the time frame you want to trade is not recommended due to the limited amount of time you have available, it might be a good idea to look into trading automation. Automation allows us to turn our trading strategy into computer code that will automatically open and close trades based on our created rules 24 hours a day, 5 days a week. This means we would be free to trade any time frame we want without restriction.

There are several different routes to take when it comes to automated trading; using someone else’s strategy, adapting someone’s pre-made strategy to fit your own, or have someone custom make the strategy specifically to your specifications. All of these options are a possibility, as I have used all 3 types in my trading career.

In Conclusion

In conclusion, choosing a time frame should be based more around the amount of time you have to spend in the markets each day, we can use multiple time frames to enhance our strategies, and by using automation, we have the freedom to trade however we like. If you would like to experiment with different time-frames, download a Free Forex Demo account with free charts and real-time pricing data.

Good trading!

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