
One of the most frequently asked questions in our webinars is “How do I choose a timeframe for trading?” Let’s sort it out in this article!
First of all, we should make a distinction between so-called “higher” and “lower” timeframes. The border between them goes through the 1-hour timeframe (H1). Timeframes with bigger periods (4-hour, daily, weekly, monthly) are referred to as high, large or big, while timeframes with smaller periods (30-, 15-, 5-minute) are considered low or small.
Factors of choice
The time you have for trading
The time you are willing to spend on trading is the main factor. If you want to make many trades during the day, choose smaller timeframes and become a scalper or a day trader. If you can’t be a full-time trader and plan to make no more than 1-3 trades a week, go with larger timeframes. Is it that simple? You bet!
Each set of timeframes has its benefits. Higher timeframes will allow you to eliminate “market noise” and catch the big price swings. At the same time, you will probably make more trades on lower timeframes. This can help you make more money just by scale: the more trades you open, the more chances of good trades you will have.
Your personality
When trading, you need to make sure that you feel comfortable. Analyze your personal strengths and weaknesses and make both work to your advantage.
If you are ready to deal with higher levels of stress and pressure and make decisions fast, you can choose to trade on lower timeframes. You will need to be able to stay level-headed, recover from losses quickly, and resist the temptation to take revenge on the market if you lose. On the other hand, you will also require some emotional resilience if you get a big profit, so that you don’t get carried away and start betting too much on one trade. Short-term trading on lower timeframes will let you feel the pulse of the market and be a very active trader.
If you have patience and a propensity for deep thinking, consider higher timeframes.
Here you will have to wait first for a good signal to appear, and then for the price to reach your target. If you don’t want to hurry and wish to take your time analyzing each trade and its result, this is the best option for you.
Technical analysis
Is this really a factor? If you are shown 2 charts, you probably won’t be able to say which one is a large timeframe and which one is a small one. The principle of indicators like MACD and moving averages, patterns like the head and shoulders or the double top, and such items as support and resistance are the same no matter which timeframe you’re trading on. Although it may seem using the same tools would bring different results on different timeframes, that usually depends on the actions of a trader and his/her skills.
Intraday volatility
The difference between M30 and D1 timeframes is that a technical pattern will form much faster on the former than on the latter. In addition, trades on lower timeframes are much more sensitive to news releases, though you can always check the economic calendar and make a decision to trade or avoid trading based on news.