Timeframes in Forex Chartson August 23, 2011 at 8:21 am
Timeframes are very important in forex charts. When someone asks you what’s the currency market update, the natural question that you will ask that person in return is on what timeframe you want the market update. You can liken a time frame to something like zooming in and out of a picture in order better understand it. Now, there are many timeframes that you can use. The most important are the 1 minute, the 5 minute, the 15 minute, the 30 minute, the 60 minute, the 240 minute, the daily, the weekly and the monthly timeframes.
Each timeframe has got it’s own peculiarities. For example, 1 minute timeframe has got a lot of noise and is in fact very fast moving. On the 1 minute timeframe, you can observe the smallest movements in the market. On the other hand, the monthly timeframe is very slow and gives you the very broad picture of the market. So, the important question that comes to your mind is what timeframe is the best.
1 Minute And 5 Minute Charts Best For Scalping While The Daily Charts Are Best For End of Day Trading
It depends on your style and personality. Some traders love to trade on the 1 minute and the 5 minute charts. 1 minute and the 5 minute charts are basically used for scalping. Scalping means quickly entering and exiting the market grabbing a few pips each time. 1 minute chart is very fast moving. Scalpers use it to make the entry and exit decisions while they take the confirmation on the 5 minutes and the 15 minute charts. On the other hand there are traders who love to trade on the 4 hour charts (240 minute charts). While there are others who only trade the daily charts. Daily charts are also known as the End of Day Charts. So, if you have a day job and can only trade on the end of the day, the natural choice for you is the daily charts. When you trade on the daily chart, you take the confirmation on the weekly and the monthly charts.
Multiple Timeframe Confirmation
What you need to understand is the use of Multiple Time Frame Confirmation. In essence what multiple timeframe confirmation means what you see on the smaller timeframe, you should confirm on the multiple timeframe. The smaller timeframes are the building blocks that are used to build the larger timeframes. So what you see on the smaller timeframe should confirm on the larger timeframe. For example, if you see an uptrend on the 15 minute charts, confirm that uptrend on the 30 minutes as well as on the 60 minute charts. In the same manner, if you see a downtrend on the daily chart, confirm that downtrend on the weekly as well as monthly charts.
Now, at any point of time, there is a very good chance that the different timeframes may not be moving in the exact same direction. There might be slight variations not only in the direction but also the quality of that direction. Comparing these differences to find confluence and high probability trade setups is what makes you a successful trader. But always remember, you take the confirmation on the next higher timeframe chart.