Success in Forex trading is not by chance or luck. Rather, it is a combination of experience, understanding and being a keen observant. One of the most common question that Forex traders ask is what is the best time frame to trade? To answer this question, there is need for one to understand how the Forex market works.
There are three major sessions during which the market is most volatile or active. At this time, there is large volume of transactions taking place and this is a perfect opportunity for you to make money. The first session is the New York session and it opens at 8:00 am EST. At this time, there is more activity on the New york Forex market like release of critical information by the US government which affects the movement of the dollar. The next session is the Tokyo session and begins at 7:00 pm EST. The London session is the last session in Forex trading starting at 3:00 am EST. Understanding the sessions makes it easier for a trader to know when to log in to a Forex account and start making money.
Having understood the sessions, the next question concerns, time frames in forex, forex trading charts. When you log in to your account, you will see a series of charts that that resemble a candle referred to as candle sticks on your trading platform. This is the most common type of trading chart and is highly recommended for beginners. Other trading charts include MACD, bollinger bands, RSI and moving average. In this article, we begin with analyzing the candle stick with regards to time frame and the best interval to use.
The candle stick technique has been used for centuries to understand past price movement and use this information in predicting future prices. Technical traders like Burton Markiel in his book titled, 'A Random Walk Down Wall Street,' believe that past prices can be used in predicting future price movements. Hence, by understanding how the market behaved in the past hour, day week or month, you can predict how it will be in future and thus execute trades to earn profit basing on this information.
In the trading platform, you will notice a series of candle sticks with initials at the top of the trading platform indicated M1, M5, M15, H1, H4, D1, W1, M1. These basically indicate the behavior of the market at different time intervals beginning from one minute, five minutes, fifteen minutes, one hour, four hours, one day, one week and one month respectively. Remember, you are using different currencies. Hence, when you click USD/JPY H1, you will view how the dollar and Japanese yen behaved in the past hour. Similarly, USD/EUR M15 indicates the behavior or Dollar versus the Euro in the last 15 minutes.
Time frames and the trend
Trend in Forex trading is a technique a trader must learn to succeed. Trend generally indicates how a specific currency performed in a specific duration in terms of other currencies. For instance, to understand the trend relating with dollar, simply click on the dollar versus several different currencies at different time intervals. If the dollar is exhibiting a rising trend, it means it is strengthening against other major currencies. In this case, the candle sticks move upwards in every transaction relating to the dollar or exhibit higher highs and lower lows. For instance, in the USD/JPY M15, the trend shows an upward movement if the candlesticks keep forming one above the other. The first M15, will be formed slightly lower than the most recent M15 and the next one even higher. This might seem confusing but it will be easier when you log in to the trading platform.
Best time chart to use
The next important question relating to time frames in forex, forex trading charts is which is the best time chart to use? To become a successful trader - and excel in manual trading - you should learn how to use the M1, M15,H1 or D1. There is no specific answer regarding the best time interval. The ideal interval to use depends on two factors, traders account balance and trading goals. If you invest millions in Forex market like world leading billionaire, Warren Buffet, the longer time intervals is ideal for you. This implies using W1, M1 intervals since your account can comfortably sustain long term trades. However, most traders prefer to start with smaller investments like 500 dollars. In this case, you will be engaging in what experts refer to scalping. Basically, you execute a trade basing on shorter time intervals like M1,M5,and M15. Few scalpers use M30 while trading. The main advantage of using shorter intervals is that your trades don't need to run for long period like leaving them open overnight. You simply execute the trade and in 5 to 10 minutes, you should be done. The disadvantage is that the market is highly volatile in the short time interval. It is difficult to make concrete decisions basing on one minute or five minutes.In most cases, it is impossible to observe a predictable trend in such shorter intervals. The M15 or fifteen minute interval is ideal for beginners who engage in scalping.
Number of time frames to trade in Forex
Basing on the explanation on trading intervals, you can either use single time frames or multiple time frames. Single time frame implies observing a currency pair at a single specific interval and making your trading decision basing on the specific interval. For instance, you can decide to observe USD/JPY M15 and predict the trend basing on the fifteen minutes interval. Multiple time interval on the other hand implies using a combination of D1, H4, H1,M30 and M15 to predict trend and make decision on best time to execute a trade. Using the longer intervals shows the general trend and using shorter intervals shows the best entry and exit points. This strategy is highly recommended for experienced traders and long term trades.
Forex trading is exciting and a big potential to make money. By simply understanding the basics of time frames in forex, forex trading charts, you can increase your probability of making profits. Understand one trading chart and how to use it in different time intervals. Keep in mind that trend is your friend and emotions your enemy.