How to Choose the Right Time Frame for Maximum Profit in Forex Trading

Posted by Unknown Sabtu, 14 April 2012 0 comments

How to Choose the Right Time Frame for Maximum Profit in Forex Trading If you have done any searching at all you know there is a lot of information on the subject of time frames out there. Not everybody agrees on what works and that's what makes a market.

Let's start by what is meant by the phrase "time frame". The term simply means how much time is represented by each bar on a chart. Most newspapers post daily charts, meaning each bar is one day long. Weekly and monthly charts are also common.

Most Forex traders use shorter intervals, given the volatility of the market. In theory, the shorter the interval, the less capital is needed to make the trade. Longer periods equate to bigger potential market moves and larger stop losses in terms of pips. However, in Forex the value of a pip is what you make it. This allows for stop loss points farther away from the market without adversely affecting your money management strategy.

The span chosen should be primarily dependent on your chosen trading style. This may also depend on your trading system. Different systems work better on different intervals. In fact, a trading system that works well on one interval may be a disaster when used with a different bar length.

It is also important to remember that markets are made up of individuals and it's a good idea to keep an eye on where the competition is going and what they see on their charts. Like it or not, Forex is a zero sum game and knowing where the competition is going and estimating what they may be thinking is essential to your success. Considering this, you should keep an eye on the most popular time frames. Those are one minute, five minute, fifteen minute, thirty minute, one hour, and four hour intervals. Knowing where support and resistance lie and what the predominant trend is in each of these time frames provides an excellent advantage.

Note that the period used for your actual decision making process is not limited to the most common time frames. Some traders create charts using intervals based on Fibonacci numbers. Other traders look at the common time frames but create their bars based on ticks or even range.

Whatever bar construction method you use, it's a good idea to keep an eye on a shorter and a longer term chart. For example, when trading based on a five-minute chart, you might also be watching a one-minute and a fifteen-minute or a thirty- minute chart.

I have found that if I only enter trades in the direction indicated on the longer time frame chart, my odds of a successful trade increase dramatically. I have also found that using the shorter interval chart can be very helpful in deciding when to exit a trade. I find it most convenient to have all three charts, with their indicators and trend lines on the screen at the same time.

I personally watch the popular time frames mentioned. However, in an effort to beat the herd mentality, I will trade off of a different chart to be either just ahead of the crowd or a little behind.

In summary, choose a time period or bar composition that works best with your trading style and your trading system. Keep an eye on a shorter term bar and a longer term bar. Periodically take a look at the popular intervals to see what the crowd is doing.

James Mason is an active currency trader who teaches forex trading through individual consultation and in a live trading room. For more information go to http://www.jamestrades.com

By: James L Mason

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