When trading Forex, choosing your time unit is important. This choice will depend in particular on your trader profile, your objectives, etc. and will be decisive in the success of your analysis.
What is timeframe in Forex?
The timeframe is the unit of time (UT) the trader works on to carry out his technical analysis. Depending on the trading horizon, the UT can range from minutes to months.
The price chart will therefore represent different movements depending on the chosen time unit. For example, on a UT H1 chart, the price variations over a one-hour period will be represented. In daily, these will be the daily variations. The lower we go on short time units, the more we can observe the small price movements.
Which timeframe should you use in trading?
A good practice is generally not to use a single timeframe, which risks giving a reductive view of the market, but rather to work on several different time units in parallel.
This allows you to analyze price movements over different time frames. You can observe the general trend over the largest timeframe, and refine the analysis over smaller time frames.
We will generally seek to take positions that go in the direction of the trend displayed on the largest timeframe, and to have similar signals on the different time units, to confirm these.
However, we must avoid spreading ourselves too thin by using too many different timeframes, which could be counterproductive. Limiting ourselves to 2 or 3 UTs seems reasonable, and is sufficient to have a good view of market movements and the trend.
It is therefore important to carefully select the most relevant time units based on our trader profile.
How to define your trader profile?
As a beginner, it can be tempting, even exciting, to move towards short term trading, or scalping, using the shortest timeframes.
But while these short UTs may seem like they offer plenty of opportunities, this can be misleading. Indeed, to take advantage of them, you need to be able to analyze a large amount of information in a very short time, and sort through it to avoid false signals, which requires a certain amount of expertise.
As a beginner, it is better to favor medium to long UTs, to have time to carry out complete analyses, to confirm signals without rushing… and thus avoid making mistakes.
Once you have gained some trading experience, you will be able to develop your trading according to your preferences, which will gradually become more refined. Some prefer “peace and quiet” by taking few positions, over long periods, and will therefore remain on long time frames. Others will feel this need to be active, and will therefore be particularly attracted to scalping.
The choice of your trading style also depends on your availability, and the place you want to give to trading in your life. Indeed, to practice scalping for example, it is necessary to be in front of your screen a large part of the day, so as not to miss opportunities. This requires staying very focused and can be psychologically tiring. On the contrary, by investing in the long term, it is not necessarily necessary to follow the evolution of prices on a daily basis.
Which timeframes for which trader?
The long-term investor will work on timeframes between monthly and weekly. This trader takes very few positions, and performs a thorough analysis of the market over a long-term horizon before taking action. The long-term investor does not take into account daily variations, and seeks to capture a trend, with a position that can be maintained over time, to achieve maximum profit.
The swing trader is a medium-term trader, who also takes relatively few positions, and who gives little importance to small price variations during the day. This trader will base himself on UTs located between the weekly and the H4.
The day trader is a shorter term trader. He seeks to take a few positions during the day, by studying the charts on medium/short timeframes (generally between H4 and M15).
Finally, the scalper trades in the very short term and seeks to profit from small price fluctuations. To do this, he takes many short-term positions, with the aim of making small profits each time, which cumulatively will represent a significant profit. To do this, he must make quick decisions, on short UTs between the H1 and the M1.
