Before reading through this lesson, you should have previously read through:
The difference between time frames
Japanese candlesticks: an introduction to the idea that ais always shown on a particular . This can range from as low as a 1 minute chart, where the candle is formed every minute, to monthly charts where the candle forms once every month.
It is important to stress that when you set a particular time period on your chart, it does not show the price over that time period. Rather, each individual candle takes that specified time to form.
For example, a five minute time frame does not show theover 5 minutes, but rather each individual candle on the price chart takes five minutes to form.
When looking at a price chart, a larger time frame, such as weekly chart, will show the price range over the course of a number of months, but each candle will take a day or a week to form.
You can see from the chart below that each candle takes one week to form and so 52 candles represent one year of price action:
Smaller time frames, such as the 5 minute chart, show the price action over a much shorter range, but each candle takes five minutes to form:
You can see from the chart below that each candle takes 5 minutes to form and so 48 candles represents of 4 hours of price action:
Definitions of different time frames
Opinions differ on what defines a short-term time frame and a long-term time frame.
However, a good place to start in order to differentiate between different time frames is to consider that anything below an hourly time frame can be considered short-term; anything below a daily time frame can be considered medium-term; and anything that is daily and above can be considered long-term.
Choosing a time frame
Adoes not need to monitor every single time frame in order to be successful. A time frame should match the personality of a trader because there are different disciplines and techniques for different time frames. Someone with a lot of patience that prefers to trade the without high may prefer trading on higher time frames. Someone who prefers to trade frequently with heightened market activity may prefer a shorter term time frame. No two traders are alike and a trader should choose the time frame that suits them best.
Short-term time frames
The duration of short-term trades generally lasts from several seconds to a couple of hours at most.
A method in which a trader monitors a short-term time frame closely and enters and exits in a matter of seconds is known as. The main objective is to make small but frequent trades.
There are several considerations that should be taken into account when choosing scalping as a trading method:
- Scalping is very fast paced and requires a significant amount of attention throughout the day to find and take trades.
- Complete attention is also required throughout the trade from open to close.
- Scalping requires active market sessions. This is most frequently during the and sessions.
- It can be stressful and requires discipline to continually stick to a scalping system.
It is important to note that scalping does not guarantee a trader positive returns just because potential profits can be made quickly.
Day trading/Intraday trading
As the name suggests,is a method where orders are opened and closed within a single day and the is not carried overnight. Trading can take place in five minutes, fifteen minutes, hourly etc. However, day trading usually results in a few trades per day.
It does not rely as heavily on fast price action, such as scalping. The following aspects belong to day trading and should be considered before choosing it as a preferred method:
- This method is slower than scalping, but not as long as other longer term types of trading, where you could wait for days or even weeks to find an entry.
- A day trader should keep an eye on relevant economical developments as these can change the market conditions throughout the day.
Looking for a mentor?
Matthias from our Tradimo Premium team will design a learning plan tailored to you that gives you access to new courses and live webinars every month as well as priority private email support.Order our Tradimo Premium Service now
Medium-term time frames
On medium-term time frames, a trader will watch four-hour or daily charts and will attempt to look at the overall picture, while potentially only finding a few trades per week.
Ais a medium-term trader who may look at a daily chart to see underlying and decide on specific trades based on, say, a four-hour chart. Positions are generally held from a day to a few days.
With swing trading,and are generally higher. A swing trader needs patience and discipline to wait until the price reaches their take profit or stop loss orders.
Swing trading would suit those who:
- Cannot monitor the market every day, but can dedicate at least some time to market analysis for finding entries.
- Are patient in waiting for the correct entries, which may mean only trading a few times per week.
- They trust their trading plan and do not change it every time there is an adverse price fluctuation.
A benefit of swing trading is that with larger targets, spreads have little impact. For example, a 3is very affordable when projected profits are 50-100 pips. This also means that as a swing trader, you have a wider choice of , including those that are less with wider spreads.
A long-term trader waits patiently for opportunities. The trades can be rare and are usually held for long periods of time – sometimes weeks, months or even longer.
The method where daily, weekly and monthly charts are predominantly used is called position trading. Fundamental analysis can play a key role in making trading decisions because economic conditions may change over the time for which a trade is open.
- Personal requirements for trading
- The time available to trade
- Personality type
However, technical analysis is extremely reliable on long-term position trading because many traders that trade large amounts of money use technical analysis to enter and exit trades, including, and .
Position trading would suit traders who have:
- A lot of patience to enter and exit a trade.
- Discipline to refrain from changing the initial plan and are prepared for big price swings.
- Larger starting capital because a long-term trading account generally has to be able to withstand larger losses.
So far, you have learned that ...
- ... there are many different time frames to choose from and which type of trading will depend on the trader’s personality.
- ... short-term time frames are commonly considered to be less than one hour.
- ... day trading is another short-term approach in which trades last less than 24 hours.
- ... medium-term time frames are one hour to daily time frames for swing trading, a method that requires less time analysing charts, but more patience and larger profit and loss projections.
- ... long-term time frames can be considered to be daily, weekly or monthly, where position traders wait to take a trade that is likely to last for a long time.
Looking for a Top Broker? Sign up through Tradimo & get extra benefits!