Friday, October 31, 2014

The Best Time Frames To Trade Forex

February 18, 2011 by  
Filed under Forex FAQ


In today forex faq, I am answering 2 pretty similar questions from our fellow traders.

Question 1: What is the best time frame to trade forex? Is it better to do technical or fundamental analysis? Thank you!

Question 2: What is the best time frame (5 min, 1 hr, 4 hr, daily) to trade with the lowest noise (less whipsaws)?

This is a question that most new traders should have in their mind when they first get in touch with trading. However I do not think that there is such a thing as the best time frame as it all depends on your trading strategy and needs.

Trading Strategy

If you are a scalper, you will definitely be dealing with low time frames like the 1 min and 5 min chart.

If you are a day trader, you will be using the 15 min, hourly and at most the 4 hourly chart.

If you are a position trader, you will be using the 4 hourly, daily and even weekly chart as you are planning to hold your trade for long term.

The bad thing about the lower time frames like the 1 min and 5 min is that they produce a lot of noises and this alone can be a nuisance to some traders. Therefore if you are looking to trade with lesser noise, I will suggest that you go with higher time frames like the hourly or 4 hourly chart.

Needs of Traders

I understand that there are some traders who are still working a day job and therefore do not have much time to look at the chart.

For those of you who do not have much time to spare, I will suggest that you go for higher time frame chart like the 4 hours as these allow you to have more time to prepare for your trades.

Personally, I tend to look at the higher time frames to look for trading opportunity as it has lesser noise and then go to the lower time frame like the 15 minutes chart to look for the best entry.

As for your question on whether technical analysis is better or fundamental analysis. I personally is a technical trader, I find it easier to trade with as the fundamental involves a lot of trader sentiments in it.

For particular news, some traders will think that the market is going to rise but there will definitely be another group of traders that think that the market is going to fall. This alone makes it hard to trade the news. However I do know of some traders who are making money with news alone.

The above are my personal opinion and if you have anything to add, do feel free to give your comment below.

Comments

6 Responses to “The Best Time Frames To Trade Forex”
  1. Mr Omo says:

    Just to clarify when I say 10000 units = $1 USD pip value that is with the base currency in the form of #.#### and the quote price is USD. It is a different calculation if using currencies such as the JPY which use the form of ##.## and also the crosses such as EUR/GBP where neither price is directly quoted versus the USD. These formulas can be found elsewhere on the internet or feel free to reply with those formulas. And Thanks goes to Kelvin for creating and maintaning such an informative and thought provoking website. You have helped me to learn a lot about the beast we call the forex market.

  2. Mr Omo says:

    I personally am using a 2%/4% risk/reward ratio and can calculate what I need each pip to be simply by finding my take profit line I wanna use and my stop loss I wanna use and get the number of pips difference and dividing that number by 3. I then divide The dollar amount I am risking by that number to determine how much I need to make each pip worth.

    For example:
    If my balance is $10,000 and my risk reward ratio is 2%/4% and there is a 99 pip difference in take profit and stop loss targets I would calculate it as such.

    1 pip value=(balance*(risk% + reward%) / total number of pips between take profit and stop loss
    1 pip value=($10,000*(2% + 4%)/99 pips
    1 pip value=$10,000*6%/99 pips
    1 pip value=$600/99 pips
    1 pip value=$6.06
    Now you can adjust the number of units traded to make 1 pip = $6.06

    It also gives me an entry point to look at. Though some look at the entry point and then adjust there profit/loss lines I feel it is easier to determine where I want out on profit and loss side using my support/resistance values and then adjust my entry to match my risk reward ratio.

  3. Mr Omo says:

    I would like to address Merv’s comment about bigger risk with larger stops. Though this may be somewhat true if you are only trading with full lots but you can adjust the amount each PIP is worth by adjusting the number of units you trade to accomadate for the variance in stop loss gap. For example, if I take a trade for 10000 units each pip is worth $1. But if I purchase just 5000 units each pip is worth only $.50. Therefore my stop loss can be set twice as far from my entry as before. Though you will also have to adjust the take profit line if you are searching for a certain dollar amount.

  4. Merv says:

    Hi Kelvin, your comments are always interesting. Regarding time frames, I’d like to trade more with the hourly or 4 hour but find that I need wider stops which means bigger risk.

    • Kelvin says:

      Hi Merv

      That is exactly what I mean by your trading style, if you have read my post, you will realize that I say that trading with which time frame depends on your trading style or strategy. If you are able to trade with higher stop loss, you can go with higher time frame.

      However there is a way to reduce your stop loss even if you are trading off the higher time frame. You can use the higher time frame to look for trading opportunity and then move down to the 15 min to look for entry. With your entry done on the 15 min, you can then place your stop loss based on the 15 min chart which will give you a lower stop loss. I hope that this helps.

Speak Your Mind

Tell us what you're thinking...
and oh, if you want a pic to show with your comment, go get a gravatar!