TIMEFRAME ANALYSIS
A timeframe is the period of time we set our charts to show the evolution of the price on a particular parity.
Thus, depending on the trading platform we use, we can see the price movement from intervals of a few minutes to a month. Each line, bar or candle will illustrate the price evolution over the chosen range.
Beginners usually focus on a single timeframe - a smaller one - which offers more frequent entry opportunities. This is the wrong way to trade because smaller timeframes, may show only temporary price variations that are contrary to the general trend.
Like any other technical instrument, you need to choose the timeframes that suit the best your own trading style. You can identify them while Demo trading.
The table below shows the peculiarities of each type of timeframe and the advantages and disadvantages of the trading styles associated with them.
Time Frame |
Description |
Advantages |
Disadvantages |
Long |
From one day to one month. It provides an overall long-term perspective and supports the forecast on saller timeframes. Trades are kept active for several weeks. months or even years. |
We don't have to monitor the trades all the time. Usually the number of trades is small, therefore you'll pay a smaller spread. There is a longer decision-making time. |
|
Medium |
From a couple of hours to one week. |
More frequent trade opportunities. Shorter negative evolution periods. |
Higher costs. (more trades) There is the risc of sudden changes. |
Short Intraday |
Couple of minutes. |
Very frequent trade opportunities. Short negative evolution periods. A lower risk of sudden changes. |
Higher costs. (more trades) Requires high adaptability and quick decisions. Limited profits. |
Studying and trading on several timeframes, you will discover the ones that best fit your trading personality.
You may want to have more time to think before entering a trade, or maybe you don’t have the time to monitor the charts on a daily basis. Then you will probably lean towards the medium and long timeframes. Longer timeframes require wider Stop Losses (price variations may be very big over long periods of time).
Or, maybe you are the kind of person who prefers intense activity and want to trade more, choosing shorter timeframes.
Regardless of the strategy and the timeframe you choose, to increase your chances, it is advisable to study multiple timeframes at the same time.
It is usually recommended to study 3 timeframes at a time. There must be a gap between them to capture different price trends in different ways.
The longest timeframe is used to identify the general trend. We recommend 4H.
The average one is used to capture the dominant position of market participants.
The shortest timeframe helps us identify entry levels and set the TP.
