Forex: Using Charts with Different Timeframes?

Filed under: Learn Forex Trading |

There are a number of timeframes available when trading the forex markets. These are typically 1 minute, 5 minute, 15 minute, 30 minute, 1-hour, 4-hour, daily, weekly, and monthly (these are the charts available in the popular MT4 trading platform). Beginner traders are often confused about which charts they should be using to trade. As they are keen to get started, they often choose the lower timeframes such as the 5-minute or the 15-minute. However, this is a big mistake.

 

The problem with the lower timeframes is that: a) the signals and levels of support/resistance are less reliable, and b) the spread is more significant. There is a lot of noise in the forex markets, and much of this noise is played out on the lower timeframes. The patterns as such are more random and the levels of support/resistance are rarely strong enough to be significant. However, beginners seem to stick with them because they do not have the patience to wait an hour, or four hours, or even a whole day to wait for a new candle to form.

 

Personally, I do not use any charts below the 1-hour timeframe. I use the 1-hour, 4-hour, and daily timeframes to make my trading decisions, and I do not even look at any other charts (except perhaps the monthly chart for a snapshot of the longer term trends and support/resistance levels). On the higher timeframe charts, the spread becomes less of a factor because your stop loss and profit targets are wider with regards to the amount of pips. On the lower timeframes, your profit target could be eaten into by as much as 30% by the spread, which means that your trading edge may well have been nullified and any potential profit will be wiped out.

 

So, if you are struggling to make a profit on the lower timeframes, why not make a change and only look at the higher timeframes for a while? Who knows, it could be the edge that you are looking for.

 

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