Forex trading time frames are also commonly categorized as long-short, short-medium and medium-long. Traders may choose to include all three, or just using one shorter and one longer time frame when assessing possible future trades. This article explores the advantages and disadvantages of each time frame.
The forex market is ideal for a medium term day trader. The medium term swing trader will trade forex options and futures. The options being traded here are those that will end up as a hedge in the event of an economic or political event that will cause a country’s currency to depreciate or gain in value. Futures are normally traded on stock exchanges and oil platforms. Forex traders will utilize forex trading time frames that identify trends in specific areas, sectors or countries over a time period.
Short term swing traders are most effective when using technical analysis. Technical analysis is a type of technical research, which uses historical data in order to predict exactly where the market will go next. Although this type of analysis may work well for short term day traders, it does not lend itself well to long term forex trading strategy. A good trading strategy will be built upon a long term analysis of both fundamental and technical indicators.
The best time frames for the forex market tend to be those which fall within the range of 4 weeks to a month. Using the moving averages method can be quite useful. Moving averages are simple mathematical formulas, which allow for a trader to identify what the trend of the market will likely be over the next set period of time. There are many traders who prefer to employ the use of time frame charts as these provide them with more information that will prove useful in their trades. These charts show the price action over many different time frames giving the trader greater chance of making informed decisions on when to enter and exit trades.
It is important that you know the moving average formula if you wish to fully implement technical analysis into your trading strategy. The simple moving average (SMA) can be used in conjunction with the MACD (Moving Average Convergence Divergence) to effectively reduce the risk of making bad trading decisions. Both of these time frames offer you much greater detail than the simple lagging indicators such as the Simple Moving Average. This means that you can make informed decisions as the market conditions change which is crucial to building a profitable forex trading strategy.
The best time frame to trade is still the long term average of the price. Trading on this time frame is very risky as it is not known for taking advantage of short term swings. There are many traders who will make this mistake however as they become inexperienced they will place a lot of their money into very volatile currency pairs which they do not understand. As a trader you have to learn how to not only use the forex time frame to make good trades but also to avoid bad ones. This is the only way you will start to really earn money from forex trading as you build a solid trading career from the ground up.