Choosing the Best Forex Trading Time Frame - Part of a Solid Forex Strategy
One of the biggest mistakes traders make is looking at a Forex trading time frame which is too short. Virtually all online trading platforms have the ability to show you time frame charts with everything from "ticks" of several seconds, to 1 minute, 2 minute, 5 minute and so on up to monthly periods.
As shown in the
Trading Platforms - Broker
area, it is in your Broker's best interest if you trade more often, but not yours. These shorter time charts do nothing good for you, but rather tend to give you a false sense that you are following a trend.
As we all know, the safest Forex strategy is to determine the major trend, then jump aboard for a ride. Trading against the trend, something you could easily do if not using a suitable Forex trading time frame, places you at greater risk of your trade going against you.
Your Forex strategy should include using longer time periods when determining the trend. Don't even look at Forex trading time price charts with a period of less than 1 hour, unless you are a very well experienced trader.
When considering a trade, check 3 time frames... the 1 hour, 4 hour and daily for the currency pair. If each of these is trending in the same direction, it's a pretty solid piece of information.
As you can see by the picture below, a simple candlestick chart with a 50 period simple moving average to smooth the data will clearly indicate the underlying trend...
Price movements occur during the day to day business of Forex. Large central banks cause price fluctuations just by repatriating money from their country to others.
These random movements (which are not caused by the typical drivers such as data releases) may give the false illusion of trend changes on shorter time period charts. This same activity on a longer term chart simply appears as "part of the flow", as it should.
Use a longer Forex trading time frame and reduce the chances of false signals.
The Best Time of Day to Trade
Although a Forex trading day runs 24 hours a day, 5-1/2 days a week, each day is typically divided into the Asian session, the European session and the New York session.
Volatility generally increases dramatically with the opening of each market. Check out your price chart and you will likely notice changes often occur as a new session begins and especially when two markets overlap, such as the London afternoon and the New York morning.
Depending on your currency, certain times will usually be quiet, while others will be volatile. Study your time charts and the most active times will be obvious.
Pay close attention to the data calendar as well, as volatility is also unpredictable during data releases.
