If you are looking to trade Forex, you can of course use charts but what time frames are the most accurate to use in terms of trading the markets. Let's take a look at the different time frames and the advantages and disadvantages of using each time frame.
Here are the different charts and there efffectivness, in a currency trading strategy. The views below are based upon my experience of transacting currency trading signals for over 25 years.
Minute Charts
I have seen traders try and trade off charts with the bars based on 5 minute periods and its very popular and a great way to lose your money. How can you determine where prices will go in such a short time frame? The answer is you can't and these charts really are just random noise. No support or resistance level has any real significance in such a short time period.
If you trade this short term, you will lose your money quickly. The idea that these short term charts can make money is based on the huge amount of people who promote day trading and scalping. The people promoting these strategies though are brokers, who want you to lose or give them commission or the sellers of heavily back tested get rich quick systems who make money from selling their products on the message of greed rather than trading their own system. Avoid charts based on such short time periods.
Hourly Charts
Again another short time period but I do find the 4 hour chart useful for entering a trading signal off the daily chart where in have identified a level where I want to execute a trading signal. The important point to make here is the 4 hour chart is an advance timing chart for a daily level and not used on its own.
Daily Charts
The daily charts, are the charts I consider the most important in terms of, finding key levels of support and resistance to trade. I would look, to open trades with my system at the end of the trading day. The daily chart levels have levels which offer better odds to trade off than the shorter minute or hourly charts although as stated, the 4 hour chart can sometimes be useful, as an advance market timing chart to get into the market.
The daily chart is useful chart for me to time my trading signals from but if any level I am watching is also a key level on the weekly chart, the level becomes more important.
Weekly Charts
If you are a long term trend follower the weekly chart gives you the bigger picture and allows you, to see the “wood from the trees” On this time frame you can see the big trend which sometimes is not so obvious on the daily chart and by the big trend I mean – a trend which lasts for around two weeks, up to a few months in duration. The best trends are the longer term ones in my view and if the daily and weekly chart levels line up, t this makes the levels on the chart more important in terms of it holding or breaking. In terms of the best trade set ups, I normally find them when - the weekly chart and daily, have levels which line up together on both charts.
Monthly Charts
The monthly chart is another back up chart and monthly levels, can be very significant and I find them very useful for determining trend changes and measuring how far a trend might go. So it's another good back up chart, to decide the best trends to be entered via the daily.
Use Longer Term Time Frames to Time Your Trading Signals
I know many traders focus on 5 minute and 30 minute charts and it's tempting to think, the chart formations can be traded. After all, the chart patterns do look the same, as on the higher time frames but while they may look the same, there is a huge difference when trading them. Prices in 5 minutes time periods, are just erratic movements caused by the natural flow of orders – nothing more. While traders look for reliable chart patterns to trade for profit in these short time periods, they end up just trading the noise andend up losing. Generally, the higher the time frame you trade, the better your trading strategy will perform.
On higher time frames, you won't get as many signals but this is a good thing not a negative! Most traders want to trade all the time and are sucked in by the excitement of trading all the time but their just gambling and will lose. By trading longer term time frames, you are practising patience to only trade the best chart set ups and not wasting your time and energy on low odds set ups, losing and seeing a commission and spread impact on your account.
So if you are looking to trade with technical analysis and looking for the best time frames to trade on your charts my recommendation would be to time off the daily charts and use the weekly and monthly charts, to back up your view on the daily. By focusing on long term charts, the odds of success are better, you can run your trading plan quickly and you can trade for bigger profits per trade and with better odds of success, than you can when trading short term charts. Don't go with the majority and scalp and day trade off 5 – 30 minute charts, trade like a pro and use daily and higher time frames and you will enjoy, long term currency trading success.
