#196: Which Time Frame Chart Should You Trade?
In this video:
00:32 – Choosing the best time frame chart for you
01:15 – The merits of various time frame charts
02:52 – Trading the Weekly charts
03:53 – Benefits of the longer time frame charts
04:50 – The short time frame charts – what to expect
06:00 – Work out what suits you
07:00 – To Summarise
What is the best timeframe Forex chart for you to trade? Let's talk about that and more right now.
Hi Forex traders, Andrew Mitchem here, The Forex Trading Coach and welcome to video and podcast number 196. In today's video and podcast I'm going to be discussing a topic that I get asked almost daily.
Choosing the best time frame chart for you
It's all about choosing the right timeframe chart for you to trade. You see, it's an issue that confuses a lot of Forex traders and it's easy to understand why that is the case because when you go through your charts, depending on the platform that you use, there are a group of different timeframe charts to use and depending on what's happening on which particular currency pair, they can all show different directions.
Some are looking like the price is moving up and they're sort of green candles and others you could see the price is moving down and they're red. It causes a lot of confusion for people.
The merits of various time frame charts
What I want to do to help you is to just run through just briefly some of the merits of different timeframe charts and how you can best decide what works for you, because ultimately trading successfully is all about what works for you. Let's go through that, starting with the longer timeframe charts. Now if you use MT4/Meta Trader 4, you'll know that the monthly charts are the longest timeframe chart available to trade.
Now monthly chart is quite an unusual chart in that you have to wait a long, long, long time on most currency pairs before you get a really good trade setup. Now if you trade like me on the close of a candle, it's quite easy because basically you've got 12 times a year that you can go and look at your monthly charts and you think, is there a setup, yes or no. Monthly charts probably are not really for everybody because you have to wait a long time between trades. You have to accept that the trade's going to remain open for a long, long time as well or potentially for a long time. I'd probably say to most people, just leave the monthly charts.
However, if you're quite prepared to leave trades open, see them sort of move into profit and back into maybe a loss and be prepared for that longer term hold that position. If that's you, absolutely go for it. A lot of people do come to me and they'll say, look, I'm just too busy with work or family, other commitments, to sort of be looking at charts all day and night. If that's you, then maybe the monthly charts are a good option for you.
Trading the Weekly charts
You come down to the next timeframe and that on most platforms would be a weekly chart.
That to me probably personally, is one of the longer timeframe charts that I trade and I also post on my membership site for my clients weekly trading suggestions. I also post monthly but we don't get too many good setups. Weekly of course, you get sort of four times, sometimes five, depending on the month, within the weekly charts, within the month to go and look at. I like weekly charts, I think they're great. If you look through all the different currency pairs you can quite often see, I generally post somewhere between about sort of one and four weekly charts in a week.
At the odd time there are none if everything's a little bit sort of flat and indecisive but most times there are some good setups there. That then you need to make the decision of if you're going to close that at the end of the week or let it stay open. Again, it depends what suits you.
Benefits of the longer time frame charts
Great thing with those sort of weekly and then down to the daily timeframe charts are a number of factors. Spread doesn't really become a major issue. You can generally ride out most news announcements if you get widening spreads or the trade goes against you for a bit, if technically your setup is good in the first place.
You don't have to be sort of monitoring your charts all the time when there's a higher impact news announcement comes out, because generally on the bigger timeframe charts you have a bigger stop loss. You also have a bigger profit target and so it means that your reward to risk out of your trade on a longer timeframe chart or a daily or a weekly chart is generally very, very good, depending of course on your strategy. The way I trade they sometimes sort of go between a three, four, even a five to one reward to risk on the daily or especially onto the weekly timeframe charts.
If you get that and you only get a few setups every so often and you can get profitable trades out of them, then you're going to make some excellent, excellent returns.
The short time frame charts – what to expect
Let's jump to the other end of the scale and you can go down to one minute charts. I'd suggest that hardly anybody looks at those. Five, fifteen minute timeframe charts, that's great if they suit you, if you have the ability to be patient and wait and not jump in too like reactive. If you see a setup and you see it then great, you need to get in of course, but just because you're on a five minute timeframe chart, you don't want to be just clicking trades here and there all the time, feeling that you have to trade.
You still need to be patient and wait for good setups. If you're on to those five, fifteen minute timeframe charts, the great thing is you can say spend an hour a day, maybe two, ideally in the higher activity times of the day, so ideally into the European or the US session, depending on what suits you. See those trades, take those trades and then emotionally you're out of the trade. If you close your trades out and you say, I'm going to spend no more than, let's say, two hours per day doing these trades, looking for potential setups. You can close your computer, close everything and then come back tomorrow and start again.
Work out what suits you
That's the great thing with trading shorter timeframe charts but they don't suit everybody. It's exactly the same as the longer timeframe, it's what suits you. Find what suits you and also you might come up with a combination. Personally for me, I take trades on weeklies and definitely the dailies almost every day and then I look through 12 hour charts and six hour charts using some software that I have that allows me to look at those timeframes on MT4. Four hourly charts I like as well and less so for me the one hour charts because the European session is in my evening time and the US session is in my early hours of the morning, so I don't get up at 2:00 in the morning to trade the US session.
If you have the ability to look in the European or the US session a few times on the close of an hour chart in the daytime for you, fantastic. Then you will see some good setups throughout the day. I hope that helps.
Just bear in mind overall the bigger the timeframes, less chart time, less emotions and higher reward to risk trades generally. Very short timeframe charts, you may need to commit more time to your charts, or to your trades, but the good thing is you can then close out and be done or you have to accept that the reward to risk on those short timeframe charts may not be quite so high, because spread can be an issue.
You'd have to be aware of news announcements that could affect the trades that you have open. Those sort of things you have to be aware of. Go through your charts, find what suits you as a person, as an individual, as a trader, work out a combination if needed, and then stick to that.
Once again, this is Andrew Mitchem, the Forex Trading Coach. Have a great weekend, look forward to catching up this time next week