Choosing an appropriate time frame is one of the basic decisions for forex. Time frame refers to the width of the window in which you’ll trade. In other words, you might focus on making lots of trades that last only a few minutes. Or you might do your homework for several days or weeks before buying something and holding it for months or years.
Forex tends to have an inherently shorter time frame than securities, bonds or other markets. This is because leverage is leverage is commonly used which ratchets up borrowing costs, pushing people towards shorter strategies. In addition, forex trends tend to move across less financial distance and last for a shorter time than security prices, for instance.
Still, there are plenty of options when it comes to choosing how wide to make your window. This is because your time frame is closely connected to the strategy you use. Decide that you’re working in a long-term time frame, and you’re more likely to use carry trades or value investing. Go for the shortest time frame and you have to be a scalper.
So how do you decide what time frame to use?
Foundationally, this depends on your personality and personal preferences. If trading feels hectic-like you’re trying to keep up with no time to think-move to a wider window and slower strategy. If you feel bored, waiting for something to take advantage of, you should move to a narrower window and faster strategy. Everyone is different and there isn’t a right and wrong way.
But if you’re an experienced trader with a long background of using the same strategy, you might consider trading forex with multiple time frames. It really is possible and even quite profitable to be able to adjust, and learning a new method can be very profitable.
Here’s how it might work ideally: you become skilled with two or more strategies until you can perform well in both. Eventually, you also learn the market conditions in which each of your strategies succeed. When you see a shift that makes it harder to trade well in one time frame, you switch to the other. The conditions of the market guide your method, and you maximize opportunity all the time.
Disadvantages with this method
There are several cautions and disadvantages of this method. First, you should generally avoid trading in multiple time frames at the same time. This is especially true if one of your methods is scalping. You simply cannot be successful at this kind of trading without constant attention and focus. Trading with a medium and long-term time window is a little more possible, but you should still be careful.
Second, never let multiple time frames become an excuse for undisciplined trading. Try to define the market conditions in which you will use each strategy and confine yourself in what you will do.
Finally, when learning a new strategy follow the same process you used to learn forex trading at the beginning. One common problem is that an experience swing trader, for instance, might decide to learn scalping. Assuming that he is an experienced, profitable trader, he enters the market with confidence and suffers big losses. The various trading strategies can be hugely different-success in one is no guarantee for another.
In spite of the perils, there are many reasons to use multiple time frames and strategies. Get out of your comfort zone; push yourself to try something new. With practice and careful learning, you may find your profits going up further than you thought.
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