Which Time Frames Are The Most Profitable When Trading Currencies?
By James Woolley
Many people are immediately drawn to the thrills and excitement of the 1 minute and 5 minute charts when trading forex, where fortunes can be made and lost within seconds. However this is not, in my opinion, the best time frames to use if you are serious about making money.
The trouble with these small time frames is that it is extremely difficult to come up with a strategy that consistently generates profits. This is because not only do you have to make split-second decisions, which can often lead to mistakes, but you also have to overcome the spreads, which can ruin the very best short-term trading strategies.
Another problem you will face is that of noise. In trading terms, noise basically refers to the times of the day when the market is not trending either up or down, but is instead drifting aimlessly in a random fashion. This is obviously impossible to trade and will often lead to losses when you trade during these times.
So if you are serious about becoming a successful trader, then I would recommend you use the longer term charts. The monthly and weekly charts can be used effectively because they respond very well to technical analysis, but I would personally recommend using the daily and 4 hour charts because those ultra long-term charts do require immense discipline and patience as you will often need to hold onto winning trades for several months at a time.
The daily and 4 hour charts, however, respond just as well to technical analysis and are just as profitable. You can trade positions over a number of hours or days, which is ideal, and you will generate plenty of decent trading opportunities throughout the week if you trade multiple currency pairs.
Plus they are much more effective than the shorter time frames because all of the market noise is unnoticeable on these charts and the technical patterns are much more reliable. You also have plenty of time to think about your positions, which is a luxury you do not have when trading the 1 or 5 minute charts, for instance.
So if you are just beginning to trade forex and have become addicted to the casino-like excitement of the short-term price charts, I would suggest you lengthen your charts to the 4 hour or daily time frame (or at least the 1 hour time frame). You will generally find that these charts are much easier to trade and your success rate should be a lot higher overall.
About The Author
Click on the following link for free forex tips and strategies, including the exact 4 hour trading strategy that James Woolley uses himself to trade the markets:
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