When performing any technical analysis of a currency pair or commodity, the first aspect of this needs to be that of choosing the correct time frame to analyze.
In knowing the difference between these time frames and the data that can be gleaned from them, you are better able to perform solid analysis that will produce higher probabilities in your trading strategies.
Let’s look at the time frames used when analyzing a chart.
- Yearly
- Monthly
- Weekly
- Daily
- 4 Hour
- 1 Hour
- 30 Minutes
- 15 Minutes
- 5 Minutes
- 1 Minute
- Tick Chart
Keep in mind that a market can exist in more than one time frame, and this can lead to analysis providing conflicting data regarding the trend of that market.
Depending on your style of trading, be it a intraday trader, swing trader or long term position trader; you will quickly learn that not all time frames will assist you in deriving your entry and exit signals.
For example if you were a typical intraday trader that preferred to open and close positions thoughout the day, you may favour the 15 minute chart to base your entries on; and the 1 hour chart to define your primary trend.
But for a long term position trader, your focus would be on daily charts to manage your entries and exits; and the weekly and monthly charts to define your primary trend.
Many traders find themselves arriving at the same time frame for their analysis, and there is nothing wrong with this. By choosing a time frame higher and lower than the frame used to calculate entries, you are able to use the complimentary data to verify your signal and increase your probability.
As long as the time frame chosen to calculate your entries proves profitable, and the supportive data allows confidence when deriving the signals from them; it does not matter which time frame you choose to trade from.
That is one of the great fundamentals of traders; ‘They do not need to perform the same analysis with the same time frames to derive the same signals with comparable confidence.’ It is the methodology used that ultimately proves profitable in the long term. Currency and commodity trading is not a form of gambling and should never be viewed this way. It is the use of mathematical methods and fundamental analysis to derive probable and logical conclusions on the direction of a given market.
In closing, a quote from Jesse Livermore, a trader from Boston that successfully traded through the 1929 stock market crash and who was the object of the book “Reminiscences of a Stock Operator”;
“It is literally true that millions come easier to a trader after he knows how to trade, than hundreds did in the days of his ignorance.”
