Forex Time Frames: All You Should Know
What’s the time?
Understanding Forex time frames means gaining clear visibility over currency pair price movements during specific times of the day, night, week, month, year. The more consistent you are, the more you will know about trends in that time frame. However, switching between different time frames can also be beneficial.
A trading strategy’s effectiveness is often influenced by the time at which it is executed. Generally, there are three kinds of time frames – short-term, medium-term, and long-term. All three can be incorporated to analyze potential trades. Each time frame has its purpose – longer ones are useful for identifying trends, short ones help pick a good time to enter a trade, and medium ones strike a good balance between the other two.
It’s ⌚! Pick a strategy.
Time is often the reason we make certain decisions in our lives. In Forex as well, traders sometimes pick their strategies depending on the time at which they wish to trade. Based on the three types of time frames mentioned previously, a few approaches stand out.
The keywords used to describe their time frames are trigger and trend. Trigger time frames are shorter than trend time frames. They refer to the average period of time needed for a certain criteria to be met in order to initiate an automated transaction that requires no additional input on the trader’s end.
Keep in mind, this is a simplified breakdown to illustrate how time frames work depending on the trading strategy at hand:
- Short-term
- Scalping – scalpers would usually utilize 15-minute charts as trigger time frames and 1-hour charts for trend time frames due to the short-termed nature of their approach.
- Day trading – a trigger time frame of 1 hour but charts showing price movement in 4 hours can be needed to identify a trend during the day and make use of it.
- Medium-term
- Swing trading – an average trigger time frame of 4 hours, followed by a trend time frame of almost 24 hours.
- Long-term
- Position trading – trigger time frames can go upwards of 24 hours, while for trends, that may extend up to a week.
OK, let’s do it… When?
The nature of the forex market allows traders to go long or short 24 hours a day without almost any stops during the week. Despite trading times being from Monday-Friday, the time zone differences across the globe mean this extends further.
Four major trading sessions – Sydney, Tokyo, London, and New York, account for nearly 75% of the daily trading volume in foreign exchanges. Starting from Sydney, at 10 PM (UTC) on Sunday, the market opens and works all the way until the closing time of the New York session, at 10 PM on Friday. The 15-hour difference between the two endpoints results in only a short period of downtime between the closing time of one and the opening time of the other.
That’s as far as the trading hours go. Then, you have another question – “Do I choose the currency and trade based on its activity or do I choose the currency based on the time frame?”. Fret not, for this is but one of the ways to approach the situation at hand.
MTF Analysis
MTF, or multiple time frame analysis, is the method most widely utilized by forex traders to understand the overall price movement of a currency pair. Long-term trends are spotted by using larger time frames, while opportunities to enter the market come when short-term frames are put into use. A rule of thumb is the ratio of 1:4 or 1:6, which commonly refers to 15-minute and 10-minute time frames respectively.
These can range between 1, 15, or even 60 minutes. If a day trader trend, or trade set up time frame is 1 hour, their trigger, or entry time frame can often be 10-15 minutes. They would establish trends using a one-hour chart and zoom in on 15-minute charts to choose their entry points, but they can also do that at different time frames with four-hour charts as well.
Scalpers, on the other hand, would be relying on even smaller time frames than day traders. Conversely, position traders would use larger trigger and trend time frames than swing traders due to the nature of their strategy.