Understanding Time Frames In Trading

Understanding Time Frames In Trading

What Is The Time Frame?

A time frame is simply the length of time chosen to look at data in detail and could be anything from 1 minute to 6 months or more. 

There are three main time frames that I will cover in this article; they are 1 min, 5 min and daily charts. Every single one of these has its own benefits and can be considered as a part of a trading strategy in the work of a Forex trader. 

Time frames can also be broken down even further like hourly, 20 min etc. (although there aren’t any good reasons for doing this)

1-Minute Chart

A 1 minute chart is the shortest time frame we can look at. It simply means that we look at price action every 1 minute and then consider all those candlesticks when making a trading decision. 

This can be both an advantage and a disadvantage as it allows you to see minimal price changes, but it also means you will miss more significant moves as they happen less often. 

Most brokers offer five-digit quotes for this timeframe (5 digits after the decimal point), which means there are 100 possible prices per tick, and each one of these prices is valid only for 1 minute before changing. 

The same applies to Sell and Buy orders on your platform; if you place them too far from the current price, they may never be executed.

5-Minute Chart

A 5-minute chart is a slightly longer time frame, meaning that price action will be considered every 5 minutes instead of every 1 minute. 

This doesn’t give us much more detail as the candles on a 5 min chart are pretty similar to those on a 1 min chart, but it does allow us to see more significant moves as they happen less often. 

The main difference between the tick resolution of a 1 min and a 5 min time frame is that there are only 20 possible prices per tick for this timeframe, so if you have an order which is not executed because it was too far from the current market price, there’s a greater chance you can get your order filled at your specified price as opposed to with just 100 possible prices on a 1 min time frame.

Daily Charts

The daily time frame is the longest we typically look at. It means we consider price action every day, giving us plenty of detail on the more significant moves that happen over more extended periods. 

We usually only use daily charts as an entry or exit method for my trades as we find them too slow to be used as a scalping time frame unless you’re good at predicting news events! 

Anyways here’s some info on tick resolution for this timeframe: there are 2160 possible prices per tick, so getting your order filled becomes much more difficult. 

To calculate how many digits after the decimal point this equates to, divide 2160 by 100 (the number of prices per tick), which gives you 21.6 digits.

The Daily Time Frame Is Not For Scalping

Finally, the daily time frame is generally too slow to be used as a scalping timeframe. However, you can still use it to your advantage by applying your trading strategy in this timeframe. 

It won’t work every time, but the longer the time frame is, the more accurate your trading system will be when applied correctly. We’re not going to go into detail about creating a trading system in this article because there are plenty of resources out there that can help you with that subject already. 

You could also use different time frames during different stages of an intraday trend to maximise profit potential. Still, there are many articles on this, so we ‘ll leave it up to you guys to do your research if this is something that interests you.

Conclusion

For the most part, we use 1 minute and 5 min charts as my trading time frames, as they’re not too slow and not too fast either. 

If you’re a beginner trader, we recommend you try many different charting software with different time frames until you find out what works for you. This might be the most important tip anyone offers. People are different when it comes to what works for them when choosing the best Forex trades. You have to adapt and only use what is effective and brings in a profit. 

You will need to be comfortable with the timescale that best suits your trading style, but at least now, if anyone ever asks about tick resolution on any timeframe, now you know! Always think about how you plan to trade Forex and how often you plan to make trades. This will drastically influence what charts you will use in your daily market analysis.

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