Timeframes (TF, timescale) occupy a special place in trading on Forex Market. This is the time interval in which the value of the asset is formed in the form of a graphical element.
Types of timeframes, setting and switching, creating non-standard timeframes
All timeframes can be conditionally divided into three categories – minute, hour, and medium-long. The following minute timeframes are available on the Meta Trader platform:
- М1 (one minute).
- М5 (5 minutes).
- М15 (15 minutes).
- М30 (30 minutes).
As for the hours, the following intervals are available here:
- Н1 (one hour).
- Н4 (4 hours).
Then there are daily, weekly and monthly charts (D1, W1, MN).
Changing the time frame of the chart on the Meta Trader platform is easy enough. To do this, you need to switch between TFs in the top toolbar. For example, in the screenshot, the timeframe is set to M15.
Also in Metatrader 4, you can set your own timeframes, depending on your wishes.
You can do it with the help of the built-in Period Converter script. To do this, select the “Scripts” tab in the Navigator window and double-click on Period Converter.
In the window that opens, select the “Input Parameters” tab and you can enter your value, depending on what the current timeframe was when you turned on the script. The Period multiplier factor will calculate the new time interval. For example, if the time frame is set to H1 and a trader sets the parameter equal to 2, it will result in the H2 timeframe.
Next, in the “File” menu at the top of the platform select “Open Offline” and here we find the created timeframe. We used H1 as the base, so we were able to create the H2 timeframe as a result of the script action.
There are a few important things to keep in mind when working with this script. First of all, you can not close the main chart, to which the script is installed. In our case it is H1. The point is that by doing so we will reset the script and the non-standard timeframe will not be displayed anymore without it. One more important point – when restarting the terminal, the trader will have to connect the script again, as the program stops working and needs to be restarted. To create non-standard timeframes for several currency pairs, it is necessary to repeat the procedure of working with the script for each symbol each time.
Finally, it is important to use the closest time frame so that the program can generate the most accurate historical data for the symbol. In our case, we obtained the time frame H2 by working with the script on H1, which is fully consistent with this recommendation.
It should be noted that this script was created a long time ago and it is not quite perfect. To improve its performance, our team created the Chart Period Converter indicator, which is more user-friendly and has several improvements.
Types of trading styles and their relationship to time intervals
In terms of trading styles, we can distinguish four main groups:
- Pipsing and scalping. These are quite aggressive strategies, which involve working on the smallest time scales from 1 to 5 minutes. Position holding time may vary from several seconds to several minutes. The strategy assumes more trades on lower timeframes, which makes it especially risky.
- Intraday trading. Here it is possible to apply a large number of strategies, as with the use of various indicators, and analysis by means of graphic patterns. Intraday trading is usually carried out on charts from 15 minutes to 1 hour.
- Medium-Term Trading. This is a less aggressive strategy that involves opening and closing trades over several days or weeks. Medium-term trading is conducted in the range of time intervals from one hour to one day.
- Long-term trading. It lasts for weeks, months, and sometimes years (although some traders can leave positions for years on Forex, most often trading is done in months). Such trading has some common features with investing. Time scales from D1 to MN1 are used.
Why timeframes are so important in trading
It is very important to understand that trends on different timeframes may not only not coincide, but also be diametrically opposite. For example, if a trader works on a five-minute chart, he may see an upward trend, while on an hourly time frame the trend will be downward.
Why does this happen? On the daily chart, for example, we see a rising trend. But, as we know, trends can most often have corrections. Accordingly, on the lower relative to the daily chart, these corrections will acquire the distinct features of a downtrend.
When a trader says that he sees a rising trend, he usually specifies on which timeframe it occurs. Such delineation of the time interval allows us to understand that it is on a certain timeframe that further growth or decline is predicted. At the same time, at other time intervals, the situation may be diametrically opposite.
Many strategies using indicators also specify the timeframe or several time intervals in which they should be used. This is done because some technical analysis tools are set up in such a way that market noise on lower timeframes can interfere with their application.
As for scalping strategies, they are designed specifically for use in aggressive market conditions when market noise is almost constantly present on the chart.
One of the prime examples of everything written above is the trading system – “Elder’s Three Screens”. It just uses several time intervals. The analysis starts at the higher ones and gradually descends to the lower ones, where the trade is opened.
Timeframes are also critical when creating some price charts. For example, Japanese candlesticks are built exclusively on timeframes. The well-known abbreviation OHLC (open, high, low, close), which shows the four prices in a candle (opening, maximum, minimum, and closing), is a reflection of a candle in a certain time frame. That is, the construction of a candlestick without a time frame is simply impossible.
In market analysis, time frames also play a very important role. For example, if a trader needs to examine details due to the strategy used, he switches to the lower time intervals from a minute. To search for global trends, it is possible to switch to daily, weekly, and even monthly intervals.
Cascade analysis of trends on different timeframes and their advantages
For the most productive market forecasting, it is not enough to analyze only one timeframe. For example, if a trader works on the daily chart, to understand how the market situation will develop in the future, he should at least analyze the situation on the weekly chart.
Let’s turn to the weekly chart of the currency pair EUR/USD. We drew a downtrend from the beginning of 2018, which indicated a downtrend until the end of spring 2020. And only then the price was able to leave the limits of the trend and go higher.
We are interested in the period from September 15, 2019, to January 2020. At this time there was a correction to the downtrend, and the price was able to reach the trend line.
On the daily chart from late September 2019 to early 2020, we see a clear uptrend, which allowed us to make a local uptrend. If we were working exclusively on the daily chart, we would not see a global downtrend in this area, and, accordingly, we would not consider the current local growth as a correction to the global downtrend. For us, it would have been a full-fledged up-trend.
The complex cascade analysis allowed us to determine the point at which the local uptrend would end and the price would continue to decline, which happened further on the daily chart.
Some recommendations on the choice of timeframes for beginners
It is necessary to choose the time interval very carefully. All subsequent trading, including capital and risk management principles, will depend on it. Many beginning traders, not yet understanding the intricacies, begin to use the minute charts, trying to open a large number of positions within a day or even within one hour.
But this approach is highly unjustified. The matter is that intraday trading is more aggressive and is more suitable for professional traders or, at least, for traders who use automated trading advisors at such time intervals.
For example, in our developed Expert Advisors we use an intraday trading strategy. And mainly M15 in Sakura EA and Night Hawk EA systems. And Zodiaq Expert Advisor works on hourly chart H1. But here it is important to understand that our EAs are developed by a team of experienced traders, with a certain understanding of all the nuances of intraday trading and working with the lower timeframes.
To start trading on your own, it is recommended for beginners to use higher timeframes. For example, there is much less stress and market noise on daily charts. Beginner traders are unlikely to be able to distinguish market noise from the emergence of a trend. And, more importantly, they will be subject to serious psychological pressure.
Finally, working on small time intervals for beginners requires not only discipline but also the ability to react quickly to everything that happens. Not all experienced manual traders can boast such skills. But then again, if you are planning to use a ready-made automated Expert Advisor, you do not have to worry about choosing a timeframe. Robots are already set up and optimized to work with specific TFs.
Don’t forget to use VPS servers for your Expert Advisors.
If we consider the situation in terms of commissions, in particular the spread, a trader gets more benefits by trading on higher TFs and opening fewer trades. After all, the spread is calculated from each open trade. Therefore, the fewer orders the trader puts, the fewer commissions he pays to the broker.
On many websites, one can read the opinion that trading on higher timeframes requires more investment and offers fewer opportunities to earn. From the point of view of an experienced trader, it is the latter that is fair. Indeed, on the minute charts, it is possible to open deals almost every hour, on hourly charts a couple of times a day. And on daily charts positions can be opened several times a week at best.
However, from a beginner’s point of view, the rush and activity in trading is not always a positive thing. In addition, beginners, unlike some experienced traders, cannot afford to devote much time to trading. Therefore, the best option for them is either to use Expert Advisors like Zodiaq and simply monitor their work, which does not require much time and effort, or to work on higher timeframes, opening transactions as infrequently as possible, but at the same time, getting a steadily growing profit and less stress.
Many beginning traders, who trade on Forex, try to keep up with the market and try to catch up with it. They strive to open as many trades as possible, most often without even a proven strategy or trading system.
And this is quite logical, because a greater number of transactions, in theory, should bring more profits. However, in practice the opposite is true. A large number of transactions on lower timeframes does not give the expected result. On the contrary, most traders lose their first deposit or remain at the same level without any growth.
Why does it happen? Working on low timeframes can be profitable only if the trader is disciplined and has a good strategy and system. Only then a trader can count on success. But, unfortunately, beginners have neither the first nor the second. Discipline appears only with time, as well as a proven trading system.
Summarizing all of the above, it should be noted that, first of all, a beginning trader needs to determine the trading system and the timeframe in which it will work. Besides, the timeframe is not just a division of time into some units, but it is also a whole formation that can be formed as a result of some news release at the beginning of a new hour or 4 o’clock. And the ability to find your own time continuum in this digital-chronological matrix is one of the defining tasks of any trader.