Novice traders of the market make every possible effort to make themselves familiar with the financial markets, their terminologies, and the factors affecting the trade. However, this all needs ample time as learning is the daily right a trader requires to exercise. Be it a professional trader or a new market investor; they have to be updated for being successful.
With the technical advancements and software, however, it has become quite smooth for traders to analyze the market, know its basics, news, happenings, etc. They can access the trading platforms and tools that guide the traders about market fluctuations.
Online forex brokers such as ABinvesting, provide various services for market prediction. There are indicators, expert advisors, automated trading, types of orders, timeframes, charts, patterns, etc. Every trading platform tool contributes in a certain way to make it worth a trade. Moreover, these could be customized as per trade instrument.
In the article, readers will understand the timeframes that are used in forex trading. We’ll focus on its advantages, working and much more stuff for a deep insight. So, let’s drive-in for time frames of forex trading.
The largest and leading financial market in forex, it is open for 24 hours for its traders with decentralized training. Traders can invest in the market online as it does not have a central place for trade. In forex trading, investors trade in various currency pairs to make money.
The forex market has two broad systems of its working, the over-the-counter market and other being the interbank system. OTC allows traders to invest privately or through online forex brokers, whereas interbank trading is related to banks trading on behalf of their clients or themselves.
The currency market does not involve any exchange, and trailers can easily trade with the banks and brokers.
Moreover, the market has three types of currency pairs for trade, major, minor and exotic. The major currency pairs are those that are traded frequently and have great market value. In contrast, the minor currency pairs are the ones with less market worth. The exotic, however, is totally different of the two and includes currency pairs, one of a major currency and the other from a developing and emerging country.
Some of the forex currency pairs are EUR/USD, GBP/AUD, USD/JPY, etc.
Base and Quote Currencies
Forex trading is a bigger concept, and traders should be aware of the trade before understanding the trading tools. The forex market is a volatile currency market with high liquidity. Thus, the market offers opportunities and carries risks as well.
However, the forex trading market has two significant factors that decide the market value of the currency and the fluctuations; the base and the quote currency.
The base currency is the first currency of the currency pair and has a high market price. Whereas the quote currency is the second currency of the currency pair with a lower value. The fluctuations of the market make the prices change, and the one unit of quote gives the value of a unit of the base currency.
Once a trader knows the concept of currency valuation, they can invest in the forex trade using the trading platforms via brokers. A trader can invest in the forex market with spot, options, forward, and futures for successful currency trade. The spot market is the most frequently used market due to its instant delivery in cash.
Now, we have understood what forex market trading is and how it works to make money. Next, traders or investors should focus on the timeframes used for the trade. We can know what timeframes are and how these are used for investment in forex trading.
What are Time Frames in Forex Trading?
Forex trading is a continuous process until the trader or investor exits the market. Therefore, the investors of the forex market trade various currency pairs or trade instruments to earn good market returns. However, not all traders work at the same time or find an opportunity at the same level.
To meet this need of the investors, forex trading has different time frames to make the process easy. So, time frames of forex trading are designated units of time to execute the trade at a particular place. The timeframe of the forex market is calculated in minutes, hours, days, or even weeks of time.
The traders of the forex market use the time frame that suits their market instrument and their trade goals. For this, while setting up their trade strategy, traders do market research, analysis, and study so they can know what kind of trade they want to have.
Traders can use time frames for opening a market position, and it could be as per the requirement, say for an hour or a couple of days, etc. Hence, having specific timeframes to execute the trading strategy.
How to Trade Forex using Timeframes?
A trader can easily open a trading account and use the trading tools and platforms for market predictions and trading. Within certain steps below, we have described the process of trading in the forex market using the time frames. A trader can use the time frame as per the market conditions and requirements. So, let’s get started:
- The first step of investing in the forex market is opening a trading account with a reputed and regulated broker. For this trader has to register with the broker by visiting the website of the broker. There they can click on open an account and fill the registration form.
- The form includes details such as name, country code, contact details, email address, and a password for account security.
- The next step is to provide the broker with information that is asked; traders moreover have to fill in a questionnaire to provide the broker with past trade experience and performance.
- In the third step, trades upload their documents for verification by the broker.
- The fourth step is to select the trade account and deposit the funds for starting.
- Traders then can navigate through the trading platforms of the broker and use the ones that fulfill their needs, customising them accordingly.
- In the sixth step, traders select the trading market and the instrument to invest in. Here, traders choose the currency pairs they would like to invest in.
- The following step is to decide the market position the trader is going to take; they can go for a long or a short trading position.
- The eighth step is to manage the risks of the forex market by using the risk management techniques; traders can use the tools, analyze the market and predict it. In addition, traders have derivative products, speculation, and heading facilities to avoid market risks.
- The ninth step is opening the market position or executing the order and monitoring the trade for market opportunities.
- Traders can then select the time frames they would like to use for monitoring the trade and can even change it when needed.
Types of Time Frames of Forex Trading
Trading is the forex market, with the timeframes dependent on the trading style a trader uses in the market. Some traders prefer long-term trading while others go for a short-term market position. So, the significance of forex trading using the time frames is decided by the trading style of the investor.
For example, the scalpers or day traders go for short-term market positions and, therefore, use time frames that are for minutes or hours. Therefore, the traders should always consider their trading style before picking the time frames to trade.
Mentioned here are the types of time frames that could be used by the forex traders:
Scalpers of Forex Market
The scalpers are the ones that trade in the market for a few minutes; the traders prefer short-term market positions to earn small profits frequently, and when combined all they have huge profits from the trade. There are several traders who use scalping as a trading strategy. However, the traders have to be professionals and quick with their trade decisions.
Traders analyze the forex market and find the small fluctuations taking place so that they can buy and sell the currencies. The timeframes of such forex traders are usually 15 minutes, and mostly it lies from one minute to two minutes for quick trades.
Day Traders of Forex Market
The day traders are the ones that invest in the market for a day and earn high profits from the trade with their trading strategies. The forex market trading strategy implied short-term market positions. The traders of such a strategy use time frames from 15 minutes to some hours or a day.
Day traders can have a single market position or multiple positions depending on the trade. As the forex market is liquid, traders find several opportunities and use the strategies to make profits. With day trading, traders have different time frames as per the market instrument.
So, the 15-minute timeframe, an hour time frame or a day’s time frame, and many more timeframes that lie between the day could be used with day trading.
Swing Traders of Forex Market
The swing traders are different from scalpers and day traders; the traders prefer longer timeframes than the other two. In swing trading, the traders go for timeframes starting from a day and lasting for days or months. The traders hold the market position for some longer time but still are called short-term traders.
The traders use other trading strategies to make a profit; it could be stop loss or take profit and other indicators etc., to have market gains.
Swing traders benefit from the price movements of the currency pair over a timeframe. The charts and patterns help traders read the swings formed of the currency tarded and accordingly make decisions. So, in swing trading, traders can use various time frames such as an hour, 5 hours, a day, a week, or for a month, etc.
Position Traders of Forex Market
The position traders of the forex market take different market positions for trading in the market. They can hold a position for a long period of time or for a short time period. It totally depends on the market and the trading instrument, as in long time frames, traders have to avoid small market fluctuations and risks. This helps them have high market profits.
On the other hand, the small position holders trade for a short time; it could be for minutes or a few hours.
The long time frames can be for several years or months, so; it is up to the trader what market position they are willing to take.
Multiple Time Frames
Traders have the option to have multiple time frames at a time to analyze the forex market. The traders can use the time frames simultaneously for getting better marker predictions. Thus, traders can look at the currency pairs in different time periods and have many market opportunities to trade.
The forex traders usually begin with a longer time frame and then a short time frame for the trade. Mostly, the traders use the ratio of 1:4 or 1:6 for the trade with multiple time frame analyses. The charts and patterns are used for the analysis of the forex market using multiple time frames.
Traders can read the market trends with different time frames, decide on market entry and exits and help manage the trade. Moreover, traders can use other trading indicators for a smooth trading experience.
Trading has been an excellent source of income for many professional traders; they use the tools and strategies efficiently for a successful trade. The forex market is volatile, and traders, therefore, use time frames to get into the details of the market at different times. The time frames help them know the market, its position in the market, and what action could be taken to benefit in that particular forex trade.
Although, the trade is not that simple and requires a lot of market research, analysis, and study before using the trading strategies and time frames. If a trader uses the wrong time frame, they can lose the money invested or could face other market risks.