The concept of time frames was mentioned several times in the previous article "What is Forex". So let’s talk a little about the importance of this aspect. As you know, the key to trading in financial markets is the development of analytical skills. At the same time, we have to analyze the similar things again and again — the dynamics of the exchange rate. We’ve to do it long and monotonously. The objects of discovery are massive sets of numbers that are presented graphically. Such an analysis quickly gets a beginner bored and goes his brain to thoughts like “how huge is this data massive”, “it’s impossible to analyze”, “this can be done by a machine, but not by a human”. However, you can learn how to manage this data by structuring it correctly.
To create a structure, you should enter some kind of filter or criterion that will compress the array of information and combine data into groups. For example, by the time factor. This is how you can simply explain what a time frame is. This is a filter that helps identify price trends.
Let's remember that the most effective way in Forex trading is a step-by-step analysis with a combination of several methods. The first two ones are fundamental and technical analysis. First, let's look at the fundamental things — a quoted currency that we are interested in and the situation in its homeland. We keep in mind the political, psychological, economic and force majeure factors in the state. For a general understanding of where the trend is going.
The next stage of the analysis is technical one. Look at charts with rate fluctuations. All attention is on the bands, and the trader’s task is to identify a trend here. The unspoken rule of trading tells us "trend is your friend".
Experienced traders will tell you the movement of the currency is periodic. And its trajectory somehow repeats itself.
Using the chart the trader should identify one of the three types of quote moving:
Let's take a look at each of these ones.
Among traders, the impulse of a currency to rise is called an uptrend, also known as a bullish one. This name was born because of traders that are called "bulls" due to their desire to earn on market growth. Consequently, the “bulls” are looking for an uptrend for the most effective transactions.
By analogy, this trend was called a downtrend or bearish one. In honor of the bears, those traders who cleverly use the effect of falling prices.
This is a situation when the price changes with a small amplitude and, in general, stays in the same range. For example, we have a starting point where the quote is 1.00050. And the end point is 1.00052. For an hour, the rate was changing — both in a positive direction and in a negative one. As a result we have the delta that is only 0.00002.
During analyzing trends, it’s important to remember that any of the three trends (Up, Down, or Flat) doesn’t carry any valuable information without a clear time frame. Since the trend can be short-term, medium-term or long-term. You can often observe a comical situation — in the short term, prices grow on average, if you plan a little further, they stay without moving, and in the long term, we see a falling. And then a logical question arises — so which of the three conclusions should we rely on?
This is the moment to use the time frame. Consider that it can be different depending on time unit and step length.
For example, the period M1 shows the dynamics of price fluctuations for every minute. And the interval M30 gives us an understanding of how quotes changed every half an hour. The chart with step H4 demonstrates the dynamics after 4 hours. And D3 displays the change in the situation in the context of 3 days. For a complete picture, don’t forget there are also weekly charts, like W2 and finally ones with a step in months MN. Why MN? Quite simply, because the designation M is already taken by minutes.
When we have considered the time frame, it’s time to start analyzing the chart. Let's figure out how exchange rates are displayed graphically.
You can use a timeframe in Forex with one of three types of charts:
This is the easiest way to show price fluctuations. Let's take an example.
Let's say you woke up at 9:30 and you need to analyze how the Euro-Dollar pair behaved during the previous hours, when the European market was still sleeping, and the Asian one was trading.
We are interested in the dynamics from 6 am to the current moment. For an initial assessment of the situation, it is enough to take this period and apply the H1 timeframe that shows changes for each hour.
We build a coordinate system with a horizontal X-axis and a vertical Y-axis.
We get a table of parameters:
|Parameter||Point 1||Point 2||Point 3||Point 4|
|Y-axis (EUR/USD quote)||1,05600||1,05675||1,06200||1,05990|
But you should consider one thing — the price of 1.056 at 6 hours, in fact, means the value at 06:59:59, that is, at the closing moment of the 6-hour period.
On the chart, we see quite limited information. Yes, you can see how the price has changed in 1 hour, but no more. The analyst has no understanding of what maximum the price rose within an hour, and also what was its minimum. We could offer a smart idea — what if we take more points for analysis. This can be done. For instance, let’s use a one minute step. What will it give us? We get, neither more nor less, — 240 points (60 minutes for 4 hours) on one chart. Even a large monitor will hardly allow you to analyze it, and on a laptop monitor it will not be an informative chart at all. Therefore, the line chart is a thing of the past. It was replaced by bars.
A bar is a cool graphical tool that shows the trend not only at the beginning and end of the period, but gives an understanding of what was happening during this interval.
Bullish bar for the period from 18:00 to 19:00
In Figure 1, we see a bullish bar with the time frame H1. Four parameters are shown here:
Schematically, for an hour, prices behaved as shown in Figure 2.
Price behavior from 18:00 to 19:00
That is, the hour opened at 1.049, at some point a high of 1.056 was reached, then a low of 1.048, and the hour closed at 1.051.
We’ve used a bar chart and applied a timeframe, what has it given us? Bars are really more informative than lines and points. But the problem of readability is not gone and even worsened. With a large number of bars, their Open-Close tendrils merge into one array and turn the chart into a mess of lines. The solution to the problem came from Japan and it’s called the Japanese candlestick.
The so-called candle is a figure, as shown on the image.
Elements of Japanese candlesticks
A candlestick carries the same information as a bar, but is more readable due to good visualization. The main principle is that a "bullish" candlestick is reflected by an unfilled rectangle, and a "bearish" by filled one. This rectangle is the body of the candlestick. The lower and higher faces of the figure are the opening and closing prices of the period. The “threads” extending up and down are the tails (or shadows) of the candlestick. They, at their extreme points, show the MAX and MIN quotes for the period.
Filled and unfilled candlesticks look comfortable and allow you to read charts even with a thousand values. So this tool is most often used in the 2020s to analyze the prices of currencies. Let's look at an example of a candlestick chart.
An example of a candlestick chart
Figure shows the dynamics of changes in quotes per day. Question for beginner traders forex- what is a time frame specifically on this graph? The answer is step H3 is applied here. Therefore, we see the price changing every 3 hours during the day.
Analyzing the chart (lines, bars, candlesticks) within the timeframe helps to identify the trend in price changes. When we see that prices are rising, it is likely that the trend will continue to rise for some time. That is, it will continue rather than stop. At this moment, it is necessary to force the opening of transactions to buy. Accordingly, when a trend of falling quotes is revealed, we open ones to sell.
But there is a question that remains — how to identify that specific moment when we should open transactions. What if this trend is just now coming to an end, and then there will be a jump in the opposite direction.
Resistance and support levels
There is one thing that can help us to figure it out. These are the resistance and support levels shown in Figure. What is it? Let's draw an analogy. Imagine you are throwing a basketball in the gym. If you throw hard on the floor, the ball will bounce up. The floor will "support" the ball. If you throw it up, the ball will rush down, the roof will “resist”. There is the same effect with the exchange rate.
Using the candlestick chart and time frames, try to identify the resistance line, i.e. a level which prices bounce down from, for a long time. In this zone, the trader opens transactions to sell. And when we identify the line which prices jump up from, we will find the support level. It’s time to open buy transactions.
So now, when we’ve figured out the essence of the term "time frame" and the types of charts, let's touch on practice.
There are 9 types of timeframes available to a beginner on demo and real accounts of trading terminals: 1 minute, 5 minutes, 15 minutes, half an hour, 1 hour, 4 hours, 1 day, 1 week, 1 month.
It’s important to decide on the key ones of these nine for your trading. This choice affects approaches to transactions, their intensity and setting pending orders.
When we choose a time frame, we should consider such factors as:
A small deposit doesn't allow you to actively use the older timeframes from H4 to MN. You will have to set an unreasonably large Stop Loss order size. Which leads to great risks, and the basic principles of money management are not followed.
A beginner should understand that lower timeframes (hourly, half-hourly, minute) will force him to buy glasses, since he will have to stay at the monitor for a long time during the day. Although the volatility of the currency on lower time frames is better visible, this is not a guarantee of high earnings. High psychological and visual stress can negatively affect trading decisions.
Therefore, the best time frame strategy is to highlight the working one and combine it with several others, both older and younger.
For an absolute beginner, it is recommended to start from periods H1-H4. They will allow him to avoid emotional overload and get a good analysis. At the same time, do not forget to rise to a higher timeframe sometimes in order to understand what the whole trend is today — bullish, bearish, sideways. And also to identify the stage of the trend, where its correction is predicted. Sometimes you should go down to lower periods. The points of opening deals are better visible there.
Time frames are one of the key points of forex trading. A beginner should study their types, how a bar and a Japanese candlestick look like. Then he should move on to practice — open a demo account on the trading terminal and practice identifying trends by setting different time frames, finding resistance and support levels. Over time, the trader will start reaping the rewards and getting successful in Forex transactions.
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