The 3 Time Frames I Use To Bank Winning Forex Trades

Written by The Money Lab Team on May 9th, 2016

The 3 Time Frames I Use To Bank Winning Forex Trades

Most Forex traders ignore one of the most important aspects to trading.

Used correctly, it can even be a trader’s secret weapon to making consistent returns in the markets.

What am I talking about?

Time frames.

Novice traders don’t have a clue about them, I’ve come across a few ‘professional’ traders who dismiss their importance, and I’ve even seen some rather expensive trading courses barely touch on them.

That’s why I think it’s crucial you understand them, and how they work in trading.

Today I’m going to show you the three time frames I trade, and how I make money with them.

Let’s get to it.

 

How Do I Find The Best Time Frame?

 

So many traders ask this simple question, and it’s always so hard to answer.

As you know, becoming a successful trader is not easy.

But something that can help you become one of the ‘greats’ is to have some kind of edge.

Your edge ultimately comes down to your personality and how you express it in the markets.

And time frame selection is a classic example of that.

Certain time frames will suit certain people while other time frames suit other kinds of people.

It really comes down to your personality.

All traders are different and we all see things in different ways.

Some people like to focus on one system while others like to look at things more broadly.

With my experience in the market I’ve tried two kinds of systems and ended up looking at the market more broadly (as it suited my personality).

It ultimately helped me find four specific time frames that I use when I look for trades.

I just found that the weekly and monthly time frames were just way too broad for me.

I’m a little too impatient to wait for a pattern to emerge on the weekly and monthly chart.

My style is a little bit more interactive with shorter term moves in the market.

Having said that, however, I often refer back to the weekly and monthly charts to look for confirmation of a pattern that I recognise in the Daily charts.

 

 

Time Frame #1: Daily Charts

 

My first and most important time frame are daily charts.

Daily charts are fundamental to my trading.

Think about the significance of a day, it’s like the entire world revolves around days.

The sun rises in the east and sets in the west, flowers blossom in the morning and wither at night, we wake up and go to sleep etc.

And all these things represent a daily pattern in nature that repeat themselves on a daily basis.

The markets are similar in that they open and close on a daily basis.

If you thought that nature had nothing to do with trading, then have a look at the Golden Ratio.

It’s better known to traders as the Fibonacci Ratio and you’ll see what I mean in a second.

So, when it comes to using daily time frames, I use the following:

  1. Daily ranges in the form of Pivot Points
  2. Volatility bands using Bollinger Bands
  3. Important moving averages. Such as the 10 day simple moving average (SMA) & 20 day SMA used for short term trends, the 50 day SMA and 100 day SMA for medium term trends, and 200 day SMA for long term trends
  4. Momentum of price moves using Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD)

If you like using these kinds of indicators when trading, then in my opinion the daily charts are the place you’ll find that they work their best.

Daily charts also don’t give as many false signals as the shorter time frames using the indicators listed above.

 

Time Frame #2: The 4-Hour Time Frame

 

The second time frame I like to use is the 4-hour time frame.

I love using the 4-hour time frame for one particular reason...

The 4-hour chart is in my opinion the best chart to use when searching for technical patterns.

(Such as support/resistance, ranges, channels, head and shoulders, double tops and bottoms, cup and handle etc.)

What I do is zoom out a little so that the gradient of the chart increases, and this makes it really easy to see patterns even for the untrained eye.

I also like to use the 1-hour chart in conjunction with this.

Strangely, I find that some of the indicators that I use on daily charts also work considerably well with the 1-hour charts (there are exceptions though).

Unfortunately, because there is a certain element of random behaviour in the market, the 1-hour chart is a little bit harder to trade from.

I find there’s a lot of ‘noise’ in the hourly chart and this can make it tough to see exactly what a real break is, and what’s just pure noise.

For this reason, I narrow down the indicators I use to the following:

  1. The important moving averages, using the same moving averages as the daily charts
  2. Momentum of price, again, the same ones as in the daily charts are used

I find that using the short term time frames are particularly useful to get precise entries, while the larger time frames can be used for a broader overview.

So when I look at the 1-hour, or smaller time frames, I already know what I’m looking for and not vice versa.

I don’t look for a break on the 1-hour chart and then try to find reasons why that should work on the daily chart or 4-hour chart for example.

My way of finding the right trades is by looking at the larger time frames and using the smaller time frames to try get absolute precision entries.

 

Time Frame #3: The 1-Minute Time Frame

 

I would only recommend traders who really have their finger on the pulse to consider this time frame.

Although this time frame may sound absurd to some, to me, I really enjoy watching it.

I only use 2 indicators for this time frame: daily Pivot Points and MACD.

I use daily Pivot Points because I only use the 1-minute chart for intra-day trading, and the MACD is surprisingly also very effective on the 1-minute time frame.

 

How I Uncover Profitable Trades Using The Right Time Frames

 

As you can see that I use a combination of time frames to confirm or reject some of my trade ideas.

The ones I focus on more are the higher time frames, and I use the lower time frames more for technical entry signals.

I’d say that the daily chart can be used on its own, and so could the 4-hour chart, but I wouldn’t use the smaller time frames without the big picture view.

I found this combination of indicators and time frames worked best with my personality, it’s kind of a ‘look broad and hone in’ type of approach.

I have used singular time frames before, during the time when I was perfecting my ‘edge’, but I always felt like I had missing information.

I think it’s extremely important to understand who you are and what type of trading style suits you best before making a decision on what time frame to trade.

I know this takes a lot of trial and error, but it’s worth it in the long run!

Until then here’s to profitable Forex trading. 

The Money Lab Team