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Thursday, November 29, 2007

Which Timeframe Should I Trade?

forex futures trading

Which one is better?

It depends on your personality!

Let me give you a breakdown of the three to help you choose:









Timeframe
Description
Advantages
Disadvantages
Long-term

Long-term traders will usually refer to daily and weekly charts. The weekly charts will establish the longer term perspective and assist in placing entries in the shorter term daily. Trades usually from a few weeks to many months, sometimes years.

Don’t have to watch markets intraday

Fewer transactions means less paying of spreads

Large swings which require large stops

Usually 1 or 2 good trades a year so patience is required

Bigger account needed to ride longer term swings

Frequent losing months

Short-term

Short-term traders use hourly time frames and hold trades for several hours to a week.

More opportunities for trades

Less chance of losing months

Less reliance on one or two trades a year to make money

Transaction costs will be higher (more spreads to pay)

Overnight risk becomes a factor

Intraday

Intraday traders use minute charts such as 1-minute or 5-minute.

Trades are held intraday and exited by market close.

Lots of trading opportunities

Less chance of losing months

No overnight risk

Transaction costs will be much higher (more spreads to pay)

Mentally more difficult due to frequency of trading

Profits are limited by needing to exit at the end of the day.


You also have to consider the amount of capital you have to trade. Shorter timeframes allows you to make better use of margin and have tighter stop losses. Larger timeframes require a bigger account so you can handle the market swings without facing a margin call.

When you finally decide on your preferred timeframe is when the fun begins. This is when you start looking at multiple timeframes to help you analyze the market.

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