The choice of the right timeframe in forex markets is fundamental for a successful trading. Form the 1-minute to the 1-hour (or even higher) there are a lot of opportunities among which a trader can choose. Both low or high timeframes have pros and cons.
Low timeframes allow a trader to exploit a great number of trades but he will have to sit in front of his monitor for the entire session, as every minute counts. Once he enters the market, the movements can be fast, so he has to be ready to trade every moment. Shorter timeframes can increase the number of mistakes. Stress is another factor which can play an important role.
Planning every step is fundamental in this kind of trading and a trader should chose what to do if the market is not going as expected, because emotions and stress can limit the trader’s ability to take the right decision.
Among the pros of low timeframes there are the possibility to get immediate results, often in few minutes. Among the cons, a trader must pay attention to the spread, as his stop can be a few pips only, easily hittable. The spread can easily erase up to 20 to 30% of profits, meaning that a trader is obliged to have a high win percentage. Finally, during news events, the spread can become very big, such as 20 pips. If a trader has low pip stop loss, this spread can be devastating. This is why lower timeframe traders prefer to avoid the news. Always keeping very high concentration level and very low emotional level is another important quality.
In high timeframes, from the 1-hour until the 1-week, movements are much slower than in the low timeframes case, giving a trader more time to study charts and take the right decision before entering the market. After having observed what is happening, knowing price action, he will know if any trade is ready soon, or if he has time before entering. Very often a trade can take hours, or even days before getting ready. For this reason, a high timeframe trader keeps note of all the trades he is looking at, and in how many hours he has to come back to the trade, to see if it evolved as expected. Finally, the average pip amount of a trade can be very high (even hundreds of pips).
High timeframe trading can be boring. To speed the activity up, some new events need to occur, such as economic or financial news. This is why it is important for a trader to check if any news will be released when he is entering the market. The price action will do the whole thing, there is no need to undertake any fundamental analysis on the news.
The pros of high timeframe trading are the possibility to have more time to analyse charts before entering a trade, the possibility to stay away from the trading desk, looking at the upcoming trades of the day/week and avoiding to get too emotional and entering a trade too soon. Furthermore, the moving average is bigger, so stop losses are big. The spread is less detrimental on trades and profits. Among the cons, there are the impossibility to make many trades, while patience for entry is a key. The need for news events is another con.
In conclusion, a trader prefers a low timeframe if he has much time to spend in his trading activity, has a deep knowledge of the price action, he is not emotional, he likes to get immediate results and his broker allows him to have small stop losses (low spread). He prefers high timeframes if he has not much time to spend in front of his trading desk, he is patient, he needs time to analyse charts before entering a trade, he wants to invest slowly his capital and he likes to trade around news events.