Forex Tutorial: Types of Trading Timeframes
Posted by Edward Dy on July 29th, 2008
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Photo Credit: ferryenjoy
Generally, there are three types of forex trading timeframes:
- Long-term;
- short-term or swing; and
- intraday or day-trading.
So which one is the best? There is no best timeframe. It really depends on you and the type of personality that you have.
The long-term timeframe
Long-term traders usually would prefer daily and weekly charts, since these charts establish longer term, allowing them ample time to “catch their breath.”
In this type of trading, we are usually talking about Trades usually talk about timeframes that span from a few weeks to several months or even years!
Advantages of long-term timeframe: the main advantage of this timeframe is you need not watch markets intraday. The fewer number of transactions means that there are less paying of spreads.
Disadvantages:
On the downside, this timeframe is characterized by large swings, requiring large stops. Generally there are only one to a couple of good trades in a year. This timeframe requires a lot of patience. Also, a larger account is required to get on longer term swings plus frequent losing months.
The short-term timeframe
In this type of trading traders usually utilize hourly timeframes, with trades held from many hours to about a week.
Advantages:
A notable advantage of this type of trading is that there are more opportunities for trades, with a less likelihood of losing months. This trading method is also characterized by less reliance on one or a couple of yearly trades.
Disadvantages:
The disadvantage of this type of trading is that there will be higher transaction costs, meaning more spreads to pay, plus the added factor of overnight risk.
Intraday timeframe
This timeframe is characterized by the use of minute charts such as one of five-minute charts. These trades as the name implies are made intraday and exited by market close.
Advantages:
For those who prefer this trading timeframe, there are plenty of trading opportunities coupled with less chance of losing months. Here, overnight risks are virtually non-existent.
Disadvantages:
Just like all other trading systems, this too has its disadvantages. Usually the costs for transactions will be much higher, since you need to pay more spreads. This is also pretty taxing mentally, since the frequency of trading makes it more difficult. Profits are limited by the need to exit at the trading day’s end.
Remember, there is no right or wrong timeframe. It all depends on you.
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