Why does your profit directly depend on the right timeframe choice?
Good afternoon, dear readers!
Today I decided to start from the beginning and make an extremely detailed analysis of the time intervals of the chart and make out the scary word timeframe for a beginner. In this review, we will discuss the concept of the time period of the chart (timeframe), and also analyze in detail how your profit depends on the choice of timeframe. In the process of reading, you will receive answers to many questions and can increase your understanding of the trading process. What is the difference between timeframes on a price chart? How do the graphs change when changing intervals? How is the price movement different when choosing different scales of the price chart? What is the difference and features of trading on different timeframes? How to choose the right timeframe for your trading style?
You will find answers to these and other popular questions in this article.
What is the forex chart timeframe?
The time frame used in technical analysis is the time interval used to group quotes when building elements of a price chart, bars, candles or points of a line chart. This is an extremely important parameter in a fierce strategy when trading forex.
The types of price displays such as bars and Japanese candles have the greatest reference to the timeframe because they carry more information about the price than the points of the line chart.
The figure above shows how the time frame is set in the TradingView platform. In the case of Japanese candles and bars, a timeframe means that one candlestick or bar is formed during the selected timeframe. In the picture above, the timeframe is selected – D1. This means that one candle on the chart is formed within one day.
The following is a breakdown of popular timeframes:
M1 (1M) – 1 minute;
M5 (5M) – 5 minutes;
M15 (15M) – 15 minutes;
M30 (30M) – 30 minutes;
H1 (1H) – 1 hour;
H4 (4H) – 4 hours;
D1 (1D) – 1 day;
W1 (1W) – 1 week;
MN1 (1M) – 1 month.
All timeframes are conditionally divided into 3 groups:
- short-term (intervals from M1 to M30);
- medium-term (intervals from H1 to H4)
- long-term (intervals from D1 to MN1)
These gaps are also characteristic of trading strategies that have a similar gradation.
How the chart changes depending on the selected timeframe
Candles of a higher timeframe contain information about candles of lower timeframes, and a rather large interval of the chart on the M15 timeframe, on which there are several independent trends and possible price channels – on the D1 timeframe it looks like only one candlestick, which only changes color depending on uptrend or downtrend on the area of the M15 timeframe.
The figure above shows how one red candle on the D1 timeframe looks on the interval H4, and represents 6 consecutive candles, each of which contains information about 4 hours.
What timeframe to choose for trading? Features of trading at different time intervals
With a change in the timeframe, the visible part of the graph carries information about trends of various orders. If we use the time interval of a short-term group, then the trends on it will be local and alternating several times a day.
The timeframes of the long-term group display information on global trends, the formation of which often takes years or even decades. Naturally, the size of your profit in points will directly depend on the timeframe.
Consider an example of working out the “triangle” pattern at different intervals
The figure below shows the development of the pattern on the interval H1. As can be seen from the graph, after entering the market, the profit was approximately 500 points.
The following figure is also a “triangle”, but the profit from its sale amounted to 5000 points, which is much more in monetary terms. The timeframe of the second drawing is 1D.
However, profit is not the most important thing, which depends directly on the timeframe. Much more important when opening positions is the degree of risk. If we analyze the figure from the 1H timeframe, it can be seen that the price moved in the direction of profit jerkily and often changed direction. This is an integral feature of lower timeframes, as they carry information about fluctuations within the day. For many, these fluctuations can cost multiple triggering of stop orders. And it’s not worth talking about the nerves spent, many simply can’t stand it and exit transactions without waiting for their implementation.
Looking at the chart from the 1D timeframe, we can conclude that the price was moving in the direction of profit without any doubt or hesitation. Actually, this is certainly not the case, but intraday fluctuations did not significantly affect the growth candles, simply because each candle is exactly the same day. Your expectations for profit on higher timeframes are greater, and therefore the risk level is lower since stop orders are further from the current price and do not depend on short-term volatility.