To be successful in forex, it`s essential for every trader to develop their own system for entering and exiting the market that matches their own level of expertise, their attitude to risk and the funds they have available.
While there are literally hundreds of different ways to trade, one fundamental decision that every investor has to make is whether to trade in the short term or long term and what kind of charts to use. As a general rule, information is key to success but there can be a thing as too much detail. Relying on too many indicators can muddy the water and make it more difficult to identify a true trend until it is too late.
Most platforms that are used for forex traders have the capacity to offer multiple charting options including the ability to analyze different time frames, usually from around two minutes to more than 12 months. This allows traders to pick the time frame that suits their system, but it isn`t always obvious which is the most appropriate time frame to use.
As a general rule, having some medium and longer-term time frames is a good idea, just to give a general feel for the market. Even if you are trading in a relatively short-term position, it can be difficult to identify what is a regular fluctuation and what marks the beginning of a true trend change. A longer-term chart will help show what the boundaries are for fluctuations, which will help you set your stop losses more effectively.
Possibly the only exception to this rule is scalping where traders are looking to execute deals constantly and take small profits to build an overall gain. This market is only for very experienced traders and needs very specific indicators to be a success.
Using a longer term time frame can help to identify an overall trend of higher or lower, while switching back to your preferred trading slot (a shorter time frame) will then allow finding the right entry and exit positions.
It`s always a good idea to try trading different time frames to begin to find the one that suits your style the best and maximizes your chances of making a profit. Once you have done this, going up one slot to take a look at the bigger picture can make it easier to find the trend. This can also provide an advantage over competitors who may only choose to stick to their preferred timeslot for analysis.
However, it`s important to ensure you are familiar with the platform`s navigation, which will allow you to switch between time frames quickly as and when needed. It`s also essential not to include too many time frames as this can provide conflicting or confusing information that is difficult to unravel.
To be profitable in forex trading, it`s a good idea to step back from time to time to look at the wider picture. It`s very easy to get sucked into your trade and miss what`s going on elsewhere in the market. By using both short and long-term charts, you will be able to not only maximize your chances of making a gain but also keep on top of the latest movements and trends that are starting to develop.