When it comes to trading, one of the most important decisions you need to make is what timeframe to trade. There are a lot of different opinions on this topic, but we will try to provide you with some guidance that can help you make the best decision for your trading style.
First of all, it’s important to understand that there is a lot more noise on the smaller timeframes than on larger ones. This means that if you are trading small timeframes, you will have to be incredibly careful about when and how often you enter trades. Often times, this leads to making fewer profits per trade and less risk per trade.
As you can see below, traders can choose from a variety of timeframes:
The Paradox for New Traders
New traders should also be aware that:
- The smaller their trading account, the smaller the timeframe they should be trading. This is because it’s much easier to make a mistake and lose money on a small timeframe than on a larger one.
- But also… The smaller the timeframe, the more difficult it is to trade profitably.
These objectives seem to run counter to each other. New traders come into the market with a bit of cash, start trading the smaller timeframes and, consequently, put themselves in a challenging spot with their trading.
It’s important to know that it is much easier to develop profitable trading systems on a daily timeframe than on a 5-minute chart. This is because there is less noise and fewer opportunities to make mistakes. Sometimes, it’s best for new traders to develop their skills on a longer timeframe, like the daily chart until they develop the skills and confidence to try smaller timeframes.
When it comes down to it, the best timeframe for you will depend on your individual goals and preferences. If you want to take many small, frequent trades then a smaller timeframe may be the best choice for you. On the other hand, if you are looking to take larger trades with less frequency, then a larger timeframe may be more suitable.
To Scalp or Not to Scalp?
Finally, it’s worth discussing whether or not scalping is a viable trading strategy. Scalping is something that intrigues many system traders, as the challenge of taking small, consistent trades from the market daily while risking very little is appealing. However, scalping comes with its own risks. On a scalping system, a single pip can be the difference between life and death — while a day trader or swing trader hardly notices a single pip of slippage. As such, even experienced traders need to understand that this type of trading carries higher risk than other forms of trading.
The spreads and transaction costs can kill a new trader if they are not careful. Not to mention, you’re competing with high-frequency professional traders and algorithms. It’s a tough game for a newbie, since the margin for error is miniscule.
Scalpers tend to trade shorter timeframes — like the 1-minute chart. As you can see below on a 1-minute chart of the EURUSD, those smaller timeframe charts can get extremely choppy and volatile on a minute by minute basis, in just a short time period.
At the end of the day, the timeframe you choose to trade in will depend on your individual goals and preferences. Ultimately, it’s important to be realistic about what type of returns you can expect from each timeframe. With careful planning and research, you should be able to find a timeframe that suits your trading style and helps you achieve your goals. With that said, it’s important to remember that there is no “one size fits all” solution when it comes to trading — what works for one trader may not work for another. Therefore, be sure to experiment with different timeframes until you find the one that works best for you.
Disclaimer: All information provided here is intended solely for study purposes related to trading financial markets and does not serve in any way as a specific investment recommendation, business recommendation, investment opportunity, analysis, or similar general recommendation regarding the trading of investment instruments. The content, in its entirety or parts, is the sole opinion of SurgeTrader and is intended for educational purposes only. The historical results and/or track record does not imply that the same progress is replicable and does not guarantee profits or future profitable trading records or any promises whatsoever. Trading in financial markets is a high-risk activity and it is advised not to risk more than one can afford to lose.