If you have not already know, price movement is updated on the forex charts every seconds regardless of whatever timeframe we are looking at. So why is choosing of timeframe important?
Different indicators react or show trading signals differently on different time frames. For example, the stochastic indicator can generate trading signals faster on a 5mins timeframe than a 1hr timeframe since a new candlestick is formed on every 5 mins interval.
Normally, new traders who are newly introduced to forex are eager to catch trade signals, so a short timeframe like 15mins or 5mins or even 1mins timeframe are used. It is true that a shorter timeframe gave you lots of trade opportunity, however, the high volatile movement in a short timeframe also produces multiple whipsaws and false signals.
In truth, when trading forex, more trades do not necessary mean more profits. Profitable traders would prefer quality than quantities. What this means is that they only click the trade button when they strongly thinks that this trade will be profitable through much analysis and consideration.
Does that mean that short timeframes are unprofitable?
Short timeframes are more often used for opening trades with low profit margins know as scalping. Traders who use the scalping method normally open and close trades frequently in a short time period capturing low profits (eg. 20 pips). Scalping may seems easy, but in truth, scalping requires substantial time for monitoring of the market movement. Scalping traders requires keen eyes and have the ability to make quick analysis and make quick decision.
Scalping methods are generally not recommended for traders new to the forex world. However, if stress and challenging trades appeals to you. Well, by all means, go ahead.
So, what timeframe should I be using?
Depending on your trading methods, most intraday traders uses the 1hr and 4 hr timeframes, others may prefer the 30mins. Traders who have less time to monitor the market may even choose the daily or weekly timeframe. The slower timeframe allows more time for the trader to analysis the market and execute their strategy. Different traders have different preference to the timeframe that suits their trading method. Select a timeframe that you are comfortable with and which best suit your trading method.
Additionally, traders are recommended to use multiple timeframes instead of just sticking to one. Multiple timeframes allows the trader to see a bigger picture of the market movement to ensure that their trades are moving with the major trend.