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Play to Win the Forex Timeframe Game

When designing a forex trading system there’s so much to choose from.  Where do you start?

One big important factor is to choose which timeframe to trade and there’s lot’s to consider.

I’m sure we’ve all seen other forex traders we’d like to follow in the footsteps of.

Depending on your personality you may be seduced by the excitement of a trading room where they trade live with someone calling the shots and putting their prowess on show.  It looks so damn easy!

Or you’re enticed by the promise of trading in 10 minutes or half an hour a day.  Dream on baby, it takes a lot more than that kind of commitment to be any good at forex trading or anything else worthwhile for that matter.

But let’s get down to reality.  What’s a major consideration you need to take into account to have a good chance at success?

The First Forex Hurdle to Jump

The first hurdle to jump is the spread; the hidden cost to trade.  Let’s take a look.

Charts are almost always bid charts or the cost to sell.  When we buy we pay a higher price being the chart price plus the spread.  When we sell we pay the sell price or chart price.

Sometimes we buy first, and then sell, if we want to gain on an upward move.  Other times we sell first, then buy to get out, if we want to gain on the way down.  No matter what, its buy low, sell high that we’re after.

Charts look the same no matter what timeframe it is.  This chart could be in minutes, hours, days, weeks or months.  We can’t tell without a scale.

Forex Trading Chart

But there’s a big difference in the result.  The smaller the timeframe the smaller the number of pips our trade is likely to be between our entry and our stop loss.  The travel distance the foreign exchange pair has to go to make the same amount of money, assuming the same amount is risked, becomes a lot further the larger the timeframe.

No matter what timeframe we trade, the spread in pips stays the same.

Let’s take a look comparing the trade distance between entry and stop loss in pips excluding the spread, with the spread cost.

Forex Spread vs Forex Pips

What does this mean for trading forex?

The smaller the timeframe the greater the spread cost is to overcome before you become profitable.

Of course your broker will love you on small timeframes because your position size will be larger assuming the same monetary amount is risked.  They’ll make money if you win or lose.  It’ll be more because they’re getting a larger percentage of your risk per trade on small timeframes.  That’s great if you’re trading to get an invite to the brokers Christmas party, but maybe not if you’re trading for the money.

Spreads can vary widely

Every forex pair is not created equal.  Spreads can vary greatly.

Of course the majors like EURUSD, AUDUSD have very low spreads but spreads do creep up when you start to trade the forex cross pairs.

The volatility and fluctuations in the more boutique crosses can increase greatly.  This can help get you killed in a trade.  Try watching GBPNZD during a major session, then shortly after the US rollover and again at the weekend close.  This spread volatility and expansion may take you out of a trade and cost you dearly, even if you have the direction right.

The lower the timeframe the bigger the bite the spread is.   The lower the timeframe the fewer foreign currency pairs are viable trades.

Which timeframe is right for you?  That depends on many factors, but remember, a higher timeframe will pay you earlier, rather than your broker, everything else being equal.

Forex Timeframe - Smaller Larger

And that’s not all. Some accounts have a commission too. But when the commission is there, the spread is often reduced.

Let’s get thinking:

  • What timeframe(s) do you trade?
  • Do you make more than your broker over time?
  • How much does the broker make from your trading?
  • Are you able to claim some of your broker’s earnings for yourself by choosing another timeframe?


Please leave a comment below and click the like/share buttons

About Rachel Hunter TraderRachAbout the Author: I’m Rachel Hunter, TraderRach, a Forex Trader who helps traders achieve the life they love with forex.  Be strategic and design your trading business for sustainable success and have fun!  That’s my mission.  Join many traders’ gaining the edge with “10 Powerful Lessons for Forex Trading Success” plus other goodies.  Years of precious learning specially packaged up for you.  My background before trading is as a Chartered Accountant and Chief Financial Officer.   I know what it takes to make a trading business rock on.  It would give me great pleasure to make a difference to your success.

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Categories: Forex Market

10 Responses so far.

  1. novice traders think the smaller the time frame the easier the trade is. I agree with your words when you write there is a relationship between time frame and cost.
    I think you need to be comfortable with the time frame you are using and keeping in mind that large time frame provides charts which are easy to understand, with fewer false signals.
    Thanks Rachel ! Very interesting and useful thoughts in your article

    • Rachel says:

      Thank you for your contribution to the discussion Alain.

      You’re right about being “comfortable with the timeframe”. For beginner traders a larger timeframe provides more time between decisions, time to reflect about actions and outcomes, and additional time to recover from any stress the trades may have caused. Little is learned by rushing through many trades with poor decision-making and no time to think.

      On the flip side, having more trades in a smaller period of time gives you more experiences in less time.

      Cheers Rachel

  2. david says:

    So its not possible to trade for only 30 minutes a day and be profitable? Where has this been derived from?

    • Hi David

      I’m not a person to say anything is impossible because we are constantly amazed and surprised by what people can do.

      Some types of trading may be executed in 30 minutes a day, but to run a successful trading business takes a lot more time than that. For example, there’s the time spent on system development and improvement, personal learning and development, record keeping, performance review and administration.

      Generally the more time and effort people spend on their trading, the better they become. Limiting time will only make the development process take longer.

      So to answer your question, the “30 minutes a day” would relate to execution only and is a common marketing strategy I see used.

      What has your experience been?

      Cheers Rach

  3. TraderSimon says:

    Actually, trading smaller timeframes such as the 5min willl give you more opportunities in a day. Your stoploss will be smaller, your targets will be within easier reach.

    Also, you will know very quickly if a strategy is working or not, because you will have built up a huge amount of data in a small amount of time.

    From a psychological point of view, a 5 minute strategy will allow you to endure many small losses and still have the opportunity to turn a profit before the day is over.

    Contrast this with the 1hr timeframe, where if you have a losing trade, it may be days before something else sets up. You then get frustrated and start imagining setups that aren’t there.

    So yes, your broker may make more commission from you from taking many trades on a small timeframe, but IMHO this is a minor consideration when weighing up everything else.

  4. Danyl says:

    I trade the daily time-frame (New York Close) and I hardly ever spend more than 30 minutes per day trading. I take an average of 40 trades per year with a win average of 67% and R:R of 1-3. I used to spend a lot more time trading, however since adopting my currently style two years ago my results have been extremely better.

    I acknowledge that a lot of time is required to learn the markets and to trade successfully; I went through this in the beginning (screen time). I don’t think it takes hours per day to run a trading/Forex business, at least not for me. The administration part happens after every trade and at the end of every quarter. Every few weeks I go over my results (in my spread sheet) and report back to wife on results. It may take you many hours to run your Forex business, but that may be due to your mentoring program, educating, blogging, etc.

    • Hi Danyl

      It’s great you’ve got your trading organised in a way that suits the lifestyle and return you enjoy. You’ve put in the hard yards and it’s paid off.

      Thank you for sharing your experiences.

      Cheers Rachel

  5. colin says:

    All depends what my style of trader is..I need to reflect on the daily …..4 hour …1 hour …30 ..15 and even less time frame before i make a decision.To see it theres a trend or if its moving sideways..what price is high to sell…and what price is low to buy…try it for yourself…look at a trade on a 15 minute time frame ..and then on a 4 hour or daily…see the huge difference

    • Hi Colin

      Thank you for contributing to the discussion.

      Multi-timeframe analysis can be very helpful for giving forex traders a big picture look. It’s good to know you find that valuable.

      Most forex traders have one or more timeframes for analysis but usually use one timeframe as an execution chart. The execution chart tends to impact how wide the trade is in pips between the entry and stop loss. As the spread doesn’t change with the timeframe used, the execution chart tends to impact the cost per trade with shorter timeframes lending themselves to higher cost trading styles. [I’m explaining this for the readers since I’m sure you know this already.]

      I look forward to your future comments on other topics.

      Cheers Rachel

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