The choice of time frame to trade off can be a highly contentious issue; many experienced and by definition successful traders, will point out the efficacy of the daily time frame, suggesting that it is the only time frame worth considering trading off. On the basis that the majority of the technical indicators pre dated the Internet and were created by (primarily) commodity investors and analysts, who observed price movements only on daily charts and above.
Other forex traders will cite that the mathematical purity of the indicators remain unchallenged and unchanged, irrespective of the time frame. Some will suggest that the four hour time frame is ideal, given that it can correspond perfectly with the key opening times of London and New York and the overlaps when both markets are open, when trading volume increases significantly.
Then there’s the other perspective; the obvious conclusion that you match the time frame to your preferred trading style. If you’re a scalper you’ll maybe trade of tick charts, a swing trader the daily, if you’re a position trader you’ll perhaps prefer the weekly, whilst coordinating your decisions with the COT report, the commitment of traders report. If you’re a day trader, and the majority of retail traders are day traders, then you may prefer to use time frames from fifteen minutes to one hour.
The one hour time frame
The one hour time frame is continually mentioned when we read technical observations made by analysts; if you follow many of your preferred analysis and traders on, for example, social media such as Twitter, they may constantly refer to this time frame as the one they take their decisions off. Perhaps, similar to other professionals in the industry, they’ll look for confirmation of the trend they’re looking for on a higher and lower time frame, before making their decision. But ultimately the actual trading decision, principally to either enter or exit the market, may be taken off the one hour time frame.
One theory behind the wide use of the one hour frame is that institutional level traders will observe their time frames/charts every hour, they won’t stay hunched over their desk and bank of monitors constantly looking at charts. They might be at their trading desks for hours at a time, but will be monitoring news feeds from Bloomberg and Reuters, mentoring activity, they won’t be singularly focused on the price movements displayed on their charts. Therefore a belief exists that the one hour chart is in many ways self-fulfilling. However, it’s not this theory we intend to discuss, it’s the actually positive use of the one hour time frame, its timing with market events and overall complimentary nature, that we wish highlight.
The hourly time frame will (generally) always reveal the impact, positive or negative, of daily economic calendar events. For example; if a GDP figure for the USA or U.K. misses or beats the forecast, then we should be able to clearly see the impact generated and displayed by the relevant one hour candle. If the economic calendar high impact event has unexpectedly beat the forecast by a reasonable measure, then we’ll probably see a solid candle with a solid body and a wick extending upwards. This may by followed by a continuation of the price action that confirms the trend. Similarly, we could use the example of many high impact news events following similar patterns; interest rate decisions, employment/unemployment numbers etc.
As mentioned previously and in closing, it’s unwise to use the one hour time frame singularly, by scaling up or down to perhaps the half hour time frame and the four hour, we can gain a much wider perspective. But the one hour time frame, particularly for the novice traders in our community, should provide an excellent anchor from which to base their trading decisions on. As a novice day trader, perhaps committed (via a detailed trading plan) to take one trade a day, on for example EUR/USD, whilst risking 1% account size per trade, the one hour time frame and candlestick price action represents an excellent starting point.
