Choosing a time frame to trade on depends a lot on your personality. An adrenaline hungry trader will likely seek shorter time frames and more action, while a calm-seeking trader will prefer longer time frames and sitting on a position for a longer period of time.
Even if you like the fast action, there are still 3 significant advantages in trading the longer time frames.
- Avoiding over-trading: Trading on shorter time frames means entering and exiting trades relatively quickly. So, you can squeeze in more trades in a short period of time. Highly disciplined short-term traders manage to put themselves in an isolated room, trade for a pre-defined period of time and then leave it altogether. For others, it doesn’t work that way: quick success raises the appetite for more trades and over trading. Failure to make profits in this limited time often calls for “revenge” (which is quite disastrous) and this can lead to more trades as well.
- No noise: When trading short time frames, you are much more dependent on momentary flow action in the markets. Such sporadic moves can undermine your analysis quite easily. Any exporter or importer placing a large enough order in the market according to his needs can rock the whole boat. On higher time frames, this kind of action isn’t felt.
- No need to look at higher time frames: When trading lower time frames, you need to see the bigger picture as well, and may require looking at one or more higher time frames. This complicates the analysis and the trade.
What time frames do you use? Are there more advantages or rather disadvantages that you see in trading longer time frames?
Further reading: 5 Most Predictable Currency Pairs – Q2 2012Get the 5 most predictable currency pairs