It should be a top priority to determine the appropriate chart for your trading.
Reference a specific date range to begin your analytics
Finalize your execution by moving to a shorter term timeframe
One of the most frequent concerns voiced by new Forex scalpers is how to identify which timeframe and charts to use in their analysis. This question is often addressed after selecting a currency pair for scalping, and makes sense because the possibilities are almost limitless. The image below includes 12 different time frame charts for the EURUSD. If all of these possibilities seem overwhelming, don’t worry you’re not alone.
To help simplify this process today we will look at charts for scalping, and how to identify the appropriate timeframe for our selected strategy.
A Frame of Reference
Whether you are a position trader or scalper it is always good to begin
your charting with a frame of reference. A frame of reference is
specifically looking at how much data is displayed on your chart. This
reference is designed for scalpers to find the short term trend while
identifying key levels of support and resistance. Think of it this way,
scalpers looking for 10 pip gains would be ill advised to begin
looking at multi-year graphs on a daily chart to begin their analysis.
So what reference point and what timeframe charts should a scalper use?
Below we can see two EURUSD charts, both looking at one weeks’ worth of data. Notice how we can easily identify the trend on both graphs? Once this frame is selected, the time frame chosen simply denotes the number of bars displayed for the period selected. I find that a 30minute is a great place to begin, while traders wanting fewer bars may opt for a 2Hour or 1Hour selection.
The Execution Chart
Now that you have narrowed down the trend, it’s time to consider an
execution chart. This graph should be the final chart that you use in
accordance to your scalping trading plan. While this chart may be the
reference chart mentioned above, more often than not, scalpers prefer
moving into shorter time frames at this point. This can aid in
identifying intraday trading opportunities, and is most commonly called
multi time frame analysis.
The final question you must ask yourself as a scalper is how many
positions you wish to take in one day. While this answer will vary from
trader to trader, normally in my experience the answer tends to fall
in the 1 to 5 trade range. If you are looking to take 1-2 positions a
day, I would recommend starting off with a 30 or 15 min chart. Traders
looking for 3-5 positions a day can begin by looking for entries on a
5minute graph. Finally traders looking for 5 or more trades may be best
served by consulting a 1 minute graph.
Of course everything is customizable when it comes to trading! My final
recommendation is to find what works for you. Below is an example of a
trade taken today, based off of a 5 minute strategy.