If you consistently want to make profit in FX trading market, it is important that you are able to catch the trends in the currency market. You can make a few profitable transactions at times without gauging the market trends, but to do it on a consistent basis, it is essential that you analyze the market based on the visible market trends.
There are different timeframes depending on the type of trader. The trends can be short term and long term. It depends on the type of user and the trading style of the user. Short term trends are used by the day traders who are looking to make some quick profit. They try to capitalize on the fluctuations in the currency prices. This FX tool is used by the trader who opens a short term position in the market and looks to square off the deal even if the market moves marginally in his favour. Short term timeframes are often misguiding and do not give a true picture of where the market is moving.
On the other hand, long term market trends take into consideration the rates in longer duration, typically a day or a week. These timeframes give a clear picture of where the markets are heading. It is used by traders who are looking to open a long term position in the market.
Long term timeframes are lot more informative. A currency can behave differently in different timeframes. For e.g. a currency in an uptrend in shorter timeframe can be in a downtrend in the longer version or vice versa. A trader should be able to interpret the changing trends in different timeframes. Also, short term trends can often be misguiding and are bound to send wrong signals. One must not rely on them only to take decisions.
The type of trend that a trader used depends on the trader and his style. A day trader essentially focuses on short term gains. He uses a 5 minute and 15 minute charts to figure out the short term trend and 1 hour chart to figure out the long term trend. A swing trader is looking for a short term to medium term gains. He uses 1 hour chart for determining the short term trends and day charts for long term trends. On the other hand, a long term investor is unmoved by the small fluctuations in the market trends. He uses monthly market trends for determining primary trend while daily and weekly charts to determine the entry and exit points.
These are the timeframes that the trader uses depending on the market position and the profit that he expects. A general observation is that long term investors have been on the happier side more often than the day traders.
