One of the most critical drivers of a good Forex trading plan is the variety and range of a trader’s analysis. Several factors can be analyzed, including economic events and external news events and also the continuous surge of signals, which show new market trends. One of the key aspects of Forex trading, which is often neglected by new traders, is the importance of processing time and time frames. It is a key instrument because it plays in the development of an investment strategy. Needless to say that a good strategy is a must for an investor who takes trading seriously and uses various time frames in a way that works for the good of their investment. In other words, analyzing the time frame comprises continually monitoring a specific currency pair through time compressions.
What are time compressions in Forex Trading?
Time compressions are the time frames during which currency movements with regards to each other can be tracked and analyzed so that trends can be disclosed, especially those that are still being influenced and also predicting those that might probably increase in the future. Generally speaking, an average of three different time frames is good enough for a trader to be able to read the markets. If a trader has anything less, they’ll be missing out on a lot of details concerning the markets. How long a trader uses in trade depends on the trading strategy used by them in general.
Processing time with an ECN broker
This is why many people choose to work with ECN brokers because wait times are very short, in fact, there are no wait times with an ECN broker because the orders of investors go directly to the market without passing through a broker. It is an Electronic communication Network, and the processing time is faster than with an STP broker( who processes orders through market makers). Traders working with an ECN broker can directly buy and sell within the platform as the broker pairs the demands of traders to ease trading, and they also do not charge any fees or spreads but only receive a commission for trades.
The time frame does not really matter for a trader who makes long-term trades, especially those who hold positions for weeks and even months, because times frames are minutes or hours. And the reverse is true for a trader who does short term trading. Time is of the essence. The reason why processing time is so important in Forex trading is because of the liquidity of the market and high volatility, and traders only have 24 hrs each day to complete trades or rollover for additional fees. For a trader to be very successful in trading, they have to understand how time frames work.
Major brokerages often ensure that their investors are aware of market movements by alerting them, especially those traders who are still new in the Forex trading business and have no experience with the market trends, but this is not something unique about them, mid-sized brokers have started implementing the same features as well. For example, although Axiory is only a mid-size brokerage, they know too well that time is of the essence and novice traders under the brokerage are properly educated on the importance of processing time in trading, how a lot can change in a matter of seconds and understanding the time frames in the market.
It is always good for a trader when choosing their time frame to first decide on a medium time frame since it is the average length of time that positions are held. If a day trader does not hold his position for more than a day, they will not benefit a lot from time frames. Long-term traders also do not benefit in 20 minutes and 60 minutes time frames. Even though traders differ and have different trading strategies, is also determined by whether or not the do trading as a part-time or full-time profession and whether they have experience in the field or not, and whether they are capable of meeting up with the spontaneous and quick decision making that forex trading requires – opening and closing several positions.
It is worth stating that traders, overall, can be categorized into three unmistakable classes; day traders who seldom hold positions, for the time being, long-term dealers who may hold positions for quite a long time and even years, and swing traders who hold positions for longer to exploit bigger scope fluctuations inside the forex markets. An investor uses the processing time will be dictated by which of these classes they fall into, and it’s totally feasible for an individual trader – yet one with the time, assets, and experience required – to work throughout a few diverse time-frames without a moment’s delay, by having a few positions which are exchanged rapidly and some which are held for longer periods.
Processing time is significant in Forex trading because the market moves in milliseconds, and traders don’t make fair use of time frames, they might fail in trading. Our advice to novice traders is to learn how the market works through swing and trend trading and develop their strategies while developing their trading instincts in understanding the importance of multiple time frames and how it plays on trading.