Charts and timeframes

A five-minute chart can move 20 pips in a few minutes. On one standard lot of EUR/USD, 20 pips is 200 units of the quote currency. If 10 units of the quote currency converts to KSh 100, that is KSh 2,000 moving in minutes. A daily chart may move 40 pips in a day, which is 400 units, or KSh 4,000. The daily move is larger in pips but it arrives over many hours, so it feels slower. The timeframe you choose sets the speed at which your money changes.

Compare two cases. Case one: a reader with KSh 30,000 opens a five-minute chart and buys one standard lot. A 20-pip fall is KSh 2,000, which is about 6.7 per cent of the account. Case two: the same reader opens a daily chart and buys one standard lot. A 40-pip fall is KSh 4,000, about 13.3 per cent of the account. The daily chart is not safer just because it is slower. The size of the move in pips is what changes the money at stake.

A smaller timeframe does not mean a smaller risk. It means more decisions per hour and a smaller number of pips between your entry and your stop. If you trade the five-minute chart, a 10-pip stop is common, and 10 pips on one standard lot is 100 units, or KSh 1,000. If you trade the daily chart, a 40-pip stop is common, and that is KSh 4,000. The account size must fit the stop distance of the timeframe you pick, not the other way round.

Open the daily chart first. It shows the direction the market has held over weeks. Then open the hourly chart. It shows the direction over days. Then open the five-minute chart. It shows the direction over minutes. The three can disagree. A daily chart may rise while the five-minute chart falls. That is normal. The disagreement is information, not a fault in the platform.

When the three timeframes disagree, the larger one usually wins over time. A 20-pip fall on the five-minute chart can be a small pullback inside a rising day. If you sell that fall, your trade fights the daily direction. The daily direction may continue for hours after your short trade has closed. Before you place an order, decide which timeframe your plan is built on. Write it down. If the plan is built on the hourly chart, the five-minute chart is only for timing the entry, not for changing the direction.

The broker may round the conversion rate, charge a spread or commission on top, and quote a slightly different price at the moment you enter or exit, so the final figure can differ from the one shown here. That gap matters more on a small timeframe. On a five-minute chart, a 2-pip spread is a large share of a 10-pip target. On a daily chart, the same 2-pip spread is a small share of a 40-pip target. The timeframe decides how much of your target the spread eats.

Pick one timeframe as your decision timeframe. That is the chart where your entry, your stop and your target are set. Pick one larger timeframe as your context chart. That is the chart that tells you which direction to prefer. Two charts are enough for a beginner. Adding a third and a fourth often leads to changing the decision after the order is placed.

A workable pair is the hourly chart for decisions and the daily chart for context. On EUR/USD around 1.0850, the daily chart shows whether the month has been rising or falling. The hourly chart shows where price is inside that month. If the daily chart is rising, you look for buys on the hourly chart. If the daily chart is falling, you look for sells. The five-minute chart is then optional, used only to see the entry more closely.

Keep the same pair for at least twenty trades before you change it. Changing timeframes after a loss hides the result of the first plan. You cannot tell whether the hourly plan works if you abandon it on the third trade. The CMA regulates brokers that serve clients in Kenya, and a regulated broker will show you the timeframe options on its platform. The choice of timeframe is yours, not the broker's.