FX · Reading the FX market · lesson 3 of 9 · 5 min read · David Alexander
Timeframes, and what changing one changes
Timeframes
A timeframe is how much time each candle summarises: an M5 chart compresses five minutes per candle, an H4 chart four hours. Changing timeframe redraws the same prices at a different compression - four H1 candles contain exactly the price history of one H4 candle. Nothing is added or removed from what happened; only the summary's grain changes.
Click from H1 to H4 and the chart transforms: choppy becomes smooth, a messy afternoon becomes one confident candle. It is tempting to read the transformation as new information. It is the same information at a different zoom, and knowing exactly what the zoom does - and does not do - is the skill.
What happens when four candles become one?
The arithmetic is mechanical. The H4 candle's open is the first H1's open; its close is the last H1's close; its high and low are the highest and lowest of the four. Everything else the four hourly candles showed - three intermediate closes, the order the extremes came in, the back-and-forth between them - is folded away. Compression deletes sequence from the picture. The prices all still happened, and your account met every one of them; the bigger candle just declines to say in what order.
That is the whole trade-off, in both directions. Lower timeframes show sequence and cost you perspective: every wiggle demands attention, and most wiggles are the spread-wide noise of module 1's book at work. Higher timeframes buy perspective and hide the path: a smooth daily candle can contain an afternoon that would have stopped you out twice. Neither view is truer - they are answers to different questions about the same record.
Worked example
figures in USDYou hold 0.2 lots of EUR/USD through an afternoon whose H4 candle spans 60 pips. A pip on a full lot is worth $10.
- An afternoon of EUR/USD draws as one H4 candle with a 60-pip range. Switch to H1: the same afternoon is four candles that travelled up, back, and up again inside that range.
- Price the afternoon at your size: $10 per pip on a full lot makes your 0.2 lots position worth $2 a pip, so the 60-pip range spanned $120 - a number no timeframe change can alter.
- What changed between the views was the visible path, and paths matter to positions: a stop inside that range was hit or missed by the sequence, which only the lower timeframe recorded. The H4 candle knows the destination; the H1 candles remember the journey.
What this means for you
Stop hunting for the right timeframe - there isn't one, because the choice is about the question, not the market. Ask where prices have been over weeks and the daily answers cleanly; ask what the last hour did to your stop and only the small candles know. When two timeframes seem to disagree, neither is lying: the higher one folded away the sequence the lower one shows. And carry one caution forward - a smooth candle is a summary's smoothness. The path inside it was as jagged as the book that made it.
Check your understanding
Question 1 of 4
Four H1 candles combine into one H4 candle. Which of their numbers survive?