What is the most effective time frame to trade Forex?
Trading Forex in the wrong time frame is the first mistake done by a novice trader. They become very optimistic after trading a demo account and enter the market with the wrong mindset! Most traders get attracted to Forex trading because they are told about the enormous profitability of the Forex market. They are convinced that they can make tons of money by trading Forex. So, they want to make the most of it and very quickly. They stop following trading methods and start trading on deadly lower time frames.
They want to engage with as much trade as possible. They think more trades bring more profit! They ignore the other side of the coin which is more trades carry more risk! So, ‘greed’ makes them deviate from the right track. They start over-trading more aggressively as they fall farther behind of their profit target! And then they start trading with higher lot size to cover up the losses as revenge and finally wipe the account!
What time-frame is best for me?
I trade on only daily time frame based on my ‘core price action’ strategy. I believe you should prioritize your trading system to pick the right time frame for you. The lower time frame is for high-frequency scalping methods (I don’t recommend such strategy). I’ve not seen many day traders who make profit consistently. Few of them make 1-5% a month and more than 95 percent day traders lose money! The price action of an intraday chart is very noisy and full of traps.
Higher time frames like Weekly chart and Monthly chart for long term investors (I call them investors rather than traders). They take few trades a year! Most of them don’t trade for a living but increasing a good percentage of their wealth! They usually have larger trading capital.
A daily time frame is ideal for a swing trader like me who trade less frequently. Trading off a daily chart is more reliable than the intraday chart and has way less market noise on it. It is not the slowest and not the fastest either. It’s stress-free and works as a filter of the market noise. And yet I make more than 20% (average) a month from 5-10 trades watching 20-30 financial instruments!
I believe trading below of an H4 (240 minutes) time frame is deadly for my trading style (swing). You would definitely make some winning trades in a 5 minutes chart but you won’t make consistent profit in the long run.
Can I trade on Multiple time frames?
You can check the price action in multiple time frames but trading them simultaneously is a bad idea. It would cause you to trade more frequently. I do check H4 chart sometimes to identify a breakout early but I always stick to my trading plan of the daily chart. And if I find difficult in daily chart I go higher like ‘Weekly’ chart to find the clarity. You can see 3 chart at a time, one is your trading default time-frame, another one is an immediate higher and last one is immediate lower than your regular time-frame to find early possibility.
Analyzing more won’t give you more trades!
Almost every trader dream full-time trading from home. Spending less time in office and more time living! But the reality is, they start comparing trading with their full-time job and try to find more trade setups on multiple time frames. You should not compare Forex trading with your regular hourly/monthly job. It is okay if you don’t earn every day from trading. You can make 450 pips profit from a single trade setup in a week which could be equivalent to winning 30 trades consistently with 15 pips of profit! Winning 30 trades in a row on a lower time frame is almost impossible but winning a single trade on a daily chart is very possible. Winning more trades does not necessarily mean more profit! You’ve to focus on quality over quantity. In a daily chart, you will find more quality trades than 30,15 or 5 minutes chart. Over analysis will paralyze your trading capital.
Reduce trade frequency:
High-frequency trading is the number one reason of over trading, and over-trading is responsible for wiping most trading accounts. Trading from a lower time is deadly. Lower time frames are messier and trade setups are less accurate. It becomes tougher to put a safe distance stop loss with a proper risk and reward ratio in a shorter time frame. A trade can get stopped by a news event or a fundamental market noise! More you lose more you suffer from greed, frustration, revenge, anger and impatience. Which basically means you are going to lose your account sooner than you think!
Do I need a larger account size to trade on a higher time frame?
There are few misconceptions about trading on a higher time frame. Most often new traders think trading on a higher timeframe requires larger trading capital or deep economic knowledge! Trust me, you don’t need a Ph.D. in economics to trade on the daily time frame. You can trade on the daily chart with a $500 account or even less!
The most common misconceptions about a daily chart:
1. Daily timeframe is expensive to trade as comparatively wider stops needed.
2. Higher time frame is not profitable as it has less trading opportunities.
3. Holding positions overnight is dangerous, it can give away the profits. Unexpected weekend gaps, high impact events during weekends can be dangerous.
4. Price behavior on a daily chart is harder to predict as prices moves slowly.
Now let me explain why trading from a daily chart is actually opposite of these 4 common misconceptions. It is true trading from a daily chart requires wider stops but so do the profits. Wider stops give your trade to breathe. It is actually more profitable If you follow the risk and reward ratio on daily charts. I already told you a single 450 pips trade on a daily chart could worth equal of 30 continuous winning trades of a lower time frame. Trading less can make you more profit!
You would love the weekly market gaps If you master my ‘core price action’ strategy because almost every time it gives us a positive gap. A 20-50 pips weekly opening gaps are very normal on a daily chart. They are not a big deal as stops are often much wider. We usually close relevant trades if there any hot events upcoming during the weekend. It seems much scary on paper but very natural on a daily chart. I’ve never seen a huge market gap from a support to another support or resistance to another resistance in a weekly gap. Most of the gap happens from support to a resistance or from a resistance to a support! You can master the gap-trading in my ‘core price action’ course.
Price movements in a daily charts are more stable than an H1 or 30 minutes chart. Most of the times it moves in a single direction which is even easier to trade.
The bottom line is, sooner or later you will trade in a higher frame like daily chart if you want to make consistent profit from trading. Only question is will you start it now or 2 years later after losing and wasting a significant amount of money and time. I learned it the hard way. You need quality setups to make money not more trades.
Please let me know whats your thought in the comment section. Share it with your social networks. It inspires me to share more ideas with you.
Wish you all the best.