On a recent lecture
on trading I asked one of the audience whom I knew
traded spot forex where the trend was for the
Euro/Dollar this week. He immediately replied that
the trend was up. I then asked how he knew the trend
was up for all the traders who trade the
Euro/Dollar.
You see it's
impossible to determine trend until you know what
time frame you are talking about. The trend for that
audience member was up because he traded on a daily
time frame yet for another audience member the trend
had been up and down several times that week as he
only traded on an five minute chart.
One of the main
reason I see traders not do as well as they should
is that they are trading the wrong time frame for
their personality. In the normal course of events
someone learning to trade will either educate
himself by taking a course or reading relevant
books.
In order for the
person giving the course or writing the book to
demonstrate his point he will have to use a
particular time frame. This often becomes the
student's time frame by default because that is how
he learnt.
In today's electronic
world many new traders start off by studying very
small time frames such as 1 minute and 5 minute
charts. This often leads them to get frustrated and
to become anxious when they trade because it is the
wrong time frame for their personality.
Let me just add here
that there is nothing wrong with trading any
particular time frame just be sure you are trading
it for the right reasons.
So what is the right
time frame for you? Well, it all depends on your
personality. You have to feel comfortable with the
time frame you are trading in. You have to feel at
home with that time frame. There is always a degree
of pressure when you trade because there is the real
potential for loss or gain and that will effect you
to some degree. You should however not feel that the
reason you are feeling pressure or frustration is
because things are happening so fast that you find
it difficult to make decisions or so slowly that you
get frustrated.
When I first started
trading I started out as a Spot FX trader trading on
5 minute charts. I traded on that time frame for
years. Because it was such a short time frame and I
was covering so many currency pairs I always felt a
bit unprepared regardless of how much time I spent
preparing for the trading day. I also found that
after a few years it was beginning to take its toll
on my health as I never seemed to have enough time
to do anything but trade.
From the 5 minute
chart I moved to the 10 minute chart and spent a
month trading on that time frame. I then repeated
the process with the 30 minute chart, 1 hour chart
and 4 hour chart.
I eventually found
that trading the 4 hourly charts made a lot more
sense to me. As the time frame was much longer and
trading signals fewer I found I had a lot more time
to analyze the market and I never felt rushed.
On the other side of
the coin I have a dear friend who trades the FTSE
who just could not trade in that time frame. It
would be to slow for him and he would get to bored
waiting for opportunities. He feels at home trading
a 1 minute chart and always feels as though he knows
what's going on and has enough time to make his
decisions based on his trading method.
Yet another friend
thinks that the 4 hourly chart is far to short a
time period for him as he trades only daily, weekly
and monthly charts. The point is only you can decide
what is the correct time frame for your personality.
You will also have to
take into consideration the market you are trading
and amount you have available to trade. Shorter time
frames usually means that you can have better use of
margin and stops loss orders can be much tighter.
If you think the
reason your trading is not going the way that it
should but you believe that your method of trading
is sound, it may just be that you are trading the
wrong time frame and it is effecting you
psychologically.
To sum up, if you
have a solid trading plan and a sound method of
trading your chosen market. You should be able to
take that approach and apply it to any time frame.
The question is if
you could make the same amount of money trading any
time frame which time frame would you choose. You
will of course have to take into consideration that
the time frame you choose does generate enough
trading opportunities for you to be happy with the
results.
It is also worth
noting that if your trading is going well and you
are profitable then don't even think about changing
time frames. As the saying goes ''if it ain't broke
don't fix it.''
When you do
eventually find the time frame you are happy with
you can then start looking at multiple time frames
to help your analysis of the market. We will be
discussing multiple time frames in future lessons.
