Trading the Higher Timeframe Charts

Filed under: Learn Forex Trading |

A lot of new traders don’t have much patience and they want to see results quickly, so they choose to trade on the lower timeframe charts, thinking that the principle is the same, so there is no difference – WRONG! There is a world of difference between trading a 5-minute chart and a daily chart. You want to know why? Then read on…

 

To begin with, the spread (the difference between the buy price and the sell price) has a huge impact on your trades when you trade the lower timeframe charts as your stop losses are often very tight and could be in fact little more than the spread. This in effect means that your trade has no room to breathe, and that the cost of doing the trade could be up to 50% of your profits. However, if you trade on the daily charts, these costs can often be as little at 1-2%.

 

Also, the signals that you get on the daily charts are much stronger and more reliable than they are on the much lower timeframes. This is because many institutional traders trade off the daily charts, and one daily candlestick represents the opinion of traders all around the world in a full 24-hour period. A 5-minute chart is mostly what you call market ‘noise’, and it is very difficult to trade off.

 

Personally, I only use the daily, 4-hour, and 1-hour charts, as anything below this is a little unreliable. I even have my concerns about the 1-hour chart, as the spreads are significant and the signals sometimes don’t seem to be as reliable. However, I believe that it is a popular timeframe and as such, I think there are enough quality setups to warrant using it.

 

In summary, the higher the timeframe that you use – the better, but you have to have the patience to wait for your trades to come to fruition, and on the daily charts, this can sometimes takes weeks.

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