Trading the Appropriate Time Frame
The first thing you need to determine if you decide you are going to trade is what time frame you are going to trade on. It is important that the time frame fits your lifestyle. There are generally three categories of trading styles.
The first is position, or end-of-day trend trading, which tends to have the most favorable risk to reward ratio, and also takes up the least amount of time per day. For this style, traders work off the Daily & Weekly charts. End-of-day trading is best suited for those of us who already have a day-job or career. You log onto your charts just ahead of the close of trade for the day which is widely considered to be 4PM ET as this is when the New York Stock Exchange closes for the day, and you flip through the markets you cover, checking to see if there are any trade triggers based on your trading plan. The only time you make a trading decision is just ahead of that closing time. You don’t even need to follow the markets throughout the trading session because you only make a trading decision on the close. The draw-back to E-o-D trading is you will need to risk more per trade because of the higher time frames, and you may not have as favorable a winning ratio. You can also have draw-downs that last for months when you get into sideways markets.
The second type is swing-trading, where you don’t need to be sitting in front of a computer screen all the time, but will need to check in periodically. Trade signals generally occur on the hour, or every four hours, as these mark the closing price of the charts you follow — the 60 minute and 240 minute. It’s called swing trading because you are not going to be as concerned with the trends on the higher time frames, and you are willing to “swing” either long or short. You may want to be able to monitor price and be able to enter orders from a portable electronic device. You will also need to be alerted when your method gives a signal, and this can come at all hours of the day, so you need to get used to going to bed with your cell phone, or electronic device close by, and wake up when it receives a trade alert, particularly if it’s to exit a trade. You will need the discipline or resourceful to be able to check the market at least every four hours. Trailing stops and profit objectives are not always the way to go, particularly if you are using fact based triggers. How you decide to manage your trades needs to be spelled explicitly in your trading plan, long before you enter a live trade. The draw-back to swing trading is you inevitably will need to sleep, which means you will be missing trades, and has any good trader will tell you the risk to your success lies not in taking trades, but in not taking them.
And the third type is day-trading, which takes a high degree of concentration and the need to be sitting in front of the computer screen at all times. Here the trader counts on a higher winning percentage but a less favorable risk to reward ratio. You will be operating on the lower time frames charts – 15 and lower – though will be using support and resistance and trend lines drawn on the highest time frames. Successful day-trading will lead to the most lucrative area of trading because once you understand it; you will know how to trade any time frame. As a day trader you can generally trade 3 times the position size of an e-o-d trader because the shorter time frame means less risk. The day-trader will trade both sides of a market, either long or short, even in the space of the same day, though she always knows where the higher time frame trends are pointing. Day-trading is also the most difficult because of the speed of the decision making process needed to compete. It is unrealistic for a new-comer to excel at day trading for a variety of reasons the most obvious being time constraints. If you think you want to be a day trader for a living you better have enough of a bank to live on for years without having to worry about money. If you are in a position where you have to worry about money, you are not ready to be a day-trader. Ask anyone who is successful at it and they will tell you there aren’t many draw-backs to it. Generally your best traders, e-o-d and swing traders were successful day-traders before migrating to the higher time frames and the less labor intensive rewards.
The single most important consideration for which style of trading you try to learn first will depend on your current and professional life style.
To attend a complimentary webinar on trading go to: https://www2.gotomeeting.com/register/563559658 �
Jay Norris
www.trading-u.com
DISCLAIMER: Futures, options and Forex (off-exchange foreign currency futures and options, or “FX”) trading involves substantial risk of loss and is not suitable for every investor. The valuation of futures, options and Forex may fluctuate, and, as a result, clients may lose more than their original investment.
Yes, this is a very important subject indeed. It is good to be decisive on exactly which timeframes you wish to trade, and this will be based on your life style and character. I happen to be in the UK which is a good time to Day trade in the mornings till approx 3pm.
Once you decide your time frame you can plan your longer time frames to get an idea of the trend of the Market (Forex Pairs).
Jay has made traders aware of appropriate timeframes with an emphasis on your appropriate lifestyle and International lifestyle. Well Done Jay!