Is it easier to potentially profit from an individual trade in the forex market, when you trade off lower time frames?

Sep 20 • Forex Trading Articles • 1532 Views • Comments Off on Is it easier to potentially profit from an individual trade in the forex market, when you trade off lower time frames?

Many experienced traders would deliver a categoric “yes” as the answer to the question, others may deliberate for a while, before answering, “maybe”. And as is the situation with many questions, when discussing and seeking the answer to such binary/black and white questions, both responses would potentially be correct, in our highly complex world of trading forex. Now obviously, as retail traders, if we’re posed this question then we’ll need to remove all reference to the use of tick charts, “lower time frames” (for the purpose of this discussion), would only involve time frames of 3-5 minutes and no lower.

We need to concentrate on time frames no lower than three minutes because as retail traders we can’t possibly manually trade successfully off tick charts, it’s not a skill or ability issue, we simply can’t possibly react as quickly as the automated, programmed, algorithms required to take profit out of the market using tick charts, neither can we obtain the lightning quick access that would be required through dedicated leased lines, or trading desks positioned geographically close to the various unregulated exchanges and servers, which our ECN brokers place our trades/orders into. Similarly, we may struggle to programme our expert advisors to profit from strategies involving the use of tick charts.

 

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However, when looking to trade off lower time frames, in some ways the time frame isn’t as relevant as we may at first determine it to be, as low time frame traders will probably use horizontal lines, in order to trade their markets. In theory these lines can be placed on any time frame, the time frame is actually being used as a zoom in tool to monitor our trades. For example; if we use a scalping or day trading strategy, involving the various three line levels of support and resistance, which are drawn automatically by our pivot point tool available on our platform, then these horizontal lines can be drawn on any time frame and will deliver identical results.

The use of the word “horizontal” naturally conjures up the opposite metric, the alternative measurement of vertical, and we only make money when the market is moving vertically. Therefore, it’s an obvious statement to make that the lower down the time frames we move, the more vertical movements we’ll (technically) observe, in comparison to larger time frames, such as the 4hr, or the daily time frame. Analysing the vertical movement further, whilst the higher time frame trader may be experiencing a loss or drawdown, the lower time frame trader (utilising a scalping or day trading strategy), may be: out of the market, closed at profit, or in the market protected by a tight stop under the conditions of a highly precise trading plan, with strict money management at the heart of its construction.

A sporting analogy may help here; imagine a basket ball player shooting layups for points, competing with another player taking shots at half court distance, who’s more likely to score points? Similarly, a low time frame trader is more likely to experience winning trades, and should be able to maintain profitability, with the tight money management technique, using hard stops, mentioned previously.

To move the discussion on one stage further, let’s open our mind and consider the fact that we’re not actually trading off a time frame, we’re actually trading price, which is identical on each time frame. Large institution banks and hedge funds place pending orders on behalf of their clients, they’re the tankers who create the wakes for us to trade in. To imagine that such institutional traders place orders into the market at the top of a 4hr time frame’s candle, or at the exact point a daily candle closes and another one opens is incredulous. If we do see movement at these junctures then it’s simply a coincidence and not a deliberation, or coordinated action by large institutions.

Whilst it’s (in theory) easier to trade off lower time frames, as many novice traders discover, losing money is the also one of the easiest concepts to get to grips with. So if you do trade off lower time frames and have a eureka moment as you begin to take on board the fact that you’re actually trading price and not an actual time frame, then the key aspect of all successful trading, tight money management, becomes even more relevant.

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