We trade the daily chart here, because the advantages are tremendous.
But could we do even better if we drilled down to smaller time frames sometimes?
Episode 30’s question is from Ben
Would you ever entertain cycling through the lower timescales, 15M, H1, H4 maybe, to monitor the health of the trade at all, or is this just a shit way of sabotaging my own success?
Ben, from London(ish) England
Lower Time Frames For Maintaining A Trade
You enter a trade on the daily chart, like a good trader would.
It runs 400 pips! You’re stoked!
Days later, you end up closing the trade at 220 pips.
You made 220 pips, and you’re somehow deflated about it.
What could you have done differently?
How can I make sure this doesn’t happen again?
Maybe if I maintain the trade on a lower time frame, I can get out quicker and keep all those pips I left on the table.
The Problem With This
Currency pairs move in waves.
They almost never go in straight lines. There are moves, consolidations, retracements, etc.
Sometimes retracements are going to hit our trailing stop losses. Sometimes they’ll trip our exit indicators.
Shit happens. That’s just Forex trading. The best thing to do here, by far, is to accept it.
The worst thing you can do is cut your trade off earlier than you should by getting cute and drilling down into a lower time frame.
Sure, it’s going to work sometimes, but you will be doing one huge disservice to your bottom line.
You will make 100% sure you don’t get to participate in those monster runs.
The runs that end up going directly into our pocket.
If you don’t know how this works, watch the Ratios video.
The two ways you can make sure you never get to partake in these runs…
Runs that happen on every currency pair several times a year….
Is to use ratios, or to maintain your trade on a lower time frame.
Don’t do it. You won’t realize it if you do, but long-term, you’re leaving more pips on the table than you’re saving short term.
Trades need to breathe. They need to coil up so they can get stronger later.
You must allow this to occur.
Lower Time Frames For Entering A Trade
You have your system all set up.
You see an entry on the daily chart.
But you peek at the 4HR chart, and you saw that you could have entered 50 pips ago.
You feel cheated. Like you could have done it differently.
Maybe if you make your entries on a smaller time frame, you can then maintain it on the daily time frame. Only difference is, you’ll be 50 pips richer!
The Problem With This
You’re using your critical thinking, and that’s always good.
But this method is not.
By doing things this way, you are doing one of two things
- Taking less accurate entries
- Making it so you’re going to end up talking yourself out of good trades.
Number 1 we’ve been over in Episode 3. Everything works better on the daily time frame. Even shitty tools.
Number 2’s reasoning goes like this.
Let’s say you’re doing things properly, and you see a good entry on the daily chart.
If you were to drop down on the 4 hour chart, more often than not, it’s going to be a FOMO Trade.
I would love to show you a chart now, but I literally have no good examples to show you due to where the market is right this moment.
But next time you get a trade signal on the daily, look at the 4 hour or the 1 hour, and tell me if it looks like the trade has probably ran too far.
A lot of times it’s really going to look that way.
So what do you do in these cases? Let it pull back? Avoid the trade altogether?
This, again, is how you can really miss out on good trades. The daily is stronger than the 4 hour or the 1 hour, remember that.
You will often run into trades that never pull back and just keep right on going. And now you get none of it.
Losing is part of Forex. Missing out on clear winners your system gave you is inexcusable.
You’re putting too fine a point on it.
Just relax for chrissakes! Let your system do the work. Stay out of it!
Okay, What About The Weekly Chart Then?
If the Daily chart is so good, the Weekly must be better since it’s longer, no?
Too much can happen to a currency, fundamentally, in the span of a week. Especially if it’s a risk on or risk off currency, because the US economy can mess those up pretty easily if you give it time to.
And far too often, the daily may be trending one way, and the weekly may be trending the opposite way.
We don’t need to be in the super long-term prevailing trend in order to trade. This would be way too restrictive.
Ignore the Weekly chart. Zero redeeming value here.
Same shit, different day.
- Trade your system
- Keep your dumb ass out of it
The simplest advice ever.
But it’s never that easy. It’s never that simple, is it?
So much so, that we’ll continue to make blog posts as we go along, explaining how and why we should resist interfering when we all know we clearly shouldn’t.