5min, 30min 1hr, Chart. Which One?

[Gomaz]

There seems to be a lot of conjecture as to whether it is better to trade short time frames or longer time frames.

In fact it is often said that unless you can trade the longer time frames then you shouldn’t even contemplate trading the short time frames.

Now, I am not sure I entirely agree with this statement. Sure there is certainly a lot of “market noise” in the shorter time frames especially around news announcements and it can more difficult to clearly spot the trend on the shorter time frames. Personally, I do find the 1 minute chart challenging, as I don’t think there is enough data there to make an informed decision. A 5 minute chart is lowest time frame I would use.

When you trade the longer time frames, you have a lot more draw down before it heads in the anticipated direction. And yes, the gains will be greater when trading longer time frames, but that waiting and experiencing those drawdowns, momentarily play havoc on your account and can be a little bit stressful, especially for newer traders.

And if you are wrong, the stop losses are much greater. I have found that as a rule of thumb most good, “trading systems” systems have on average have a strike rate of about 80% That means that 20% of the time you will lose. On a daily weekly or even a 4 hour chart, OUCH!

One thing that is often over looked on small time frames….(and on the larger time frames well for that matter)…. is the amount of momentum in the actual move.

It is the rate of momentum the determines how big the movement is going to be and at what speed it will move.

Think of ten pin bowling.

Basically, the rate of momentum in which the ball is delivered down the bowling alley determines how successful it will be reaching the ten pins. If you have ever seen a little kid try bowl a bowling ball, most of the time the ball ends up in the side alley long before it reaches the 10 pins. If you use this analogy with forex trading, you want the ball to be delivered with enough momentum, that it will reach the ten pins.

But you don’t want to wait until it has actually reached the ten pins before you take some profit, you want to take some out of the middle.

If you could determine that a move has sufficient momentum then it becomes a very high probability trade and you are almost guaranteed a profit once it has cleared your spread. By using momentum angles of 4 x1, 2 x 1 and a 1x 1 most of the time you can determine if a movement has sufficient momentum to carry through.

What 4 x1, 2 x 1 and a 1x 1 means is: 4 units of price to 1 unit of time, and: 2 units of price to 1 unit of time. And of course the one with the lowest amount of momentum is: 1 unit of price to 1 unit of time.

I know this sounds complicated but in reality it isn’t, though it is limiting to explain the concept on a forum post. So if you find this interesting and would like to learn more you can register for a one time only free webinar being done for the Forex community on momentum in trading forex at: http://tinyurl.com/momentumwebinar

Cheers