Turn your Forex Exchange Trading Results Around with Higher Time-frame Trading
Why higher time-frame trading is the best way to trade the forex exchange market.
Most new traders to the forex exchange market start out their trading on the 5-minutes or 15-minutes charts. The reason for this is that they get sucked into the numerous trading signals that can be seen on these time-frames – and the adrenaline rush that comes with them. Unfortunately, fake signals make up a huge percentage of the signals that can be seen on these time-frames, and this quickly wipes out most traders’ accounts.
The fast-paced nature of the smaller time-frames will deceive anyone into thinking that it is the haven for better profits, but numerous entry signals does not translate to having more winning trades. In fact, a larger percentage of the trading signals on lower time-frames end up as losses.
Why Longer Time-frames are the Best in Forex Exchange Trading
There are many reasons why traders should stick to trading the hourly, 4-hour and daily charts. Here are some of them:
- The price action is clearly defined and thus more reliable
- The market does not move in an erratic manner, which will influence trading emotions
- Trends are more defined on higher time-frames
- The trader has more time to make trading decisions instead of the split second decisions that happen on lower time-frames
- The trader will also have time for other activities
To demonstrate the reliability of a signal gotten from a higher time-frame, here are some examples: Let’s say there is an inside bar (price action trading) candle close on the 15-minutes chart; what this means is that traders were not able to move price past the previous high or low of the immediate closed candle for 15 minutes. If an inside bar occurs on a daily chart, however, if shows that trading activity could not break the previous candles high or low after 24 hours of trading, which includes the UK, Asian and U.S. sessions. Any trade based on the 15-minutes example has a 90% chance of ending in a loss, while the chance of a profitable trade on the latter is as high as 75%.
Secondly, while trading the 15-minutes charts, the trader is susceptible to news events that come out all through the day. During these releases, the market witnesses spikes of around 30-40 pips. On a 15-minutes or 5-minutes chart- the effect of this movement will be very pronounced and stop losses will be taken out, but on a higher time-frame, the move may not be noticed at all.
Trading the daily and 4-hour charts makes it possible for traders to weed out market noise, and they will only get signals that have a high probability of success.
Of course, everyone will not cope with trading higher time-frames due to the large stop loss that has to be used in most cases, but the essence of this article is to dissuade the trader from trading any forex exchange time-frame lower than the 1-hour charts. The 1-hour charts should only be traded if you are a trader with time on your hands and do not have deep pockets to trade at least a mini lot on the daily charts.