Today’s topic is one that can drastically change your trading results and the way you see the market. If you implement what is suggested you will not only improve your trading but you will also reduce emotional trading. What we will be discussing is the importance of trading on higher time frames.
Most new traders do not want to discuss this topic because it is not pretty or exciting. Trading on a 5 minute or a 1 minute chart can seem much more exciting because markets are moving constantly and volatility can seem higher. Telling new traders to be patient and disciplined by only looking at charts a couple times per day makes trading seem a lot less glamorous
But what if I told you that by implementing this tactic, you would become a better trader and have a better chance of success? This is what we want for you, so we are going to outline some of the positive things that trading higher time frames can do for you.
Clean Price Action
The great thing about trading higher time frame charts, particularly daily charts is that you get clean price action. Take a look at the image below.
This is a daily chart of AUDUSD and we can see that price is in a clear downtrend. We are able to clearly identify key points on the chart such as the swing highs and lows. This is crucial. We want to be able to analyze the market with clean price action. When you have clean price action it becomes easier to identify trading opportunities.
Now if we look at the same chart on a 15 minute timeframe, we can see that price action is choppy. It becomes difficult to determine the overall direction and trend on a chart such as the one below. Price moves sporadically and violently in one direction and quickly reverses. We want to be crystal clear with what we see on the charts and from experience, trading on the daily chart and even weekly chart is best.
The big money in the market, being banks and institutions keeps their focus on daily and weekly charts. If we want to make money trading doesn’t it make sense to follow what the big players are doing? Following the lead of institutions and banks is what we want to do and this is best done when sticking to long-term charts.
Accurate Trading Signals
The daily chart is the most significant timeframe because the most traders are paying attention to it. When more traders are looking at the same signal, there is more demand in the market and price is more likely to move. This makes signals on the daily chart much more accurate.
Price has the chance to move for a whole day before the daily candle closes. This gives us valuable information and insight into what happened throughout the trading day. When we trade on a higher time frame such as the daily chart, there is more price action contained within a single bar, which gives more weight to that price action signal.
The same price action signal such as a pinbar will not hold the same significance on a 5 minute chart as it would on a higher time frame. This is an important point to keep in mind. We want to be sure we are trading high probability setups and these accurate signals come from trading daily and weekly charts.
Clears your Mind
One of the best benefits of trading higher time frames is it allows you to develop great trading habits. All of the best traders have developed the habit of patience. This attribute could be the single most important thing you develop throughout your trading career. If you do not develop patience, you will not make it as a trader.
When you wait for higher time frame signals, you are not required to stare at charts all day. You can do other things with your time. This develops mental strength and discipline. Being a disciplined trader requires you to only take top quality trading setups. This reduces the tendency to over trade and over analyze the market. Checking your charts a couple times per day makes it easier for you to stick to your initial market bias and not be swayed by each tick in price.
In trading, less truly is more. We want to take less trades but more accurate and high quality trades. When we are taking the best trades and signals, we are building a strong foundation for success. This is much easier when done on the daily chart.
The trading strategies implemented at Evestin Forex align with all the principles discussed in this post. By trading higher time frames such as the weekly and daily chart we are able to develop a sustainable edge in the market. The highest quality setups and patterns are detected by our robots and executed automatically. You will not find our robots opening trades every single day. There could be a couple days where you see no trades. This strategy allows us to limit risk and ensure that our traders are not over exposed in the market at any given time.
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One last note, by focusing on high quality trades you eliminate the tendency to over trade and trade emotionally. Looking at the charts a couple times per day allows your mind to be poised and relaxed. This is mindset we want when approaching the markets, we want to be as objective as possible. When we are objective and focusing on higher time frames, we have the best chance of success in the markets.