Using Ranges For Trading Shorter Time Frames

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How to Trade on Daily Time Frame – Example of Simple Strategy

Table of Contents

Like with any timeframe, trading on daily charts has both pros and cons. The main problem is that it offers few signals. The best thing about D1 trading is that it’s enough to open a chart just once a day to estimate the trading situation. There is no denying that shorter timeframes provide much more entry signals. However, trading on short timeframes takes a great amount of experience and self-discipline.

Before reading the article and writing your questions in comments section, I recommend to watch this video. It’s not long, but covers biggest part of questions on the topic.

Key features

Graphic and candlestick patterns are easier to benefit from on higher timeframes. At the same time, D1 trading is characterized by high stop losses and take profits which scares away many traders. Another reason why novice traders tend to ignore D1 charts is that any price change on shorter intervals is perceived by them as a lost profit, hence their ambition for a more intense trading.

The truth is, for D1 trading, you need to have more start-up capital than for 1H trading. An easy solution to this obstacle is to open a cent account.

As for the intensity of trading, you’ll have to monitor the chart around-the-clock opening 30-100 trades a day. This doesn’t mean, though, that you’ll make more money than as if you opened 2-3 trades over the same period of time. Two or three trades on a D1 chart can earn you up to 2,000 points. Now think how many trades a scalper would have to initiate to earn the same amount. They would have to work very hard for the same result!

D1 trading strategy #1

Trading on a D1 chart is practically the same as trading on shorter timeframes. You should open a trade once the correction has come to an end. There are multiple ways to identify the end of a price correction. Below I’ll talk about how to use indicators to do that.

To search corrections, we’ll need 2 tools:

Plus, you need to pay attention to candle patterns as well. This is how you trade:

  1. On a W1 chart, identify where the price is relative to the 25-period exponential moving average. We’re looking for a situation when the price is above the EMA line. If the price is below the EMA line or has just broken it, we need to wait for two bullish candles to occur.
  2. Now we need to identify corrections. If there is an uptrend, even 1 bearish candle may signal a correction. In our case, the correction lasted for 3 weeks.
  3. If a series of black candles is followed by a white candle, the correction is over. Once see a bullish candle in the uptrend, you can switch to a D1 chart.
  4. On the D1 chart, enter the market at a reversal pattern (piercing pattern, hammer, etc.). Ideally, a reversal pattern must form within a week after the end of the correction.

If the market is dominated by a downtrend, the opposite rules apply. You need to open a trade with a stop loss of 50-100 pips. Put your stop loss under the low (when a long entry signal occurred). You can use a fixed take profit which must be 5-10 times higher than your stop loss. However, I highly recommend that you use a trailing stop.

You can start trailing your order after the Parabolic indicator has started to plot points under the price (for long positions). After each new candle, move your stop loss following the Parabolic points.

If you have an open order, you can continue searching entry signals until the trend changes its direction.

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Unfortunately, not all trades opened by using this method are profitable. You may suffer a series of losing trades and then cover your losses with profits from one winning trade.

D1 trading strategy #2

Strategy #2 uses two currency pairs, EUR/USD and GBP/USD. With this trading method, you can earn 50-70% of your investment amount without spending too much time on trading.

Here are the tools you’ll need for Strategy #2:

To install the SMA line, add it to the chart from the “Navigator” window and choose “First Indicator’s data” in the “Apply” field.

Here is a set-up for a long trade:

  • Parabolic is plotting points above the price level.
  • On the Volumes chart, a green bar must be above the 5-period SMA. Color green is indicative of a dramatic volume increase. Combined with the Parabolic’s indications, it’s a strong signal of an upcoming market change.

This strategy simultaneously uses two currency pairs. However, you need to open trades separately.

Move your stop loss after the Parabolic indicator. If Parabolic starts to plot points above the price level, you need to close your long trade manually. Use a fixed stop loss between 60 and 90 pips. For EUR/USD, set a stop loss at 90 pips. For GBP/USD, the optimal stop loss is 60 pips. Your take profit must be 3 times bigger than your stop loss. Feel free to use a trailing stop.

This strategy won’t take much of your time. Check out a few details I’d like to draw your attention to:

  1. Following a large price swing, Parabolic may cross the zero level. Parabolic usually crosses a shadow or body of a candle. In this case, you should ignore the entry signal, even if other entry conditions are met.
  2. Parabolic is moving up and down, while 2 green bars of the Volumes indicator are above the 5-period SMA. This situation is usually the result of a sharp shift in a price. This is a lagging signal which should be ignored.

D1 trading strategy #3

And last but not least. Strategy #3 uses the Williams Percent Range (WPR) indicator at -90, -50 and -10 levels. To make money with this trading approach, you need to dedicate to trading just 15 minutes per day.

For a long entry, one of the following conditions must be met:

  1. The WPR line crossed the -50 level from below. You should open a trade once the next candle has closed.
  2. The WPR line crossed the –10 level from above, with a candle closing between -10 and -50. Look at the color of the candle that crossed -10. If it’s white, you can open a long trade right away. Otherwise, you should wait till the next candle closes. Note that the next candle must be white as well.

Place a stop loss under the bottom of the candle. As for a take profit, set it about 300 pips from your entry point.

If you’re acting on the second entry signal, make sure the price continues in the right direction after you’ve opened a trade. Otherwise, you should close the trade manually.

For short positions, the opposite rules apply. Go short if the WPR line crosses -15 from above (or -90 from below) and a candle closes between -50 and -90.

You should only increase your position size if a new signal in the direction of your trade occurs. If you see an entry signal in the opposite direction, hurry to close your current trade.

As you can see, D1 trading provides pretty good money-making opportunities. D1 timeframe is an ideal option for those who view Forex trading as an additional source of income. First, D1 trading doesn’t require you to constantly monitor charts. Second, it’s not too exhausting. The only drawback of trading on high timeframes is that you need a bigger initial deposit.

If you’re an aspiring Forex trader that lacks experience and emotional stamina, long-term trading on D1 charts is exactly what you need.

Choosing the Best Day Trading Chart Time Frame

Graphical trading charts can be based on many different time frames or even on non-time-related parameters such as number of trades or price range. With an essentially infinite number of choices, choosing the best time frame or other variable for a particular trading style and type of asset can seem like a daunting task. But if you are trading smartly, it actually becomes a very simple task.

How New Traders Choose a Time Frame

Many new traders spend days, weeks, or even months trying every possible time frame or parameter in an attempt to find the one that makes their trading profitable. They try 30-second charts, five-minute charts, and so on and then they try all of the non-time-based options, including ticks and volume. When none of them makes a profit, they think they made an incorrect choice and try them all again, assuming they must have missed something the first time through.

When they still don’t find a profitable choice, they adjust their trading system or technique slightly and then try all of the time frames again, and so on.

The thinking behind this dogged effort to choose the right chart time frame or other trading parameter is that each trading system or technique—and probably every market too—has one optimal time frame or other variables that it will work best with. If that belief sounds reasonable to you, then be careful, because you may be about to enter the never-ending time frame search from which many new traders never emerge.

How Professional Traders Choose a Time Frame

Professional traders spend about 30 seconds choosing a time frame, if that, because their choice of time frame isn’t based on their trading system or technique—or the market in which they’re trading—but on their own trading personality.

For example, traders who tend to make many trades throughout the trading day might choose a shorter time frame, while traders who typically make only one or two trades per trading day might choose a longer time frame. Traders may also switch their time frame on a given day depending on how actively they’re trading.

The reason professional traders do not spend endless amounts of time searching for the best time frame is that their trading is based on market dynamics, and market dynamics apply in every time frame.

The Irrelevance of Time

When evaluating a certain time frame with regard to your trading method, a price pattern that has significance on a two-minute chart will also have significance on a two-hour chart, and if it does not, then it is not a relevant price pattern after all. In other words, if your trading system or technique is not making a profit, there is nothing wrong with the time frame; the fault is with your trading system or technique.

Other Trading Parameters

Finally, trading parameters that are not based on time should generally be used only with trading systems that are specifically designed to use them. For example, if a trading system has been created using a 100-tick chart—with a move occurring after 100 transactions have taken place—then a 100-tick chart should be used. If a trading pattern is based on the size of a price move, then time isn’t important and you should select a chart, such as a Renko chart, that enables you to base the chart on price movement.

Having said that, there is nothing wrong with using non-time-based variables. If you prefer them visually and find them easier to read, then go ahead and use them. But beginning traders shouldn’t assume that one of them has some inherent advantage over another or over a time frame format.

The Balance does not provide tax, investment, or financial services and advice. The information is being presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal.

Trading Higher Time Frames Drastically Increases Trading Success

Forex traders are often tempted by the lure of lower time frame charts; they think they are somehow getting closer to the “real” action in the market and that they will find more trading opportunities on these fast moving charts. The reality of the situation is that the lower in time frame you go the less accurate any trade setup becomes, therefore, by trading lower time frame charts all you are doing is lowering the probability that any trade you take will be a winner by adding more variables to the equation of forex trading. Anyone who has been following my articles knows that I often talk about how dangerous it is to over-complicate your trading and that the keys to forex success are having the patience to wait for the best trade setup and thoroughly understanding forex risk to reward scenarios. Therefore, this article will discuss the advantages of trading the higher time frame charts and how they can help you become a patient and profitable trader

• Higher time frames act as filters of market noise

First off, by “higher time frames”, we are referring to the 4 hour time frame and above, any chart less than a 4 hour chart is considered a “lower time frame”, 1 hour charts can be useful to more experienced traders for refining their entry or exit, but they are still considered a lower time frame and should be avoided by beginning traders.

One of the biggest advantages of trading the higher time frame charts is that they act like filters of price movement. The forex market has such high daily trading volume, that the lower time frame charts contain what market technicians refer to as “noise”. The noise of the lower time frames is basically just price movement that is so erratic that it cannot be reliably used to make trading decisions; however, many traders get tempted by this erratic price movement because the human mind naturally tries to find patterns in nature and in the financial markets.

When you trade the higher time frames you get a clearer picture of what is really happening in the market because most of the erratic market noise of the lower time frames is eliminated. For example, if you see what looks like a large up move on a 30 minute chart, it might just be the beginning of a daily bearish pin bar, but if you were trading the 30 minute chart you might see this big move and then find a reason to jump on board only to have it come crashing down against you into the daily close. There are so many opportunities on the 4 hour and daily charts that concentrating your mental energy on lower time frames is simply an inefficient and ineffective use of time. Traders need to understand that the market will still be there tomorrow and the next day and for the rest of their lives, so missing out on a few good opportunities per week on the lower time frames is more than worth the sacrifice when you consider there will always be more accurate opportunities on the higher time frames.

• Trading higher time frames is part of the K.I.S.S. forex trading strategy

Simplicity is one of the keys to forex trading success, it is very important to keep your technical trading strategy simple in design and implementation, because over-complicating your trading is a sure-fire way to begin committing emotional trading mistakes. When traders begin trading on lower time frame charts they start over-complicating the trading process by trying to read the inherent noise that is a part of these fast moving charts, this inevitably causes them to over-trade which is one of the main causes of failure in the forex market. Remember, keep it simple stupid.

Higher time frame charts provide a much more useful and accurate depiction of price movement, this will enable you to be more confident in your trading decisions which will begin reinforcing a series of positive forex trading habits. Many traders struggle for years trying to trade lower time frame charts, eventually they either give up all together because they have lost too much money to bear, or they figure out that trading the higher time frames is a necessary component to consistent trading success. By understanding this fact now, hopefully before you have lost much money in the market, you can begin to focus your time and energy on the higher time frames and avoid the struggle and frustration that comes with trying to analyze the noise of lower time frame forex charts.

• Patience is key, higher time frames foster patience

It is no big surprise that traders who take a longer-term view of the market and trade higher time frames make more money, on average, than day traders. The reason why is because higher time frame traders naturally take far fewer trades than day traders or traders who mainly trade lower time frame charts. One of the most lucrative trading traits you can possess is patience; it is often overlooked by traders because so many of them erroneously believe that more is better in every aspect as it relates to forex trading. You will naturally take fewer trades when you stick to the higher time frames, assuming that you know what to look for and have the patience to wait for the trade setup you are looking for. Learn to think about this time in-between trades as a period of self-discipline and self-mastery, the very fact that you are not trading when there are no obvious signals means that you are not losing money, and not losing money is the same as making money when you consider the fact that you would be trying to make back what you lost, but since you didn’t lose any money you have nothing to try and make back.

By focusing on the higher time frames you also work to influence and develop the proper trading mindset. By trading less frequently you will naturally become a more objective trader because you will not be over-analyzing the market, trying to manifest trading signals on every time frame. Being an objective trader is different from being a fearful trader, objective traders know what they are looking for and when they see it they pounce on it like a tiger stalking its prey, fearful traders cannot act even when they see what they are looking for in the market. So, make sure you do not become a fearful trader, master your trading strategy first, this way you know what to look for, then wait patiently as the market plays out and the amateurs lose money on the lower time frames, when you spot your higher time frame trade setup you execute the trade with confidence and serenity.

• Price action signals are stronger on higher time frames

Finally, perhaps the most important reason you should stick to the higher time frames when trading the forex market is because they add weight to your trading strategy. As a price action trader, I know that a daily pin bar setup is much stronger than a 30 minute pin bar setup; therefore, because I have this knowledge I simply prefer to wait patiently for the perfect daily pin bar setup rather than frazzle my nerves and lose money trying to catch a rare high-quality 30 minute bar setup. Furthermore, I have better things to do with my time than sit around all day and night staring at a 30 minute chart, and I assume you do too.

Price action trading is especially impactful on the higher time frames because price action is naturally the clearest and purist reflection of aggregate market sentiment. When you combine the inherent clarity and effectiveness of price action trading with the power of trading higher time frames in forex, you have a very accurate forex trading strategy.

If You want to learn more about Trading Higher Time Frames and Learn More about How I Trade with Price Action, visit my forex course page here:> Forex Trading Course – Good trading as always – Nial Fuller

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