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This is a difficult question but must be answered honestly. There are several reasons you must take the time to answer this question correctly. For each one of us trading serves a different purpose. And just the same, we all have different pain tolerance levels according to the amount of money we are willing to risk or lose on a trade.
Specific examples would include weighing out your decision to trade on a larger timeframe because of time constraints such as working full-time jobs or having the opportunity on days off to trade full-time which would include waiting for an opportunity during the London and New York trading session.
Important considerations for day trading, you must be patient and realize from the moment you start your days work that you may not find a trade in the first few hours of trading, it may come at the end of the trading day or may not surface at all if price remains inside of consolidation.
Many people become frustrated trying to trade intraday (on smalltime frames) and consider trading the four hour or daily charts as an option. I look for my trading technique to develop on both the daily and the four-hour charts however I use a smaller timeframe such as a 30 minute to find a specific entry to minimize my stop loss levels.
Using a four hour chart or a daily chart requires a much larger stop loss and you must decide at the point you find a trade, if you can actually afford the stop loss required to trade a larger timeframe. If you force a smaller stop loss because you do not want to use a larger stop loss on the four hour or daily chart, you may get stopped out more often if you place your stop incorrectly.
Using an incorrectly placed stop loss will only frustrate you and cause your losses to compound. Each trade and each move in the markets has a specific target point and most currency pairs will only move within a certain distance considering the type of economic data or circumstance that are available at the time.
Look below and you will see how you can use two separate time frames for the exact trade technique and trading the same pair in the same direction with two different profit target. The first is the 60 minute chart which I use approximately a 30 pip stop loss. If I was to use the same stop loss on the four hour chart I might get stopped out too soon even though price never retraces deep enough to cancel out the trend in place.
While it is true that trading a larger timeframe requires less time it is also important to remember that using a larger timeframe has its own cost of doing business which translates to using a larger stop loss.
In the first example, using the 60 minute chart, you’ll notice that according to that time frame the “D” profit target was achieved however on the four hour chart the “D” profit target has not been achieved yet and so far even though the four hour chart price is moving towards it’s “D” profit target the current retracement is more than the stop loss I typically use on a 60 minute chart trading on an intraday basis.
It is quite clear that using a larger time frame for your trades translates to using a much larger stop loss and in some cases even a 300 pip stop loss is necessary.
The bottom line is you must have a good understanding of what your expectations are and how much time you actually have available to trade. Keep in mind the larger the time frame you trade, the larger your stop loss levels must be and the more money you must have available to trade. Using fewer lots and correctly identifying support and resistance levels will help make using a larger stop loss much more affordable.
Sorry, if charts do not appear below, please i.m. me and I will email chart pictures to you
Thanks for reading
L.C.
Thank you for sharing the graph - very useful info. Glad I opened your post!!!
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How to know when a move is over and not get stuck in a reversal
We all have different levels of experience and we also see things in a different way, no two traders will see the exact same thing.
This means that when we are all looking at a chart, some of us will see no opportunity and others can find one. Ultimately, you want to find a trade that is profitable but this involves many factors.
To begin with, it is important that you understand the structure of the markets and the nature of the currency pair your trading.
Certain basic principles will repeat themselves over and over again as a specific structure that we can time or gauge on an intraday basis. What I mean by this is there are cycles in almost everything to do with the market. Even on a smaller timeframe chart, there are cycles. These cycles can also include market momentum and more activity in the market which can help move a trade either against you or for you.
Understanding how to time market momentum by taking into consideration news events, the time of day, the market that is open at the time you are considering a trade will help determine the potential of a move should you enter a trade.
Another important factor is to understand that each currency pair has a specific range that it moves within a given time. You may have noticed online there are many charts that give an average range on a daily basis for each currency pair. This is important to know, however circumstances can alter this range making it either smaller or much larger based on the type of economic data that is available.
For example if the market is anticipating the release of a important economic announcement, it’s likely that many traders will not enter a trade because they don’t want to be on the wrong side of something that is so uncertain. This could make a consolidation range much smaller than the typical overnight consolidation range.
So, how do you know when a move is over so you do not get stuck in a reversal?
The first thing is to remember that each type of trade strategy or technique should include an entry, a target and a stop loss level and this also depends on the time frame you are trading. For this example I will use a 30 minute time frame and considering that we are looking to trade intraday and remain flat at the end of each day.
Day trading, we would typically look for average daily ranges on the currency pair we are trading and understand our technique to the point where we know exactly what our entry is and profit targets. We need to make sure that the point of entry to the target is within this average daily range provided that there isn’t any economic data that will either create a tight consolidation range or cause a large rally.
I have a specific strategy I use on a 30 minute chart. It is basically a candle pattern that includes one of the following: engulfing bullish or bearish candle, or Morningstar or evening star pattern. Of course the type of candle pattern depends on the direction I am anticipating price to move.
My entry occurs at the exact moment the candle pattern is completed which means the candle must be closed before I make my entry or decision. Often times this technique will provide me with 20 to 40 pips on a small time frame and a extremely affordable stop loss.
I will look for support or resistance and notice if psychological levels appear before price may hit a support or resistance level. These are all potential target areas but for the most part I always remember that this particular trade technique on a 30 minute chart with an average trading day, will earn me 20 to 40 pips. It’s very important that I not expect more than what the market will provide me on a typical day.
This is where many traders make mistakes and allow a winning trade to turn into a losing trade. Expecting more than the market will give in the hopes that you will make a big trade and holding out for every last pip isn’t always the way to go and more often than not will cause you much frustration.
Another step in determining if a move is over, is identifying where it began.
I often refer to trades as a story, there is a beginning a middle and an end.
For example according to my trade strategy, a beginning of a move could come in the form of a breakout of consolidation that I see on a 30 minute chart. The breakout of consolidation is the beginning of that move and often times price will retrace back to old support or resistance depending on which direction price is moving.
Once I see the retracement back to old support or resistance, I look for a candle pattern such as an evening star Morningstar, and use that as my entry opportunity. I would consider this situation the middle of the trade. The beginning of the move is the breakout the retracement is the middle.
I know according to my trading strategy when I see a breakout where my typical profit targets are. If price has already achieved those targets before I have the opportunity to enter a trade I know I must wait even if there is a small blow off move at the end. I have to admit when I have missed a trade otherwise getting in at the end of a move can cause either a reversal or a deep enough retracement to stop me out.
Before entering a trade notice where price came from. Try to identify the activity that was taking place before you decide to enter the trade. All of this information is useful and can help prevent losing trades.
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