3. Trading Plan - Notes Archives

Choosing The Right Trading Time-Frame

Some traders profit well on 5-minute charts, while other traders lose their account. Some are really comfortable with 1-hour charts, or 4-hour charts, while others will hold their positions for weeks and months. And then there are retirement accounts that often hold their investments for much longer.

So which trading time-frame is best? What is the best time-frame for forex trading? What about futures, indexes, and stocks? Is one time-frame better for stocks than for forex?

Ultimately the selection of time-frame is a personal choice. No matter what your trading instrument is, the best time-frame is the one that suits your personality and your trading environment. Every trader has different environmental factors. Some trades can only trade a few hours a day, after work. Some can trade part of the day while their children are at school. Some can trade all day, but may have to leave their trading desk in short notice.

You should also be aware that each trading time-frame has advantages and disadvantages. I’ll cover these in detail in a future post, but today I want to focus on choosing the best time-frame for your personality and your trading environment.

I will break trading time frames into 3 categories for the purpose of this discussion: shorter time-frame trading, intermediate time-frame trading, and longer time-frame trading.

*Shorter time-frame trading. *

Shorter time-frame traders are usually using charts that are 30 minutes or under. Trades made in these shorter time frames are very quick trades. You will often see these quick trades referred to as “scalp trades”. Scalpers are most often trading on 10-minute charts and under. Some are even trading on 1-minute charts!

If you are an impatient person, and you like instant gratification, then you will probably be more suited to trading the shorter time-frames. You will probably enjoy focusing intensely on your trades for a short burst of time. If your trade doesn’t have any movement within a few minutes, you may feel very impatient. Your trading will feel more exciting and aggressive when you are trading the shorter time-frames and there is movement.

You prefer to make quick decisions without to much analysis or second guessing and then you will exit your trade quickly if it is not working out. Shorter time frame traders are probably more suited to capturing smaller moves, and trading larger positions to profit from them. They can trade all day, just for a short time each day.

Trading these time frames can be intense and exhausting, so taking breaks is important.

*Intermediate time-frame trading.*

If you trade using 30-minute to 4-hour charts, you can be considered an intermediate time-frame trader. You have more patience than a scalper, you avoid the “noise” of the lower time-frames, and give more consideration to your selection of trades and setups. Your stops will usually be further away than a scalper would tolerate. A more distant stop means that your positions may be smaller than a scalper to keep your risk manageable. You do not feel urgent to exit a trade, and you enjoy bigger moves to take advantage of your smaller positions.

Intermediate time-frame traders may spend a few hours each day evaluating their positions, usually not watching their chart all day, minute by minute. These trades can be monitored several times a day, rather than several times an hour. This type of trading is suitable to traders who have a career that takes them away from the markets part of the day.

*Longer time-frame trading, and investing.

*A trader using hourly charts and up would be considered a longer time-frame trader. A trader using 4-hour and up is more likely to be an investor. You will hold positions for more than a day, and perhaps even weeks or months! You do not monitor your trades every minute and you do not have a sense of urgency or excitement when you consider your entries and exits.

Longer time-frame traders and investors may only review their positions anywhere from once a day to once a week. This type of trading is not a frenetic pace, and the aim is not to enter and exit at the absolute best price at exactly the right moment.

Those are the general categories of time-frames, and the types of traders who are involved in them. The categories are not clear-cut, there is room for discussion about them, but certainly a scalper would not regularly hold his position for 24 hours.

Initially, it is beneficial to focus on one trading time-frame. As your skills improve, you may consider managing different trades on different time-frames. Experienced traders are able to change time-frames mid-stream, while a trade is under way. While most traders start out thinking that only one time-frame is necessary, you should keep an open mind on this topic.

You should evaluate your personality, and your trading constraints to select the best trading time-frame for your situation.

Allow Your Trading Plan To Succeed


This is a trader question from the Fibonacci Trading Forum.

Vernon says:
I have the most difficulty with over analysis and Support/Resistance Zones that challenges me when it’s time to pull the trigger.

Neal’s reply;

The real problem is that you can’t catch any fish if you don’t put your hook into the water. If too much analysis stops you from trading, you are guaranteed zero success.

Sometimes it helps to step back and simplify. See my reply about finding high probability trades. Then make the decision to take the trade.

Let your trading plan work for you. Take the trades that match your trading plan. If you don’t trust the plan, then focus instead on making a plan that you can trust.

-Neal Hughes “FibMaster”.

Simple Trading Strategy Wins


This is a trader question from the Fibonacci Trading Forum.

Vernon says:

Here is one of my biggest trading problems;

With all the different Fiblevels and Support / Resistance zones in the different time frames, I tend to hesitate once these levels are near and therefore need further confirmations.

Once there is confirmation based on price action, there will be nearby SK Fibonacci Support or Resistance, and this make me wait and analyze further and probably miss the trade.

Neal’s reply;

It is important to keep the context of the trade in focus. What is the trigger? What is required to keep you in the trade? What is required to get you out?

If your setup and trigger is good, then the trade is under way until you have reason to exit. If some predicted support/resistance gets in the way, it will get you out. Or if the predicted support resistance is not strong enough, you will remain in the trade. Your trading plan takes care of that.

If the support/resistance level interferes with your setup/trigger, you will not have a trigger, or you will not have a good setup. Then is not a good trade according to your trading plan, so there is no entry.

So, take the trades on appropriate setups, and let your trading plan take over. Keep it that simple, to avoid analysis paralysis. Trust your strategy, trust that your trading plan will get you in and out appropriately.

What I am really saying is that a simple trading strategy will be a winner, instead of over-analysis and complication. Get back to basics, trade your plan.

-Neal (FibMaster’s Fibonacci Trading Course)

Choosing A Trading Time Frame


This is a trader question from the Fibonacci Trading Forum.

Kim says:
What is not working for me now?
Lower time frame. I want to trade on higher time frame.

The lower time-frame does contain more noise. There are compromises to be made, whether we trade the lower time-frames or the higher ones. For example, higher time-frames require more patience, usually have more distant stop-losses etc. Finding the time-frame that suits your personality is very important to your performance.

We’ll discuss this in a future Fibonacci Trading Forum webinar.

-Neal (FibMaster’s Fibonacci Trading Course)