Over the next few weeks I’ll be going over 6 characteristics important when building a trading strategy. A lot of people want to create a trading strategy, or have a trading strategy automated by building an expert advisor. It is important your strategy, whether to be traded manually or automated, takes into account these characteristics if you want the strategy to be built on a strong foundation.
What Time Frame Is Best To Trade?
You’ve probably struggled with this question before. Figuring out what time frame to trade is the first thing you need to do. In a way, the way you answer the question defines both your trading strategy and you as a trader.
- If you trade the lower time frames like the M1, M5 or M15, your strategy might be considered a scalping strategy and you are a scalper.
- If you trade the M30 or H1 time frames, your strategy might be considered an intraday strategy and you a day trader.
- If you trade the H4 or D1 time frames, your strategy might be considered swing trading and you are a swing trader.
- And if you trade on the W1 or MN, your strategy might be considered investor style and you are a position trader.
I would like to tell you there is one BEST time frame to trade from, but that is just not the case. The time frame you decide to trade from is a personal decision and depends on your trading style and personality. You are going to have to make the decision for yourself.
- If I told you trade off the Daily time frame and you want to be an active trader getting into and out of the market all the time… this is not going to be a good fit.
- If I told you to trade the 5 minute charts and you want to get in and hold positions… you are going to get very frustrated.
Just keep in mind, there is a right time frame for both your strategy and you as a trader. Aligning your trading strategy to your trading personality is essential for long term success. (And yes, that is also true if automating your trading by building an expert advisor).
Time Frame Concerns For Expert Advisor Builders
Since people here are primarily interested in creating an automated trading robot, I want to discuss time frame choice in light of automated trading.
Smaller Time Frames: One of the main reasons someone wants to create an automated trading EA to trade the smaller time frames is because they don’t have time to trade. They have a trading system they want to use, but have a hard time trading it live in the markets. Creating an expert advisor is a solution to this problem.
Another reason people want to trade the lower time frames is because they think they are more profitable. Lower time frames present more trading opportunities and require smaller stop losses. Therefore, the thought is you can trade more often with a higher lot size and make more profits.
Concerns About Lower Time Frame Trading: The truth is, the lower time frames are not as reliable as the higher time frames. While there are more trade setups which allow you to get into the market more often, those setups have a lower probability of success.
Yes, using tighter stops gives you the opportunity for higher profits. But this can turn on you quickly if you your win rate is lower or if you don’t have a good risk to reward to begin with. What starts out as the desire for higher profits can quickly turn into higher drawdown.
Don’t make the mistake of thinking an automated system trades BETTER than a real trader. Automating your trading can keep the trading strickly by the rules and keep you from missing trading opportunities… but the challenges of trading on the lower time frames still exist. And even though you automate the trading, this style of trading needs to fit your trading personality.
Higher Time Frames: Higher time frames have less trading opportunities, but higher probability of success. There is just less market noise on the higher time frames. Random movements in price do not effect your trades as much as they would on the lower time frames.
One of the best traits a trader can have is patience. Training yourself to be a patient trader and using the higher time frames can pay off big over the long run. Many traders on the lower time frames burn themselves out because of the stress of being in the market all the time. Frankly, you can’t make any money at all trading if you burn yourself out and quit trading.
Concerns About Higher Time Frame Trading: I think people are not accustomed to thinking of automated trading on the higher time frames because of commercial robot makers. They want to show exciting results over a short period of time, and higher time frame trading does not provide for this. Therefore, they concentrate on lower time frames, scalping strategies and explosive profits in the short run.
The short term focus created an environment where people think automated trading is only for lower time frames. This is definitely not the case. Higher time frame strategies can also be automated. But again, you are only going to stick with higher time frame trading if it matches your personality.
So, if you want to build your own strategy, or automate a strategy, you first need to figure out what type of trader you are. I know, I know, you want to make as much money as possible as fast as possible. But that view will not sustain you over the long run. The most important thing you can do is match your trading strategy to your personality and work from there.
Read the next article in the series of the Top 6 Charachteristics of a Winning Trading Strategy: How to pick the direction of a trend