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Want to find a Forex trading strategy that works?
Sure you do. Otherwise, you wouldn’t be here reading this. But unfortunately, most Forex traders are looking in all the wrong places.
In fact, if you aren’t doing this one very simple thing you are making your life much harder than it has to be.
What is it, you ask?
Trading from the daily time frame. That’s it. No moving average crossovers or MACD combination in existence can rival its effectiveness.
By making this one simple change, you drastically increase your odds of success. And in a business where probabilities are the name of the game, increasing your odds should be your top priority.
Now, this doesn’t mean you don’t need to have a viable trading strategy to succeed because you do.
But if you’ve been struggling to trade from the intraday charts, what I’m about to show you might just be the missing piece to the puzzle.
By the time you finish reading this post, you’ll know why I use the daily charts and also understand the advantages and disadvantages of doing so. We’ll even discuss what three well-known fund managers can teach us about the daily time frame.
Like all things when it comes to Forex trading there are advantages and disadvantages to utilizing the daily chart.
But I think you’ll quickly find that the alleged disadvantages below are actually “hidden” advantages.
We’ll get into that shortly but first, let’s take a look at how this time frame can improve your trading…
But are these true and are they really disadvantages?
Having utilized the daily time frame since 2010, I can tell you that all five points in the infographic above are real.
These alleged disadvantages, however, are not.
Let’s run through a few of the most common objections I’ve heard when it comes to the higher time frames.
I receive hundreds of emails from Forex traders every week. Many of them are questions and even objections to trading from such a high time frame.
Inspired by these emails, I decided to address the four most common objections I hear.
By the time you finish with this list, I think you’ll see that what might appear to be a disadvantage is actually an advantage in disguise.
I hear this argument all the time, but unfortunately for those making it, it’s an incomplete one. This is because there is one important word missing.
What is it, you ask?
There are tons of so-called opportunities on every time frame each day. But if they aren’t quality setups, they aren’t worth the risk.
Anyone who has traded both lower and higher time frames will tell you that the daily is superior when it comes to quality.
This one simply isn’t true. With the ability to trade micro lots at most Forex brokerages, the daily time frame has never been more accessible.
I have members who started with account sizes as small as a few hundred dollars who have successfully traded the daily charts.
And while each position may take longer to play out, it won’t take you longer to build a sizable trading account. In fact, you are much more likely to do so on the daily than any other time frame.
If you lose 50% of your account, it takes a gain of 100% to get back to breakeven. By choosing quality over quantity, you’re making a commitment to protect your capital which will inevitably help you build a sizable account over time.
I’ve heard this one a lot over the years. The truth is that the distance from your entry to your stop loss is irrelevant.
You see, the only two things that matter are your risk to reward ratio and your position size.
Neither of those two things are obstructed by a 100 pip stop loss.
Everything in the world of trading is relative. So even though you may have a 100 pip stop loss, your profit target could be 200, 300 or even 400 pips away.
A wider stop loss does not equal greater risk. Nor does it negatively affect the profit potential from a given setup.
Of course, you have to vary your position size according to the specifications of each setup, but as long as you use a good Forex position size calculator, this should never be an issue.
Indeed it is, and I love it!
Becoming a successful Forex trader isn’t about finding the most exciting style of trading out there. As a matter of fact, if your trading isn’t boring you may be doing something wrong.
Achieving consistent gains in the Forex market is about finding something that works, not something that is fast and exciting. That’s what the casinos are for.
If you want to grow as a Forex trader you need to embrace the idea that slow and boring is a good thing.
This notion is particularly the case for those using the higher time frames. After all, there are only so many quality setups that come along each week.
But that’s okay because when you’re able to extract 4% profit or greater from a single idea, you’ll no longer feel the pressure to trade more often.
Everyone wants to have the trading capital of George Soros, Bill Lipschutz or Stanley Druckenmiller. That’s no secret. But most Forex traders are kidding themselves.
Most who say they want to make the kind of money these guys do are still stuck on the 15-minute chart, which is the complete opposite of how all three of these guys trade.
Even if you are on the 1-hour chart, you are still trading in a way that is not in sync with how the big names in the business do things.
Can you imagine George Soros risking billions of dollars on a 1-hour swing trade? How about a scalp on the 15-minute chart?
It simply doesn’t happen.
Of course, trading on the same time frame as the three gentlemen to the right or any other big name in the business is not the only way to do things. As Jack Schwager once said, “there are a million ways to make money in the markets…”.
Is it possible to make money on the 1-hour chart?
Absolutely! I trade it on occasion, and so do some members of the Daily Price Action private community.
How about the 15-minute chart?
Sure, why not? Although I don’t know of a single Forex trader who can honestly say that they are consistently profitable scalping the 15-minute time frame, but that doesn’t mean they don’t exist.
But here’s the thing…
It isn’t about doing what is possible; it’s about doing what is probable.
While you could make consistent gains on a 15-minute chart, the odds of finding success on the daily chart is much higher.
Just take it from a few guys who know a thing or two about navigating the financial markets.
If it isn’t broken, don’t try to fix it.
That’s the point of this entire article. If we know that most, if not all, of these billionaire market strategists base their decisions on the daily time frame or higher, why are so many still trying to use a 15-minute chart?
Is it because they believe that a lower time frame will produce more trade setups and thus more profits?
Or perhaps those who get into Forex trading feel the need to fit the image of a day trader, so they opt for a lower time frame to emulate that fast and furious style of trading.
Regardless of why traders do it, at the end of the day it’s about seeking out those who have “been there, done that,” and then emulating their success without reinventing the wheel.
With that said, there are always exceptions to the rule.
I’m a huge advocate for finding a style that suits your personality. Everything you do in the markets must resonate with who you are as a person.
If it doesn’t, you’re not reinventing the wheel; you’re spinning your wheels.
Always try to align your efforts with your passion. If you need a lower time frame to satisfy an inner calling, so be it.
But just know that the “big money” has always been and will continue to be on the daily charts.
Are you trading the Forex market for the excitement of the trade or to build a trading account?
Now, before you rush to answer with the latter, be sure to dig deep here. Take a few days to think about it if you have to.
Do more trades equal more excitement in your life? If you’re like most, the answer is an unequivocal yes!
It’s a hard thing to swallow, I know. You’d love to think that you’re in it to steadily build an account, but for most that simply isn’t true.
I was once where you are now. I thought I was in it for the “right” reasons.
The truth was, I was placing trades for the sheer excitement it delivered.
I loved knowing there was a chance I could make money.
What I failed to understand is that it’s not about possibilities, it’s about probabilities. And pulling the trigger five times a day leaves you hoping for what’s possible instead of leading you to a probable outcome.
I wanted a larger trading account, but my actions weren’t in line with my desire. In essence, I was talking the talk but wasn’t walking the walk.
So take a step back and figure out if you fall into this category of traders. Because once you understand why you’re placing so many trades, moving to and profiting from the daily time frame will be an easy and welcome transition.
The purpose of this article is not to dissuade you from searching for a viable trading strategy.
Finding a strategy that fits your personality as well as your lifestyle is critical to your success as a Forex trader.
However, far too many traders disregard the daily time frame when searching for a strategy that can work for them.
Most tend to think that the lower time frames will produce more setups and thus higher monthly returns.
That notion couldn’t be further from the truth.
The wealthy traders of the world base their decisions on the daily time frame and higher for a reason – because it works. It gives them the best chance of extracting a profit from the market over an extended period.
But you don’t have to be rich to trade the daily chart; quite the contrary in fact. With the availability of micro lots, anyone can trade and profit from the daily charts.
We all know that (approximately) 90% of Forex traders fail to make consistent gains. We also know, due to the various forums and chat rooms out there, that the majority of Forex traders are stuck on the 1-hour chart or lower.
A mere coincidence?
Perhaps, but what if it isn’t?
If you’re still struggling on a lower time frame, I have a challenge for you…
Try switching to the daily time frame for one month using nothing but simple price action and report back here with your results. You might just find what you’ve been searching for.
Post your results or ask a question in the comments section below. I look forward to hearing from you.
Justin Bennett is an internationally recognized Forex trader with 10+ years of experience. He's been interviewed by Stocks & Commodities Magazine as a featured trader for the month and is mentioned weekly by Forex Factory next to publications from CNN and Bloomberg. Justin created Daily Price Action in 2014 and has since grown the monthly readership to over 100,000 Forex traders and has personally mentored more than 3,000 students.Read more...
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