Timeframes: Fast Vs Slow . . . ?

[timsk]

There's been a glut of threads recently started by members who are experiencing problems with their trading. (My heartfelt sympathies goes out to them all.) As one might expect, the replies range from those who take delight in kicking a wo/man when they're down, through to the genuinely helpful. However, there is one common denominator that unites them all and must be in the all time top ten most oft' heard pieces of trading advice: 'don't attempt to trade sub one hour timeframes' - or words to that effect. And anyone who does - and struggles - is likely to be told in no uncertain terms that this is where they're going wrong.

The purpose of this thread then is to explore and debate the pro's and con's of fast Vs slow timeframes. Personally, I've always struggled with the idea that the higher timeframes (let's define that as 1 hour plus) are in some way easier to trade than the lower, faster timeframes (let's define that as sub 1 hour). It strikes me as being a bit like that wonderful question so often asked by newbies, 'can someone please suggest an easy market to trade while I'm learning the ropes'. An easy market to trade, I wish! There is no trading 'paddling pool' for newbies, there's only sim' trading and/or trading with very small sums of money. Similarly, I'm not convinced that a slow timeframe is more likely - or less likely - to lead to consistent profits than a fast one. Doubtless many of you will disagree!
Discuss!

 

[barjon]

Interesting question, Tim.

I can only speak for myself and my experience in running two trading accounts. My main account is based on eod and has a relatively smooth, if somewhat sedate, equity curve whereas my other account, based on intraday, jumps up and down like a yo-yo.

For me, I guess it's emotional. I tend to get caught up in the intraday action which leads to overtrading and the usual faults of cutting profits too early, trying to recover from mental stoplosses which have been burst asunder in seconds and ignoring the bigger picture. Only a question of discipline, I know, but I do find the more sedate pace of eod much easier to deal with.

good trading

jon

 

[shadowninja]

TBH in this climate, I'm more profitable day trading than swinging.

 

[trader_dante]

Barjon summed it up perfectly. I don't think its that 1hr+ TFs are easier but I think they enforce habits that will stand you in better stead if you ever decide to go lower and will also aid your longevity as a trader.

Longer timeframes encourage PATIENCE and by studying them you begin to see the bigger picture and get an idea for how long and how far trades could actually run.

At the same time, trading 1hr+ you have much more time to be analytical and consider different eventualities and at the same time don't need to spend so much time infront of the screen which encourages overtrading.

I am sure if more people started on the weekly or daily TFs they would stay in the game longer - I cannot understand for the life of me why new traders jump straight into the 5m. It's ridiculous.

Ultimately, I would think that the daily (minimum) should be mastered and then a trader should progress to the 4hr (if trading FX) or 1hr (if anything else) and then so on down. Perhaps onto the 30m next, then the 15, then the 5m and perhaps eventually a few years down the line, try the 1m. But they should only progress to the next lower TF when they are consistently profitable on the higher ones.

Just to refer to one of the other points you made Tim, I do think that some markets are easier to read and trade than others. I was discussing this with one of the traders at my firm today who said that the YM was much easier to read and trade profitably than the EuroStoxx or the S&P because it is largely dominated by smaller retail traders rather than the larger locals, funds and algos that operate in the latter. I also presume there is a reason that every single new trainee is started out on the FTSE and no one (apart from me and one other guy) trades FX and commodities.

 

[Second income trader]

I wonder if the size of the exposure when EOD trading puts some people off. Placing your stop loss at the last swing/bar high or low for example cxould be 500 pts off on an EOD GBPUSD forex position, against 50 on an equivalent hourly position. Or do most people with EOD systems take a different approach to the placing of their Stop Loss to avoid such a large exposure?

 

[trader_dante]

I wonder if the size of the exposure when EOD trading puts some people off. Placing your stop loss at the last swing/bar high or low for example cxould be 500 pts off on an EOD GBPUSD forex position, against 50 on an equivalent hourly position. Or do most people with EOD systems take a different approach to the placing of their Stop Loss to avoid such a large exposure?

Just make sure that your 500 point stop is 5% or less of your account and set a profit target of at least 1000 points and preferably 1500. Get profitable first and worry about precision entries later. Start at the top and work down, thats my advice.

 

[shadowninja]

Why do newbies use lower timeframes? Because they can see the direction the price is moving in. And you can use smaller stops. Of course, this leads to chasing the market.

 

[barjon]

Why do newbies use lower timeframes? Because they can see the direction the price is moving in. And you can use smaller stops. Of course, this leads to chasing the market.

........and because 5min charts open as default on SB platforms. Wonder why

jon

 

[options]

Why do newbies use lower timeframes? Because they can see the direction the price is moving in. And you can use smaller stops. Of course, this leads to chasing the market.

And it should also read.

"Because they can see A direction the price is moving in."

 

[shadowninja]

........and because 5min charts open as default on SB platforms. Wonder why

jon

Haha never thought of that!!

 

[shadowninja]

And it should also read.

"Because they can see A direction the price is moving in."

Yes, that's exactly what I meant. Wasn't sure how to word it best, though.

 

[nine]

Why do newbies use lower timeframes? Because they can see the direction the price is moving in. And you can use smaller stops. Of course, this leads to chasing the market.

Its not just that. The market is fractal so theoretically you can get more out of lower timeframes. In fact, in practice you can as well, constrained only by your skills, discipline, liquidity and costs (slippage+commission).

The trouble is that, as described above, shorter timeframes make it harder to trade well. So newbies almost never achieve the theoretical and frequently reduce it to a negative expectancy as they crash and burn. Why? There are a lot of reasons but they all come down to "less time makes it harder to achieve your theoretical capability:"

- less time to check that the setup is valid, conditions are right, and thus the entry should be made
- less time to psych yourself up and talk yourself into entering a trade that does meet the entry conditions
- less time to cool down from an emotional upset so that you can trade with your forebrain instead of your lizard brain.

Those who've been doing it for a while all know that there are two things we must improve in trading: our edges and our selves. Trading longer term gives you more time to be calm, recognize the issues and work on the "our selves" component.

On TD's exact timeframes I don't completely agree. I think that one should start with daily charts, traded while at work so that the pressure to earn an income doesn't generate pressures that make emotions more intense and discipline harder. But I'm not so sure about 4 hourly (the difficulties with midnight are an issue) and feel that good pattern choice on hourly can achieve the same result. Perhaps he's right though - daily, 4 hourly, hourly does at least give a nice smooth progression.

 

[UKtradergirl]

I wouldn't recommend a beginner actually trade on a time frame less than 4 hourly, but, it is worthwhile just watching a 5 minute chart or even demo trading it if you can be disciplined enough to not actually try it with real money. The reason being, you can see patterns develop in front of you one after the other- i found it helped me learn more quickly. You can then apply this to a daily or 4 hourly chart. Takes a lot of discipline to do this.

 

[timsk]

Just to refer to one of the other points you made Tim, I do think that some markets are easier to read and trade than others. I was discussing this with one of the traders at my firm today who said that the YM was much easier to read and trade profitably than the EuroStoxx or the S&P because it is largely dominated by smaller retail traders rather than the larger locals, funds and algos that operate in the latter. I also presume there is a reason that every single new trainee is started out on the FTSE and no one (apart from me and one other guy) trades FX and commodities.

Hi Tom,
You won't be surprised to learn that it was largely your posts that prompted the thread. Your points are - as ever - well made and I agree with them for the most part. However, I do struggle with the idea that one market is easier than another. I'm being devil's advocate here in as much as I give a similar answer as your colleague when I'm asked why I prefer to trade stocks as opposed to say, futures. But, intellectually, it doesn't make much sense. Why would anyone shun an 'easy' or easier market in preference for a harder one? You'd have to have a massively inflated ego or be very stupid to do this. Therefore, my interpretation of your colleague's comments is that s/he simply prefers YM to Eurostoxx or the S&P. If it really is easier than the other two then logic dictates that no one would trade them and everyone would opt for the 'easy' YM market? You're the pro' here Tom and not me but, nonetheless, am I not right in thinking that prop' firms are often biased towards trading specific markets; usually ones that reflect the background, interest and experience of the firm's owners? As for new recruits starting out with the FTSE, this doesn't surprise me either. Everyone can relate to it easily whereas, if they were told on their first day at the firm that they will be trading pork bellies or interest rates, there'd be a sharp intake of breath swiftly followed by 'oh ****, I know sweet FA about either of them'!
Tim.

 

[fibonelli]

A timeframe of 1hr gives you a lot of time to carefully plan and execute your trade. You minimise stress, errors etc this way. Anything to help, if you've just started.

You also get plenty of experience of patiently watching price move to your desired point range.

Furthermore, if you use a triple timeframe technique, you would be looking at the bigger picture, namely, the 4 hour and daily charts. You may even want to glance at the weekly too.

 

[PKFFW]

Personally I think it all comes down to the individual and not the time frame.

I tried the longer time frames with no success. It is only when I switched to tick charts, and very short term ones at that, that I started having some success. My personal circumstances, personality, etc all combined to make this the best solution for me.

Of course longer time frames give you more time to be disciplined and take the emotion out of trading. Frankly, though if you can't do the that anyway then it wont matter what time frame you work in and if you can do it then it wont matter what time frame you work in!

About the only difference I can see is that higher time frames do allow more time to make decisions and analyse the market. I guess that could be an advantage but from my personal experience if you can't see at a glance whether a trade set up comfirms to your requirements then you don't know your own trade criteria well enough.

Cheers,
PKFFW

 

[BSD]

Personally I think it all comes down to the individual and not the time frame.

I tried the longer time frames with no success. It is only when I switched to tick charts, and very short term ones at that, that I started having some success. My personal circumstances, personality, etc all combined to make this the best solution for me.

That is pretty much my take as well that it is entirely down to the person and not the time frame.

Your experience actually also perfectly mirrors Magellans, he also only turned the corner once he moved from longer term time frames down to scalping.

One thing one also shouldn't forget is that most locals or prop firm traders - ie those who can if they choose to have an accelerated learning curve by being around others and being able to learn from those who are already provenly profitable - are almost always very short term scalpers.

The main reason for that imo is that very short term time frames simply provide far more opportunities per day which is also a very important factor in the expectancy of your trading method, and are really also the only way to make consistent money from pretty early on, which is after all a real necessity if you have a seat lease to pay on top of your other regular bills.

The market is fractal so theoretically you can get more out of lower timeframes. In fact, in practice you can as well, constrained only by your skills, discipline, liquidity and costs (slippage+commission).

The trouble is that, as described above, shorter timeframes make it harder to trade well. So newbies almost never achieve the theoretical and frequently reduce it to a negative expectancy as they crash and burn. Why? There are a lot of reasons but they all come down to "less time makes it harder to achieve your theoretical capability:"

- less time to check that the setup is valid, conditions are right, and thus the entry should be made
- less time to psych yourself up and talk yourself into entering a trade that does meet the entry conditions
- less time to cool down from an emotional upset so that you can trade with your forebrain instead of your lizard brain.

And that is the obvious caveat against scalping. Unless you manage to overcome those very real hurdles then the opportunity advantages of scalping will never materialize for you, and that will probably herald an early end to a trading career that might have had a chance on higher time frames.

 

[JTrader]

The Timeframe Has Nothing To Do With It.

A Chart Is A Chart, A Candle Is A Candle, Regardless Of Timeframe.

Any Timeframe Will Be Equally Problematic.

Any Timeframe Of Chart Can And Will Look Equally Messy And Inconsistent.

Regardless Of Timeframe The Job Of A Trader Is To Extract A Net Profit From This Mess.

Of Course, A Chart Will Not Always Look Messy, It Will Often Be Neat And Orderly.

When A 5 Minute Chart Looks A Mess, A 15/30m Chart Will Often Look Tidy.
When A 30m Chart Looks A Mess, A 5min Chart Will Often Look Tidy. Etc. Etc.

THE GRASS MAY SEEM GREENER ON THE OTHER SIDE. BUT ALL TIMEFRAMES ARE EQUAL & SUBJECT TO PROBLEMS, DUE TO THE ACTIVITY OF PRICE.

But The Timeframe Is Not The Issue. unless It Is Ridiculously Short Term So That It Makes Covering The Spread An Issue........

 

[barjon]

The Timeframe Has Nothing To Do With It.

A Chart Is A Chart, A Candle Is A Candle, Regardless Of Timeframe.

Any Timeframe Will Be Equally Problematic.

Any Timeframe Of Chart Can And Will Look Equally Messy And Inconsistent.

Regardless Of Timeframe The Job Of A Trader Is To Extract A Net Profit From This Mess.

Of Course, A Chart Will Not Always Look Messy, It Will Often Be Neat And Orderly.

When A 5 Minute Chart Looks A Mess, A 15/30m Chart Will Often Look Tidy.
When A 30m Chart Looks A Mess, A 5min Chart Will Often Look Tidy. Etc. Etc.

THE GRASS MAY SEEM GREENER ON THE OTHER SIDE. BUT ALL TIMEFRAMES ARE EQUAL & SUBJECT TO PROBLEMS, DUE TO THE ACTIVITY OF PRICE.

But The Timeframe Is Not The Issue. unless It Is Ridiculously Short Term So That It Makes Covering The Spread An Issue........

jt

mmm, I don't wholly agree with that. I've always thought that analysis of candles (particularly) and charts based on arbitrary slices of time are much more suspect than that based on "legitimate" trading sessions where traders, institutions, fund managers etc etc are opening and closing their books. Maybe just my prejudice, but there you are

good trading

jon

 

[JTrader]

jt

mmm, I don't wholly agree with that. I've always thought that analysis of candles (particularly) and charts based on arbitrary slices of time are much more suspect than that based on "legitimate" trading sessions where traders, institutions, fund managers etc etc are opening and closing their books. Maybe just my prejudice, but there you are

good trading

jon

why?

well a 4 hr chart looks no more orderly or discorderly than a m5 chart.

Hide the timeframe and scale, and you'd be hard pressed to tell the differnce betweem an m1,m5,m15,m30,h1,h4,d1,w1,mn1 etc.

If you don't believe me, why dont you do a test similar to your what happened next? hide the timeframe and scale, and users must try and guess the timeframe. To do this accurately will prove impossible.

Adding the notion of fund managers etc. into the balance sounds very technical and advanced, but is ultimately worthless.