Choosing a Proper Trading time frame is an essential factor which determines your trading success in the long run. But many novice traders choose a wrong time frame and end up facing many hindrances in their trading journey.
In one of my previous contents, I mentioned the benefits of Trading in Higher Time frame. To recap a bit – Trading in higher time frame can help us to overcome many problems that can impact your performance. Issues like Overtrading, Overanalyzing, Monitoring the Positions, Time constraints, Inconsistent returns etc. can be avoided by trading in higher time frame charts.
The timeframe that I often recommend for many traders is the Daily Chart. Compared to other time frames, Trading in Daily chart has multiple benefits, especially if you’re a Price Action Trader. Implementing the Price Action Strategies on Daily Chart is quite easy and it also increases the probability of your trades.
Before we talk about the many advantages of using daily chart, it’s necessary to understand some limitations involved in it.
Limitations of Using Daily Chart
1. Lower Trading Frequency – The Probability of the trades will be higher in Daily chart hence as a trade-off the total frequency of the trading setups will be lesser. In simple words, number of trading opportunities you get on the Daily time frame will be less compared to other timeframes. So if you’re someone who wants to actively trade the market all the time, day in and day out, Daily chart might not be a right choice!
On the other hand, if you’re a conservative and calculative trader who doesn’t want to sit in front of the screen throughout the day, need some freedom, using daily chart is an excellent choice.
2. Not suitable for Algorithmic Trading – For Implementing Black box systems and Algorithmic trading strategies, you need to consider lower time frame charts. Since most of the Algorithmic trading strategies are designed for scalping and short-term trading, using them on Daily time frame decreases their performance rate.
Not only that, Algorithmic traders need high quantity of data feed to back test their strategies, getting large quantity of data feeds for Daily time frame can be difficult.
3. Patience is the Key – Patience is the virtue and the most important skill necessary to trade in higher time frames, especially on Daily chart. If you’re an emotional trader looking to trade back and forth, thinking to catch every single market moves then definitely Daily chart is not your cup of tea.
On the other hand if you’re a calculated risk taker and willing to wait patiently to capture High probability trades then Daily chart is a great option. Most of the traders who trade in Daily chart become successful, mostly because of their patience.
Advantages of Trading in Daily Chart
1. Clarity of the Market Trend – Finding the trend clearly is very important to spot High probability trading opportunities. In Lower frames it can be quite difficult to find the Trends because of market noise and volatility, whereas in daily time frame one can clearly find the trend without much price disturbances.
2. The Activity of Big Players and Institutions – Most of the time, behavior of Big Players and Financial Institutions drives the Market price. Entities like Mutual funds, Hedge funds, Pension funds, Insurance companies can create long-term trends on the price. Their activities are nearly invisible on lower time frame charts but on Daily chart you can spot their activities through Price Action.
3. Less Prone to Market Manipulation – To a certain extent all financial markets experience manipulation. If you see the price movements closely, you could notice different variation of manipulation in different time frames. Longer the time period harder it’s to control the market prices, hence you’ll notice less manipulative behavior on higher time frame charts. Because of that, Daily chart is also less prone to Market Manipulation.
4. News Events will have Less Impact – When you’re trading in Daily chart, you don’t have to worry much about market related news events. Unlike lower time frames where news events could create sharp price swings and alter the entire trend, they hardly impact the price action on Daily time frame. Price discounts everything, so whatever news is there it’s already reflected in the Price action of Daily Chart. So all you’ve to do is just focus and trade based on the Price action.
5. More Thinking Space – A good trade setup requires time to think about different variables such as Risk – Reward, Position size, Quantity etc. The time taken for thinking about these factors is called as “thinking space”. A major problem in trading the lower time frame is that you often end up taking emotional trading decisions because of lesser thinking space. When you trade in Daily chart, you’ll have enough thinking space to calculate all variables related to a trade, hence less room for emotional mistakes.
6. Improved Execution – Finding the right Entry, Exit and Stop loss could be simple in theory but requires practice to execute it properly. Successful trading is not just in finding good opportunities; it’s also about clearly executing those opportunities in your favor. Many traders struggle with executing their trades properly. Trading in daily chart can improve your Execution tactics in such cases.
To conclude, there are many benefits in trading the Daily chart, but there are also some relevant limitations. In my experience many traders can improve their edge and performance if they choose to trade on higher time frame, especially in Daily chart. Novice and Intermediate level traders often struggle to find consistency in their trading. By shifting their approach to Daily chart they could do a lot better.
So do you use Daily chart to find your trades? Yes or No? Let me know – Share your thoughts in the comments below.
