Trading Forex from Daily/Weekly Charts
For some reason, many traders mistakenly imagine that using a long-term trading approach means that it takes that much longer to find profitability. But the opposite is actually true. By many accounts, trading using a short-term approach actually makes it a bit more difficult to find profitability since a short-term approach requires more time before the trader can develop a profitable trading strategy. The shorter the time frame, the less information that goes into each candlestick. Variability increases with shorter term outlooks because of the limited time.
Trading Using Weekly and Daily Charts
Many successful scalpers and day traders use longer-term charts to plot their short-term strategies. New traders should ideally start with a long-term approach and shift to shorter-term once they master the long-term strategy. By doing this, the trader is in a good position to make adjustments to their trade and risk management as the margin of error increases with shorter-term trades. Traders can use the weekly chart to grade trends and daily charts to enter into new positions.
The 'Swing-Trader' Approach
Once the trader becomes comfortable on the longer-term chart, they can now start to gradually move into shorter-term strategies. However, doing this introduces more variability into the trader's approach. Trading forex from daily/weekly charts is a viable option.
The Swing-Trader approach acts as a happy medium between long-term and short-term approaches. One of its key benefits is that it allows the trader to enjoy the benefits of both strategies, without taking on the underlying risks associated with each method. Swing traders often follow the chart throughout the day so as to take advantage of big moves in the marketplace. Once they find a setup that matches their criteria for triggering a new position, they proceed to place a trade with an attached stop and then check back later to see how the trade is progressing.
Swing traders use daily charts for determining trends or the general market direction, while the four-hour chart is used to enter trades and place positions.
Scalping and Day Trading
Finding profitability with scalping or day trading is the most difficult way of finding profitability. There are many complex factors that a day trader or scalper has to face. One of these is that the trader finds themselves in the unenviable position of trying to force the market to make moves. The trader also has to use tighter stops since the profit potential is lower than in the case of longer-term trades.
To trade with a short-term approach, it's advisable for the trader to get comfortable with long-term as well as swing-term approaches before moving to very fast time frames such as hourly, 15-minutes and 5-minutes trades. A scalper can use an hourly chart to grade or evaluate trends and look for entry opportunities using 5-minute or 15-minute time frames. The trader can also use the one-minute chart, but should be very careful about the high degree of variability that's typical of the chart.
Traders should first learn how to trade using weekly charts and gradually move to trading forex from daily/weekly charts before finally starting to scalp. This helps the trader develop a good grasp of the market and its intricacies.