Trading the Forex using the Daily Charts

Trading the Forex using the Daily Charts.

Why is it so important to start with the daily charts.

With so many options available regarding what time frame we should use to trade the forex from, choosing which is the best time frame to start our forex trading journey is an interesting question.

The temptation to turn on the 1hr charts or maybe even go lower and immediately look for trade setups to form, is very high indeed. It tends to be the case that many new traders do follow this trend and completely overlook the daily charts.  Now, these are all completely natural emotions and wanting to get straight into the forex markets is very common.

It’s mainly because traders feel pressured into taking as many trades as possible to validate themselves as traders. This lack of discipline and hunger to be constantly trading the forex markets is a dangerous path to take and learning to be patient and waiting for the really strong setups on the daily charts is something most traders find hard to recognise.

Comparing different time frame candles.

Let us compare the data contained within a 1hr candle against a daily candle which has had 24 hours to form and therefore contains 24 x 1hr candles. The amount of data in the daily candle will be far greater and thus produce much more accurate candles to use to make a judgement on the current momentum in the market. Therefore using the more reliable daily candles will make reading price action a lot more consistent.

The frequency of how many price action setups, e.g. pin bars, form on the lower time frames will be much higher than on the daily charts. This means traders who focus too much on the price action setups themselves will find it hard to pass up on a juicy pin bar on the 1hr even if the level it’s forming at is not a very strong one.

The area at which price action setups form is the most important factor, using the price action merely as a way to enter a trade and this is why using the daily charts to pick where we want to find trades is so important.  Getting this the wrong way round and focussing our attentions on the price action setups, ignoring where it is forming is a big mistake. I understand when traders see a pin bar form on a lower time frames it is very easy to get excited and decide to take the trade but this is where traders can get stung.

Increased noise.

Studying a 1hr chart and comparing it with a daily chart highlights the differences which can cause traders to find it much more difficult to determine the trend, mark and find the key support and resistance levels and to know exactly where to look for trades.

The increase in noise found on the 1hr charts makes it a lot harder to read the price action accurately. The daily chart however removes a lot of this noise and makes the charts a lot cleaner and easier to read and this is why marking our key levels from the daily charts is so much easier.

Advantages to using the daily charts.

What’s great about using the daily charts to begin trading the forex is that you can still stay in your current employment to see if the forex is right for you. The amount of time needed to monitor a daily trade is very low and so not only will it keep you from watching the trade throughout the day, it also helps to remove the emotional roller coaster new traders can experience whilst in a trade. The illusion that we have to watch every tick on the charts is nonsense. We have no control over the market and so scrutinising every single movement is completely counter-productive and unnecessary.

You may also hear some traders complaining that the number of daily trades that present themselves each month is too low.  Yes, this can be the case because we are now asking for trades to have very high requirements and so this does have a knock on effect on the number of trades available. This in turn though, should work in our favour and increase our win rate as you now only take the really stand out trades, that scream out “trade me”.

Using the daily charts as our base chart to mark the key levels off is definitely the best technique. It means we find the really important key areas where price has a good chance of moving strongly away from. Which is where we want to look for trades to form.

Trading also requires us to make important decisions regarding entry, stop loss, take profits etc… and carrying this out on a 1hr trade compared to a daily trade is going to be completely different. The pace of a 1hr trade will be far quicker than a daily trade and require you to make very quick decisions under pressure. We all know making decisions under pressure can result in mistakes being made and this is why daily trades are a far better starting point allowing more time to make all our important decisions in a far less pressured environment.

When to use the lower time frames.

The progression to lower time frame trading should be a process that starts off from the daily charts and once comfortable then moving to lower time frames. Going down time frames is a very useful tool but only once experienced on the higher time frames is it wise to venture lower.

If you can’t trade the daily charts properly the chances of making consistent gains off the lower time frames is very slim indeed.

This does not mean lower time frames are redundant though, it just means they require greater experience and control which comes only in time. Once we have these attributes in place the lower time frames can be accessed.   

The attraction of using the lower time frames before mastering the daily charts can also be down to the fact that the size of the candles are smaller and so reducing the size of the stop loss. This should not be considered a plus point though, it doesn’t matter if the stop loss is 10 pips or 100 pips the amount we risk should be the same for both trades.

However, if you are a trader who finds yourself in a position where you are struggling on the lower time frames to make consistent gains, please take my advice and move up a time frame. Turn off the lower time frame charts and resist the temptation to even watch those charts.  It’s much better to begin again on a higher time frame and then once mastered move down lower if you feel it necessary.

Summary.

Therefore, the daily charts not only provide us with more consistent data and cleaner charts to assess the forex markets but also teaches us the patience and discipline required to trade the forex consistently. If you can just hold back the urge to go down to the lower timeframes and learn to master the daily charts first, the road to success will be a slow but steady one. If you think learning to trade the forex is a quick fix, think again!!!

It’s all to do with taking little steps and finding those eureka moments that open your eyes to what the forex is all about.

This may sound strange but I use a simple technique where I tell myself every day before looking at my charts, “I do not have to trade today”

Being a trader and telling myself not to trade may sound a little odd but it’s to promote a mind-set that requires the market to really “wow” me and produce a stand out trade setup that I cannot ignore.

Chasing the market like a dog after its tail is no way to trade the forex, making price come to you is a far more controlled technique. It not only teaches you about the patience and discipline required but also gets you to understand that sometimes, less is more when trading the forex.

The lower time frames certainly have a place in trading the forex but it’s far safer to begin on the higher time frames, like the daily charts and gain the knowledge and patience that can only be learnt first-hand through hard earned experience and many, many hours of studying.