One of the most common challenge for new traders deals with selecting the right timeframe to trade. This is because with the current high frequency trading systems, it is possible to trade multiple timeframes ranging from minutes to years.
The choice of the timeframe one uses is very important and for many people, because it can affect their success.
As a day trader, We believe that your intention is not to hold single positions for hours or days.. You basically want to enter the market, make a few dollars, exit and then go through the same process again.
→Learn When to Enter and Exit While Trading
In this article, We will explain the few ideas to help you manage risks and make good profits.
Essentials of a Trading Strategy
Having a good strategy is very important because it gives you an opportunity to place and exit trades wisely.
A good trading strategy encompasses 4 main aspects:
- Establishing a directional bias
- Determining the stop loss and the target level
- Defining the timeframe you will us
- Using risk management skills.
All successful traders have defined their trading strategies carefully.
Active traders are those who place multiple traders on a daily basis. These traders usually use short timeframes such as minutes.
The Swing traders have a medium term look at the charts. They usually trade using longer timeframe charts such as hourly charts.
Finally, the long-term traders such as George Soros look at a long term position and therefore use monthly and yearly charts.
→ What type of trader are you?
Technical Analysis as A Day Trader
As a day trader, you will most likely use short term charts. Therefore, you will need to be perfect at conducting technical analysis to determine the support and resistance levels.
In addition, you need to configure the technical indicators to match the specified period of time you will be trading. Most technical indicators have the default levels based on a 14 day period.
As a day trader, you want the indicators adjusted to hours or days.
As We explained in previous article, you should stick to a maximum of 3 technical indicators at a go. Having very many indicators will crowd your trading space.
Fundamental analysis is very important when trading with multiple timeframes indicators. In our previous articles, We have specifically warned day traders against trading during the data timeframe.
In this, We would not advise you to trade 30 minutes before or past the release of significant data such as the employment numbers. Trading at this time will subject you to volatility which can always wipe away your profits (here a guide to trade in periods of high volatility).
Therefore, the first thing you ought to do every morning before you start trading is to look at the economic calendar and have a look at the economic data for the day.
Then, you should set a timer or reminder to help you avoid being caught up in volatility.
→ Master the Art of Fundamental Analysis
Multiple Timeframe indicators & Analysis
After understanding how to perform technical and fundamental analysis as a day trader, We will now explain the best way to carry out a multiple timeframe analysis.
First, We always go for the 4-hour chart. This chart is ideal because it gives the general picture of the day. If the chart is on an upward trajectory, then the logical thing to do is to place a BUY trade.
However, as a day trader, our goal is not to perform an analysis for the 4-hour chart. We intend to use the 15-minute chart. Therefore, we then zoom in the 1 hour chart and perform some preliminary analysis.
Finally, after understanding the medium-term trend, We try and search for the best opportunity in the 15-minute or the 1-minute chart.
As a day trader, We recommend that you start by understanding yourself. You need to be someone who is able to make fast analysis!
By taking time to understand yourself, you will be at a better position to set a good trading strategy., because your success will be anchored by the type of strategy that you use.
In addition, We recommend that you first take time to analyse the charts from a wider timeframe. This could be a yearly or monthly chart. This will give you an opportunity to understand how the technical and fundamental issues move the chart.
→ 4 Timeless Day Trading Strategies Approach That Work