Not everyone is able to sit at the computer for hours a day and trade. In fact, many of you have full time jobs, family lives that keep you busy, yet you still want to be able to participate and trade in the market.
A lot of times, these are the emails I get from people, whereby they have the lives above, and only have a couple hours to trade after work. You don’t want to actively manage positions throughout the day because of work and are looking for a structured way to trade.
If this resonates with you and your situation, I recommend trading the higher time frames such as the H4 or daily charts.
Generally, the lower the time frame, the more detailed analysis you have to do, more variables you have to incorporate + the lower time frames require more attention due to price moving a lot faster.
More details + more variables = more time needed to make trade decisions on top of the need to monitor the charts more frequently. Thus not a favorable scenario if time is a very limited commodity for you.
The faster price movement also requires you to make many important decisions in a fraction of the time that you have at your disposal when trading on a higher time frame like the 4 hour or daily chart which significantly increases the cognitive load on a trader.
What is cognitive load you ask? Cognitive load refers to the total amount of mental effort being used in the working memory, similar to the working memory of a computer and refers to how much information an individual can consume/process in a given period.
A greater cognitive load means that you’ll exhaust your energy at a much faster rate which in turn can have an effect on your decision making.
Aspiring traders often are attracted to trading the lower time frames because they offer more ‘action’. But since they are not experienced enough, they are often unable to cope with the increased cognitive load, which renders them paralyzed at times or leads to very bad trading decisions.
Thus, trading the higher time frames is better suited for beginners and those with limited time available because
a) the skills of beginning traders aren’t fully automated yet and
b) the higher time frames require less time/attention.
To clarify, here is what I consider the higher time frames:
Monthly/Weekly/Daily/4hr on EURUSD
The overall guide on how to relate to this is:
- Look at the monthly time frame chart if you are looking at several years+ worth of price action, and want to hold trades for about a year or more (often called ‘position trading‘).
- Look at the weekly time frame chart if you are looking at just a few years’ worth of price action, and want to hold trades for several months at a time, perhaps close to a year
- Look at the daily time frame chart if you are looking to do ‘swing trading’, and want to hold your trades for a couple days, up to a few months (perhaps quarter)
- Look at the 4hr time frame chart if you are looking to do swing trading, and want to hold your trades for a couple days up to a few weeks (perhaps a month)
NOTE: These are general ‘guidelines‘. They are not perfect rules.
Now, how do you trade price action on the higher time frames?
If your primary time frame for trading is the 4hr charts for example, then most likely you’re doing ‘swing trading‘. In essence, you’re trying to capture larger ‘swings’ in the market.
Many traders (perhaps like yourself) want to trade the higher time frames and are wondering what daily forex strategies you can use.
There are many strategies we teach in our trading course, but one I’d recommend is a role reversal setup (or breakout pullback setup).
This strategy is best used when you are trading with trend.
Below are 3 major components for a breakout pullback setup:
- find the overall price action context and trend on the daily time frame
- find a key support level (for bear trends) and resistance level (bull trends) that has been touched two times before (at a minimum)
- wait for the market to breakout and pullback to the level
If you’ve done those 3 things, you’ve likely found a good role reversal – breakout pullback setup.
There is more to this strategy, (what type of trend you are in, which are key support and resistance levels, what is the best price action context to trade breakout pullback setups, etc.), but you have the basics.
Without a doubt, you can use the breakout pullback setup on the 4hr chart (or any time frame for that matter).
Here are a few additional tips you can use when swing trading the 4hr charts:
- Have the daily chart as your ‘higher‘ time frame context. When in doubt, try to trade with this the most.
- Don’t expect the market to go straight to your target.
NOTE:It may require a few pullbacks before it gets there. Eventually with enough skills in reading the price action context, you’ll learn when those pullbacks are part of the trend, or leading to a major reversal.
- Mark your support and resistance levels on the daily & 4hr charts.
Below is an example of how to apply support and resistance:
For those of you who have very busy lives, with a full-time job, family, and general commitments that you are unable to sit and trade for hours, there is a way for you to trade and participate in the markets, while not having to stay up all night.
For this, I recommend trading using the higher time frames, allowing you to be engaged in the market and able to make money without having to sit and monitor charts all day long.
I hope this helps for all of you who fit into this category and that you found this article informative and useful.
Please make sure to leave a comment below and your thoughts on it