How does TIME effect your trading?
This is not just limited to the time you enter the trade, although that is certainly going to impact your trade because of typical pip movement during the time of day and economic events.
This is not just limited to the day either. Did you know that certain days have different average pip movement ranges?
This is not even just limited to the time frame. It’s all three.
All three effect the volatility and therefore the potential upside and downside of an entry. The time frame itself is one of the most important and often the most overlooked. Consider time frames like a slice of psychology. The bigger the time frame – the bigger the slice. The bigger the slice – the most chance for a wider pip range.
I think that visually and intuitively most trades already know this. If I were to ask you to walk as far as you could in 30 minutes or in four hours, which would allow you to cover more ground? Four hours ofcourse. So apply this same thinking to time frames. Prices are simply — if given more time – be bale to cover more ground on the price chart.
Let’s consider patterns. If a fifteen minute chart developed a triangle it will inherently be smaller than a triangle formed on a four hour chart. The four hour candles will have a bigger pip movement range per candle and it’s these (typically) larger candles that will form the pattern.
Bringing this back to daytrading and the five minute chart: The time frame is not simply a risk management choice so don’t get hung up on the shortness of the time frame…although ofcourse a single lot of a five minute set up is going to present different risk, reward, support, resistance, and trend implications than a longer time frame such as even a 15 or 30. Remember the time frame effects trade frequency, follow-through, and psychology. Over the course of an hour, a five minute chart could cycle through all four market cycles. This for even a 15 minute chart would be all but impossible. I should mention that one of the beliefs of my trading set ups is that they would on any and all time frames. So even though I am outlining a very short term time frame here, as long as same steps are followed, this could would on any time…15, 30, 60, 240, daily…The main idea is to recognize a trend and play corrections within the trend. I’ll show you the set up in part three, it’s really simple, and the trade management in part four using Fibonacci extensions.
Let’s finish our talk on time with the following graphs to illustrate what I am trying to get across about time frames and pip movement. I use the EUR/USD show you the importance of time. Remember that each pair has nuances all it’s own though! In fact let’s start with a broad view as I show you many popular pairs and cross-rates and their respective daily pip movements:
Here’s a look specifically at the EUR/USD with a one month sample of hourly pip movement:
Now take a look at the chart with the hours that you should avoid — due to low pip movement — highlighted.
Finally this last chart makes the point have been referring to for much of this article: How different time frames present different amounts of pip movement:
Ok so this concludes part 2 and a look at pip movement. I think regardless of your methodology understanding movement and time is vital to your success!