Trading The Daily Chart Is The One and Only Way To Go

Hello and welcome to another edition of the bulls versus the bears.  Do you remember when we asked the question Should I use the One Hour and Four Hour Time Chart Time Frames To Confirm Daily Price Signals ?Well we’re going to talk about trading the daily chart time frame.  In fact I dare say that trading the daily chart is the one and  only  way to go.    And in fact, you should touch base with the daily charts before entering any trade.

Why should anybody trade the daily charts? because the daily chart has  a gold mine of information a trader cannot overlook. If anything the daily chart is where most of the trading action takes places,and of course that is where all the profit possibilities exists. Once you’re done reading this post, you and the daily chart will become bosom bodies.

I guess the first question  some of you will be :

How Do I Trade The Daily Chart?

Well,you should start by analyzing the last few months of price action trading on the daily time frame. The following questions should be occupying your brain cells while doing your analysis:

  • Is the market trending? And if so in what direction?
  • Is the market consolidating?And if so where is the high range and low range?
  • Where are the next resistance/support levels?
  • Do you see any patterns emerging on the charts?
  • Are we edging closer to a pivot number or round number
  • What is the relationship between the moving average and current price? Look up We’re Moving Averages Parts I and II

And while you’re glancing through your questions,make sure you mark key support/resistance levels that will help shape your market bias long or short term.  Based on this analysis, you should be more informed when entering your trades.   And you should be more comfortable making trades free of second guessing.

Now Why Do Traders Trade on Daily Charts?

Simple. Unlike the lower timeframes,  the price action is less chaotic and more reliable. In fact the price action is described in some quarters as smooth. Not only that,but you do get a clear perception of which direction the market wants to go. Unfortunately you don’t get that kind of clarity on the lower time frames where you get nothing but deception.

Also you’ll be able to assess  your risk:reward in a higher probability setup than you’d normally do  in say a 15 minute time frame. The supply and demand swings that you see on a daily chart are more accurate than you’d normally see on a lower time frame. If you want to get ahead of other forex traders on the daily chart, get  a solid grasp of the potential profit vs risk concept.  Once you figure this concept out like the back of your  hand you should be laughing all the way to the bank.

Make More and Trade Less

If you want to profit from trading the daily chart,make more and trade less. How do you accomplish that? By switching to a higher time frame.  If you are the type trying to scalp on the 15 minute 30 minute,or 60 minute charts, I suggest you switch to the 240 minute(or 4 hr ) chart and end of day chart. Those lower time frames will certainly not help you.

Are There any advantages to Trading  The Daily Chart?

Sure. For starters the signals and patterns on the high time frames on the daily charts are  more reliable than those that you see on the lower time frames.  Often times what you might  like a chart pattern or candlestick pattern on a one hour time frame could be nothing but fake  market noise. However,watch a chart pattern progress over several weeks on the daily time frame,and you’d most certainly want to jump in on that deal .

Another advantage of trading the daily chart is the cost of trading advantage. Most brokers  spreads and commission are the same regardless of your profit target. Let’s say you enter a trade for the EUR/USD pair and it has a spread of two pips. You then wind up paying 10% of the profits on a 20 pip target as opposed  to 1% of the profits on a 200 pip target. Now if you ask me that’s a huge difference in cost. Now if you are a short term trader, you may want to seriously consider your short term future as this could have a monumental effect on your bottom line.

Don’t OverTrade

If you want to profit on the daily chart, I have a simple piece of advice for you – DON’T OVERTRADE.   You do not want to develop an addiction to the price action by feeling the urge to  sneak in and out of the market every chance  you get. You experience so much blood rushing to your brain that you can’t help yourself sometimes. This can only bring you nothing but grief and will only end up putting a nuclear-sized  black hole in your trading account.

When you overtrade, you feel you have to micromanage everything. You end up over-analyzing your charts, and  jumping in and out of trades. Even worse, you don’t trust the market enough to execute your trade when you enter your trade. You trade like a gambler rather than a logical thinker. You are thinking with your emotions instead of your brain cells. Even worse you  are only going with your gut feelings.

How Do I Get A Hold of  My Emotions?

Use what is popularly known as the “Set and Forget” Approach. Basically you set your Stop Loss and Take Profit target the moment you place your entry. Once you set your Set and Forget in motion, just get away from your screen and go to the beach while the market executes your trade for you. With a little practice you there will be no need for you stare at the screen all day scavenging for trades.

Look For Solid Trends

When trading the daily chart, look for what I call solid trends. Identify trends that have profit written all over them. You want to make sure you chart the least course of resistance. In other words, if a market is moving in  a particular direction, the odds of  price continuing in that direction are very high.

When searching for trends on a daily chart,make sure you’re looking at the right data. Here are a few techniques you may wan to employ when searching for emerging and established trends”

Swing Highs and Lows- Here the market makes high highs and higher lows during an uptrend. However it’s the reverse in a downtrend, where the market carves out lower high and lower lows.

50 and 200 SMA – The 50 and 200 periods are the most scrutinized as far as Simple Moving Averages goes.  Compare where price is relative to these averages, and look out for price crossing these levels. It could be a precursor to future price moves. Look up We are Moving Averages Parts 1 and 2

Trendlines – Trendlines come in very handy as far as identifying trends and potential reversal points goes. Be on the look out for possible breakouts outside the trendline as this could signal a possible reversal

Multiple Time Frame Approach

If you are an aspiring forex trader, I strongly suggest you the multiple time frame approach, or top down approach as it’s popularly known..  You start off by analyzing the longer time frames such as the monthly and weekly charts. Then you move down to the daily chart. Only then do you  analyze charts such as the 4 hr, 1 hr, or much lower.

A multiple time frame analysis helps in trade selection and filters out bad trades. You would definitely want to consider the daily chart as part of you r multiple time analysis.   If you’re looking for support and resistance levels to trade  off, the daily chart is the place to look. It will be in your best interest to follow what’s happening on the daily chart, regardless of  your time frame of choice. Whether you’re a  day trader or swing trader, you will want to ride on the momentum of the daily chart.

Now if you trade solely on one time frame, you could be trading straight into a hurricane. You could  be trading straight into a key support/resistance level, or the trend in your time frame could be nothing but a correction. Or even worse, you could be walking straight into a candle reversal situation. It definitely pays to expand your time frame horizons in order to catch profitable trades.

Combining Swing Trading With Daily Chart

Do you realize that you could make a killing combining swing trading and the daily chart? Sure you can. You can start by coming to the daily chart and the 4 hr chart to look for price signals and polish up your trade entry.

Now how can you use swing trading to combine both time frames and create a gold mine? First plot all major levels on the daily chart including support/resistance levels, and supply and demand levels. Then zoom down to the 4 hr level to monitor price interaction  at these levels. You now establish the 4 hr timeframe as your trade entry timeframe.

You then look for a strong price rejection such as  a reversal candlestick pattern or a strong breakout through these high time frame levels. This should serve to create high probability setups for you as a swing trader.

With your end of day  strategy, you can assess  your risk versus reward  in a higher  probability manner instead of   hourly or 15 minute manner  The supply and demand swings on the  daily chart are more reliable than on the lower timeframes. Having a solid grasp of the profit vs risk on a trade as projected on the chart  will put you streets ahead of other traders that ignore this type of analysis.

That’s a wrap for ”Trading The Daily Chart Is The  One and Only Way To Go”   The importance of incorporating the daily chart time frame in your trading cannot be emphasized enough.  In fact trading in a higher time frame is the fastest way to increase your profitability as a trader.

Psychologically you will be a free man as well. You don’t need to spend the whole day in front of your screen scavenging for trades that may not even exist. Just activate “Set and Forget” and let the market execute your trade for you. You can head to the beach and come and check your profits sitting comfortably in your trading  account. Even more important learn to detach your emotions while you trade. Just leave things alone and your sanity intact.

Til next time take care.

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