My preferred method of trading is swing trading not only currencies, but commodities, holding some actual stocks and also trade CFD. The setups that I include in my weekly trading setups are swing trading setups off of the daily chart.
The question I have been getting is why I prefer daily charts.
First off, I will look at lower time frames – usually four hour charts for currencies and no lower than 30 minutes for other instruments. I believe that there is quite a bit of random movement in price action and by random, I don’t mean the traditional definition of random.
What I mean by random is that for most price movement we see, there are a multitude of reasons people buy and sell. What may look like a “no-brainer” buying opportunity, others will be selling.
Some will be selling to exit longs…some will be selling to enter a position. Some are hedging positions.
The point is, I don’t believe every blip on the chart is relevant and in that case, lower time frames will contain more “non-relevant” blips.
Sure, YOU may be buying to buy but when you take every person buying and selling and lump them in a pile, on the whole, randomness can result.
Daily charts have a little more relevance
Daily charts having price at areas where there is a probability of further action, I feel is more relevant than a 5 minute chart.
The issue many have with daily charts is that in can take a long time to have any sort of movement worth trading. In fact, some instruments will be untouched for months in my books.
But for the setups I post, it would take forever to explain every time frame I would look at. Too time consuming and for many traders, it would not offer much clarity without a full break down.
Let’s take a look at a daily chart of the NZDUSD
Price made a momentum move to the upside and a climax in price was not evident. Price begins the natural evolution and pulls back in a flag. For simplicity, I often lump pullbacks and ranges into one term: consolidation.
Both of those price patterns, to me, are virtually the same thing.
Pullbacks will be working off the impulse leg in some type of angled movement.
Ranges will work off the the impulse leg sideways.
Both patterns are essentially doing the same thing.
On the chart shown, you can see a pullback taking place and looking for longs, you didn’t get a trade. For some traders who feel the need to trade, this is frustrating.
Keep this in mind: if this pullback resolves to the upside from this current closing price, I have about 135 pips to the upside before we see potential resistance.
One entry. One stop. The spread costs will be minor compared to the gains.