Most traders think they should refer to the daily time frame only when they are a swing trader they hold their positions for more than a day. This is not true. Unlike what most traders think, daily time frame is not a long time frame. They think it is a long time frame because they are used to trade the very short time frames like 15min. Making some profit every now and then which is what day traders who trade the shorter time frames do, is very different from being a consistently professional trader.
Every day when the daily candlestick is closed and the new one is opened, I refer to the daily chart and check the candlesticks. I do not spend more than 30 minutes a day to analyze the market.
I check the daily time frame of over 15 currency pairs, and usually I am lucky enough to locate some good signals trade setups every week, which is more than enough. Reading the candlestick signals needs a good knowledge and experience, but if you are not that experienced and knowledgeable yet, you can simplify the work and only focus on some special signals that are the strongest.
This is what I do too. I look for the strongest signals and ignore the rest. That is why my success rate is good. Thus, you can be a day trader, but unlike the other day traders who spend several hours in front of the computer every day looking at the 5min or 15min charts, you can spend only 30 minutes on your day trading job. I do the same when the weekly and monthly candlesticks close and the new ones open. This helps me locate the trade setups on the weekly and monthly time frames too.
Candlestick and Bollinger Bands are all you need to have on your charts. And sometimes a strong candlestick signal on the daily chart indicates that the market will be bullish or bearish at least for the next a few or few days. My target order is usually limited to the next day movement. This is my style.
I know some traders disagree with me, but this method has been working for me for such a long time. The market had been bearish for several consecutive days and a downtrend is formed.
Although candlestick 1 has a bullish body, its upper shadow tells me that bears took the control at the end of the day. Therefore, if the market forms a bearish candlestick the next day candlestick 2 , then it confirms that bears will have the control and the downtrend will be continued, or at least the market will be bearish for the next day.
After that, when I see the candlestick 1 and then 2 formed on the chart, I set a sell pending order a few pips below the low price of candlestick 2. The stop loss will be around the candlestick 2 open price and the target will be the same as the stop loss size. This was the example of the signal that tells me about the next day market direction only.
So my target will be limited to next day movement and nothing more than that. Here is another example on the same screenshot below. Candlestick 1 tests the the Bollinger Middle Band on a bear market. Its upper shadow tells me that bears are still strong and will not allow bulls to take the control. However, I have to wait the for the next day candlestick to form.
If the next candlestick forms with a bearish body, it means I was right and bears still have the control and most probably the next day candlestick will also be bearish. As you see, the next day candlestick 2 closes with a strong bearish body. I set a sell pending order a few pips below the low price of the candlestick 2. The stop loss will be at the middle of the candlestick 2 body because it is a big candlestick with a big body and the target will be the same as the stop loss size.
Please look at the the below screenshot. Candlestick 1 and 2 have formed a strong signal that tells me that the market will be bearish at least for the next a few days. The reason is the candlestick 1 Bollinger Band breakout is strong, and then it is strongly confirmed by candlestick 2.
After such a strong breakout that the candlestick 1 formed, candlestick 2 with its strong bearish body tells me that bears will take the price down. So, I set a sell pending order below the low price of candlestick 2. The stop loss will be at the middle of candlestick 2 body because it is a relatively big bearish candlestick , and the target will be x3 of the stop loss size a 30 pips stop loss and 90 pips target.
Candlestick 3 has broken out of the Bollinger Lower Band strongly too, but candlestick 4 is not as strong as I want. So I ignore the signal that candlestick 3 and 4 form. However, candlestick 5 is too strong to be ignored its Bollinger Lower Band breakout, its size and its bullish body.
So I go long. The stop loss will be around the candlestick 5 open price and the target will be x3 of the stop loss. While the market is still bullish, candlestick 6 forms a strong breakout.
However, it has to be ignored for two reasons:. First, the signal that candlestick 5 has formed was TOO strong and it could still move the price up.
Second, candlestick 6 has to be confirmed by the next candlestick. Novice traders always ask what time frame is the best to trade. Most platforms support different time frames from 1min to monthly.
Even some of them support exotic time frames like 10min or 2hrs. I recommend you to read it carefully. In this article I am explaining more about my favorite time frames. My goal is to convince you to stop using the short time frames like 1min, 5min, and even 15min and 1hr, because it will result in nothing but loss.
It takes 24 hours for each of the candlesticks to form. Therefore, each candlestick is the representative of the past 24 hours movements and events.
This is a big advantage because the movements and events of the past 24 hours can have a strong impact on the movements of the next 24 hours at least. And this is a good opportunity to take positions and make some money.
Similarly, a 5min candlestick is the representative of the past 5min movements. And nobody knows what will happen during the next 5min. The patterns, support and resistance lines and levels are less reliable on the shorter time frames. Therefore, your stop loss will be triggered easier and your success rate will be lower.
With the short time frames, you have to deal with more noise and false movements. When 1hr is not reliable, what do you expect from 5min and 15min charts? Day traders have to sit at the computer and gaze at the price charts several hours every day.
They get tired and frustrated, specially when they cannot locate any trade setup, or when they lose in a trade after several hours of monitoring the charts. Sitting at the computer for several hours per day can cause physical problems too. After a while you will experience neck, shoulders and back pains. It affects your vision, and it is possible you experience headaches too.
Then it will become even harder to trade properly and make money. I turn on my PC about 20min to half an hour before the daily candlestick close or a while after that. You know that on most platforms the daily candlesticks are closed at 5pm EST. As I only look for the strong signals and I ignore the weak ones, I finish my daily job very fast.
If I locate any trade setups, I take the position, set the stop loss and target sometimes I set pending orders of course.
My daily forex trading job is done within min, and sometimes even sooner. This is what I do on the weekends to check the last weekly and daily candlesticks. I check the monthly time frame as well when the new monthly candlestick opens.
I ignore the other pairs, because many of them move similar to one or a few of the above pairs, and many of them are not reliable. It will not make more money for you. Some people think that forex is like the other businesses: If you want to make more money, you have to work harder and more.
But this is not true about forex and online trading. Working harder and spending several hours at the computer does not mean that you will make more money and you will have a higher success rate. It can even cause you to lose more. When you are experienced, knowledgeable and wise enough to pick the strongest signals from 20 pairs daily charts, why should you spend more time at the computer? I think I will forget about the daily time frame and will only trade the weekly and monthly time frames when I get older.
But I will never think about using the shorter time frames, even 4hrs. Forex trading is for making money. It is an investment opportunity. This tutorial was very useful. Now I know a bit more about candlesticks!
I came from a very lower class family in my country, i have no work or job. Kamel hi, very interesting strategy which I will be looking into over the next month. I presume you have you Bollinger Bands set at 20,2, is this correct?
Secondly, what time do you place your trades? Hi Jonathan, I use the default setting for BB. I check the charts after the daily candle close which is at 5pm EST.More...