Abstract：What time frame should you choose for your trading system? The shorter the timescale, the harder it is to create a good system.
What time frame should you choose for your trading system？
The shorter the timescale, the harder it is to create a good system.
To put it another way, establishing a trading system for a 5-minute chart is more challenging than developing a system for a daily chart.
On lower timescales, there is a lot more noise.
It can be a difficult responsibility to evaluate the system over years and years of various data due to the large amount of data wanted.
Smaller timeframes usually mean lower profit and risk each trade.
It's a good idea to create a balance between the size of your trading account and the level of risk you're comfortable with.
The Trap of the New Trader
Consider the “New Trader's Trap,” as it's known:
The shorter the time range you should trade, the lower your trading account.
Trading becomes increasingly difficult when the timeframe gets narrower.
Do you see how this is a trap？
New traders often enter the trading market with minimal money in the hopes of making a quick buck.
As a result, they trade small timeframes since they believe intraday trading is the most profitable.
They start trading on a 1-minute or 5-minute chart in the hopes of picking up a few pips here and there by scalping the market.
They put themselves in a very difficult position by doing so since they are trading a very tough timeframe when they are inexperienced!
They put themselves in a position to fail quickly.
On a daily time period, developing winning trading methods is considered very simple than on a 5-minute chart.
As a result, we advise new system traders to design trading systems using daily charts.
It makes no difference if you aim to trade such timeframes in the future.
It's something you do to gain confidence and skills in creating successful systems.
You should begin with the daily chart because you are more likely to set up a profitable system there than on the 5-minute chart.
Why discourage yourself by slamming your head against a brick wall？ Gradually increase your confidence and competence level before moving on to more challenging intraday timeframes.
Should you shave your head？
Many system traders are intrigued by the concept of scalping.
It's enticing to take little, constant transactions from the market on a daily basis while risking very little.
When scalping, you're most likely trading from a short time frame, such as 5 minutes or less.
The goal is to open a position and profit by simply a few pips.
The draw is that because we trade on such a short period, your risk is low, allowing you to trade with a very small account.
Setups that provide high win rates and occur more often than setups that occur over a longer timeline, such as hourly or daily, are common.
Scalping has a higher frequency of trading chances, which can result in big compounded earnings compared to your primary account amount.
Scalping is a difficult task for a retail trader.
Almost every retail trader who attempts scalping fails.
We wouldn't recommend it if you're new to trading. Why？
When trading in these periods, you're up against HFT firms that use automated trading programs (algos) developed by a team of Ph.D. brainiacs.
It's similar to a basketball rookie struggling to play LeBron James.
The spread and slippage transaction costs are also substantial impediments.
The bid-ask spread is the difference between what a buyer will pay and what a seller will receive at a particular point in time.
Your broker buys at a lower “bid” price from you and sells at a higher “ask” price to you.
Your broker's quoted prices, or “quotes,” are the bid and ask prices.
As a proxy for transaction costs, the bid-ask spread is used.
If trades are carried out at the given prices, the quoted spread is the cost of completing a “round trip” (buy and sell) order.
Half of the spread is commonly used to calculate transaction costs for a single trade.
If you pay a 2-pip spread to enter and exit a trade and make a 4-pip profit, the spreads will take half (50%) of your gains!
Scalping implies a lower profit per trade, but your costs stay constant as you drill down to smaller and smaller time frames.
If you traded on a slower time frame, e.g a daily chart, and made a 400-pip profit, you'd pay 0.5 percent of your earnings to cover spreads, rather than 50% in the last example. That is a significant distinction!
As the negative impact of transaction costs and slippages build up a larger percentage of your profits is taken away.
When you hold a deal for several days and make an average profit of $100 per trade, a single pip of slippage is barely visible.
In a scalping strategy, though, a single pip can mean the difference between life and death.
When you factor in latency, computer problems, and internet problems, your margin for error is razor-thin.
Again, on larger periods, it doesn't matter if you leave a trade now or after a few seconds.
In the realm of scalping, still, the whole thing is hypersensitive, and your margin for mistake is very small.
Finally, if you're new to developing trading systems or don't already have profitable techniques trading live on the market, start by developing systems for larger timeframes.
