August 4, 2015

Which Time Frames Are Best?

This is a common question. And there are several ways to answer this.

Don’t fear missing signals

1. No one is switching off the market. There will be other signals

2. Some signals occur at night – that’s fine, there will be others. Even I sleep!

Time frame and Profits

The relationship between time-frames and profits is shown in the image below. Basically, the shorter the time frame, the more signals, but smaller the average profit per trade. So you DO NOT have to be a Day Trader to profit. You can have a Day Job.

When I launched my hedge fund, actually, when I left my career as a lawyer, I wanted to earn money (lots of it) from trading. To do that, I needed to calculate exactly how much money I could make. I did hours and hours of analysis. I want to share it, exclusively, with the only people outside my firm – you – the users of my system.

Profit = Number of trades x Pips Captured x Position Size per Pip

Position size is based on the stop loss, which should be 1% x total trading capital eg if your total trading capital is £10,000 or $10,000, then the stop loss is 1% ie £/$100. (Let’s keep it in £ for now); so you should only lose 1% of your total trading capital if your stop loss is hit.

So if you would typically lose 10 pips before your stop loss is hit, then each pip would be £10 (because £10 x 10 pips = £100 = 1% of total capital risked). This is the essence of every successful hedge fund, trading outfit in the world.

 

Time Frame Number of Trades in a month Net Pips Captured in a Month[A] Win/Loss Typical Max Loss (pips)[B] Position size based on 1% of total capital risked (per pip)[C] Potential Profit per Month[A]x[C] Type of Trader
M1 1,800 180 55-45 10 10 £1,880 Day trader
M5 600 360 65-35 10 10 £3,600 Day trader
M15 75 1275 65-35 33 3 £3,825 Day trader
M30 75 1275 70-30 33 3 £3,825 Day trader
H1 25 2,250 70-30 50 2 £4,500 Day jobber
H4 12 2,400 70-30 100 1 £2,400 Day jobber

 

Why would we pick H1 and H4? We may be long on one time frame, and short on the other, so we are hedged and over the course of both trades making profit on both. It is also why we would trade H4 at all, given H1 exists.

Why do we pick M30 over M15? Because our win/loss ratio is better, even though our overall profit is the same.

Why would we trade M1, given M5 exists? We wouldn’t really.

It’s this level of detail which turns trading into a business. If you are serious about trading this is what you need to know.

Below is an image which shows the best times from data by FXCM (it is not PipsPredator users) (ie when the markets are less volatile, and so trends smoother).

whichbesttimeframe

Are their time-frames suited to a beginner?

I would say the best time frames are H1 and H4. You see that way you have enough signals to get trained and make profits, but not so many that you are overwhelmed.

Am I at a disadvantage if I am not a day trader

The table above shows that you are not and H1 and H4 is perfectly profitable.