Written by Dhiresh Dabasia

The perfect Timeframe?

This article will explore multi-timeframe analysis, and how it can be used to gauge market sentiment, and structure, on higher timeframes. The article will then focus on trading robots and their misselling to many novice traders by guaranteeing returns.

When entering the trading world, novices need to determine what kind of trader they want to be and which timeframes they should trade on. This depends on personal situations and how much time one has. For example, those wanting to take trading full time, may decide to day trade, i.e. looking mainly at 1 min, 5 min, 15 min and up to, and including, hourly charts. However, it is important to note, day trading requires a lot of time rummaging through charts and thus doesn’t provide much free time for traders looking for some free time, or those with other commitments.

On the other hand, traders wishing to trade part time, or by preference do not want to spend hours on end in front of charts, will be looking at 4H, daily, weekly, and monthly charts. Weekly and monthly charts are useful to determine overall sentiment and trends whereas the daily and 4H are good timeframes for entries in medium term swing trades.

Long-term position trades are taken by those with large account sizes and this type of trading focuses more on quarterly and yearly charts, where a trader looks to only take 4 or 5 trades a year.

It is important to analyze multiple timeframes as different timeframes may point to different directions. For example, looking at a 4H timeframe may indicate a rejection of the upper trend line of a descending parallel channel. However, hhe weekly chart would instead indicate a break and retest to the upside of the Ichimoku cloud which may imply a bullish move.

It is thus key to first look at higher timeframes before entering trades on smaller timeframes.

When weighing up all the time frame options, medium-term swing trading strategy seems to be best. It does not require intensive time-consuming chart research, but still provides quality medium term setups.

Trading Robots:

As mentioned earlier, many new traders may have come across trading robots advertised as guaranteed monthly percentage returns. These robots generally use day trade strategies, where if certain parameters are met a trade will be executed. These robots take trades automatically and sometimes enter more than 20 trades in a single trading day.

This system usually doesn’t pay close enough attention to risk management, as it is difficult to set efficient stop losses in day trading with so much intraday ‘noise’ in the markets. Therefore, most robots have poor risk management parameters and recommend high deposits into the trading account, often over USD 10,000 on top of the robot fee.

Traders don’t use robots as they generally don’t work and are not worth their costs. Instead, large institutions have analysts working for them that use a combination of algorithms for alerts and personal manual analysis to take trades.

In the long run, one possibility is the creation of algorithms to self send alerts, for when a certain currency hits a certain level or creates a chart pattern. This, however, is usually already readily available on most trading platforms, so all that needs to be done is the analysis and setting up personal alerts.

It is thus essential to understand how to break down a chart efficiently, as no robot will give high quality swing trade setups. This is best done manually, as all risk parameters are in your hands, and one can employ a strict set of rules before entering a trade.

We hope this article has helped you better understand the importance of multi-timeframe analysis and how trading robots work.