Trading Daily Timeframe

Daily charts may not be the time frame for you if you are looking for fast market price action.

You have to wait until the end of the trading session to make your trading decision on whether you have a setup or not.  This could be hard for Forex traders as that market trades much differently than the stock market/futures with a clear start and end time.

You won’t have as many trading setups on the daily timeframe as you would on an intraday time frame such as 5 minute or 15 minute charts.

But here is the thing…..

Many traders want to jump into the fast world of day trading before they can make a success at trading a daily chart.

It’s not a smart thing to do for most people.

 

Daily Timeframe – Why A Casino Would Hate It

I used to love trading on the lower time frames as I believed that the more trading opportunities, the more money I’d make.

Beside not paying attention to transaction costs, I realized I was always excited about the next play.

Just like being at the casino.

It felt great having a winning trade and sometimes felt that the next trade would be a winner.  I ignored the “Power of Quitting” and was excited about how quickly I could win.

But the losses were real so I would keep plugging away thinking “here comes the winner”.

Just like a gambler.

Big Mistake.

daily time frame vs day trading

Enter the daily chart.

Using the same trading strategy, the opportunities to trade were less and was a test of my patience.  In time, I learned that not every day will produce a trade.  The “instant gratification” of a few quick wins no longer existed.

No longer was I picking up a few coins here and there.  I began to work less for better results and was losing that casino mentality.

I was better for it.

The 15 minute time frame would have quite a few setups for most trading strategies.  Looking at the daily chart, we can see a simple pullback pattern trade setup and trigger long.

Less trade opportunities but the price action is very clear.

 

4 Best Things About Trading The Daily Time Frame

I can only speak from my experience about what the best things about Daily chart trading are but am sure you too will find them enticing.

More Time – Less Pressure

Instead of watching every single price movement, I can come in the later half of the day and look at the daily charts to see if my setup is clear.  Getting a clear picture of the market gives me time to objectively see my setup or not.

I am not doing this every 5 minutes as I would with day trading.  I do it once per day and can quickly scan through the charts to find a setup.  I am not “on the clock” to get my orders is as quick as possible before price takes off.

The urge to jump in on a fast moving market as seen on smaller time frames, is not a problem on the daily chart.  It takes a full session before the candle closes and unless I am using limit orders, I only need to think about the closing price and where it is on the chart.

daily chart trading

Using a basic pullback approach and standard trend lines and support/resistance zones, you will quickly know if there is a setup or not every day.  The red X are examples of days it would take you 3 seconds to see if a trade is present.

The green checkmarks would have you stopping and spending some time on the chart to ensure it meets your specific setup criteria.  You run through your list on your trading plan and enter trades according to your plan.

Less Trade Frequency – Better Odds

I don’t need to spend every waking hour staring at the screen as I know what time to look at the market for setups.  Even though I did try to stick to a day trading schedule with specific stop times, I didn’t want to miss a big move.

On the daily chart, I also find the setups lead to bigger runs.  On the smaller charts, adverse price action would violate the trade while an entry on the daily chart would still be valid.

Having a large margin for price action against the position, gives price time to work in my favor.  Yes, there were times I’d enter a daily time frame trade and see adverse action soon after entry.  Since the stops were further, I was able to manage the trade to limit the overall percentage of the accepted risk.

  • My overall win rate went up as risk was not exposed to the market as often
  • My overall return increased with less time in the market

The less trading, the less I will pay in transaction costs.  While a few dollars here and there doesn’t seem like much, it adds up over time.

Less Influenced By News and Data Releases

I remember starting to trade Forex and being lured into trade Non-Farm Payroll release.  Those fast spikes looked enticing but often times, the slippage I got made it not worth the effort.  Add to that, any lag in data or order entry would end up costing profits.

With the daily time frame trading approach, the news or even spread widening by a Forex broker has little effect on the trading position.

forex price spikes

Most Forex traders, actually any market, will generally use swing highs and lows for their stop loss location.  You can bet that many traders were taken out of their positions on these two spikes at the extreme of a trading range.

Focus On The Process

The daily time frame gives you time.

  • Time to work through your trading plan
  • Time to learn to let profits run
  • Time to pursue other streams of income

You don’t need to have a full time job before you choose to use the daily charts.

One thing I find amusing are people who say “why make trading videos or sell products when you make money trading?”

If you have time to have another stream of income, why wouldn’t you?  This is why we see a lot of people take up trading while they have another job.  They understand the concept of not putting all your eggs in one basket.

Longer term trading, be it swing trading or position trading, won’t have you reacting to every blip on the screen.  Traders who choose a longer term approach begin to harness the ability to let their profits run.  They don’t scalp out small profits while taking big losses.

There is a drawback though.  You may, depending on your stop loss approach, give back more unrealized profits as price pulls against you.  That’s the trade off.  In time, you will learn that sticking to the plan you designed, was always the best way to go.

 

Simple Daily Time Frame Trading Strategy

I want to give a simple daily time frame strategy for Forex or any other market.

Don’t be deceived by its simplicity.

You will use two trading indicators:

The trading rules are as follows for buys:

  1. Wait for price to break above the 20 period moving average
  2. 2 candle lows must plot completely above the moving average to point out a trading signal
  3. After the second lows plots, place a buy stop order at 20% ATR above the high of the highest high of the two candles
  4. Set your stop 20% ATR from below the moving average
  5. Trail your stop loss using the moving average

Let’s look at an example on the daily chart of AUDUSD:

daily chart forex trading strategy

We can see that price has broken above the 20 SMA and we need two lows above the average.

  • Upon completion of the second candle, we can see it is the second low above the average.  We place a buy stop order at 20% x 5 period average true range.
  • The initial stop loss is placed at value of the moving average – 20% x 5 period ATR
  • Trail your stop at 20% x 5 period ATR below the moving average
  • First trade exits at 146 pips from entry

You don’t see a setup to the downside but we get another valid buy setup.  Follow the same approach as you did for the first trade.

Let’s take a look at some other setups and this time we will use Bitcoin.

cryptocurrency daily chart trading

You have to accept losses in trading and the first trade is a loss when priced retraced 4.5% from entry.  No sooner had you entered and we had an immediate price reversal that hit your stop loss.

The next setup doesn’t trigger and for those that understand price action, you may have skipped this trade due to the momentum move to the downside.

We then get trades that don’t trigger due to our ATR buffer.

We finally get a long setup that triggers and is currently up 38% from your entry price.

Working Around Support and Resistance

I’m not one to want to make tweaks to avoid a loss however there is some merit in considering the structure of price.

When we begin to see price flipping around the moving average, it is the sign of a trading range.

crude oil

The first trade on the left is valid but price eventually pulls back and stops out for less than the initial risk.  That is a good thing.

Price begins to put in action that begins to range.  Marking of the highs and lows of the immediate range can help avoid being in trades that immediately reversed.  Some traders may have begun to expand the range when you see the low of the range break to the downside.  Price does head back into the range.

By doing so, price would have to travel far from the 20 period average price and that can lead to a snap back in price.  It would be a two second analysis of the chart to have you deciding to step aside from this crude oil chart and onto another instrument.

 

Summary

Using the daily chart to trade is less stressful than the fast paced day trading approach.

Coming into check the market once per day, set your orders, and check the next day allows a traders to focus on other streams of income.

Understand that in some markets, using the moving average as your stop loss location can be a little rich for your account size.  Ensure you trade markets where you can afford the risk.  For many people , that would be the Forex market due to the flexibility in position sizing.

daily chart trading strategy guide

 

 

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