Intra-day trading systems attract a lot of attention. Many traders believe that trading can only be done properly or profitably on lower time frames by trading short-term.
One of the disadvantages of short-term trading is that it requires time and focus, which is why not everyone can trade in this way.
In my view, the good news is that long-term trading offers an interesting alternative that is suitable for a wider group of traders, even if you are having a full-time job or other part-time or full-time commitments.
This article tackles some of the ideas and myths that surround long-term trading and explains how most can benefit from analysing higher time frame charts.
Is It Possible to Trade with Long-Term Charts?
Many traders believe that daily, weekly, and monthly charts are only valuable for conducting analysis. These time frames are used as directional charts for spotting momentum and trends, but not for potential entries and exits.
These higher time frame charts, however, can also be used for trading purposes. For instance, candlestick patterns on a daily chart are probably more useful than candle patterns on lower time frames.
In my experience, trends and chart patterns also tend to behave less erratic on higher time frames. Plus, spotting wave patterns and understanding the larger market structure are also easier in my view.
Is There Less Price Movement on Higher Time Frames?
This is indeed true: lower time frames show more volatility because the price moves up and down during any given trading day. The daily average true range for fast-moving currency pairs or financial instruments could be hundreds of pips in some cases.
Of course, traders will not be able to capitalise on these smaller swings as much on daily, weekly, or monthly charts, but there is a positive side connected to it. Lower time frames are more difficult and require more experience to trade exactly because price moves quicker up and down.
Even if your goal is to become an intra-day trader or scalper (very short-term trading), it typically never hurts to start off with higher time frames first to understand all the dynamics of trading from technical analysis to trading psychology.
Do Long-Term Charts Offer Fewer Setups?
Yes, there are typically less trade setups available on higher time frames than lower time frames. The good news is that higher time frames often provide less false breakouts and offer sturdy price action and trends.
The long-term setups also tend to develop slower and more deliberately. This is in fact another advantage for higher time frames because it creates less stress and fear when trading. Traders can take their time to carefully evaluate all of the angles and plan their next step with care.
Isn’t Investing Better Than Long-Term Trading?
First of all, each person needs to decide how to allocate their own assets and funds. If in doubt, talking to financial experts could be a good first step when constructing a portfolio.
I do want to mention, without going into every single pro and con, that there are important advantages of long-term trading when compared to buy-and-hold strategies.
The key benefit is that long-term traders can use charts and technical analysis to time and plan entry and exit points. Their ability to read long-term charts will allow them to spot more precise entries and exits. This in turn should give them a better chance of closing trades in profit within a shorter amount of time.
“What goes up must come down” is a famous saying that refers to objects which return to back earth due to gravity. Financial instruments and assets at times seem to adhere to the same laws of gravity: eventually, the price retraces back lower or, in extreme cases, the asset bubble bursts.
Long-term traders are in my view better prepared for the many ups and downs that prices makes. They should be:
- aware that the price will not move up forever;
- more prepared for any changes in the asset price;
- alert and ready to execute their trading plan;
- aware that letting winners run and cutting losses shorts is critical for trading success;
- ready that (temporary) trends and momentum help out their trades;
- able to benefit from both up and down price movements.
In general, long-term traders often become more adaptable and quicker on their feet. They can capitalise on shorter price movements, which could take place in weeks or months rather than years or decades. This reduces their risk exposure to open and lengthy trades that investors often face.
Is Long-term Trading the Way to Go?
There is no answer that fits everyone. Each trader needs to analyse what is best for their own style and personality.
The main point of the article is that trading is not only possible for short-term traders but for long-term traders as well. This allows people with full-time jobs or other commitments to benefit from trading.
They can monitor their trades by looking at the daily charts and candles at the end of the week or even review the weekly charts and candles at the end of the week. This opens up a door to trading and technical analysis for a lot more people than just intra-day traders.
In my opinion, chart and technical analysis is certainly a skill well worth learning and developing. Find more information in our analytics and educational sections.
Wishing you a happy week of trading, Chris Svorcik
