Daily Chart vs 1 Hour Chart – Which One Should You Trade ?

Today I’m going to explain why using one time frame is not better than using the other and also, what time frame you should trade depending on the lifestyle you currently have.

I’ve seen other forex related website’s talk about how using one time frame over the other will result in higher probability trades.

I completely disagree with this statement and will explain the reasons why this method of thinking is not only stupid, but holding you back from making profits in the market.

Lets begin, so some people seem to be of the belief that trading one time frame is better than the other.

For example, someone could say that a trade taken off the daily chart has a better chance of working out than say, a trade taken off the 1 hour chart.

What I would like to know is how they’ve come to this conclusion ?

Because all higher time frames are made up off information from the lower time frames, one candlestick on the daily chart represents a days worth of market action, if we were to go onto the 1 hour chart and mark the beginning of the trading day, we would find that 24  1 hour candlesticks would make up the one candle we see on the daily chart.

So how can one time frame be determined as better than the other when their both comprised of the same information ?

Image of daily chart EUR/USD

The blue line on the chart above indicates one candlestick on the daily chart.

Image of 1 hour chart EUR/USD

This is that same candle seen on the 1 hour chart.

All the candlesticks seen between these two lines make up the one candlestick we see on the previous image.

So if the candlestick on the daily chart is made of the 24 candlesticks we see on the second image how can one time frame be better than the other?

Their made up of the same information, what you’re seeing on the daily chart is just 24 1 hour candles combined together to make one daily candle.

What Time Frame Should I Trade ?

 

Really it comes down to preference.

Some people believe that by trading extremely low time frames they can make a lot more money than if they were to trade higher time frames –  I’m not disputing that they probably can,  given they can learn the psychological skills necessary to deal with the way the market moves on these lower time frames.

Making money using things like the 1 minute and 5 minute charts isn’t a matter of how good you are at analysis, of course you will need use things like support and resistance/candle patterns in order to identify opportunities but those things will not help you with the speed at which the market moves on these time frames.

This speed is the problem.

All the trading decisions you make will have to be done much faster than if you trading the 1 hour chart for example.

In addition to this, you will be making and losing money lots of times throughout the day, this in itself can be quite difficult to deal with, to be up £30 in one hour is a great feeling but then to be down £50 the following hour is horrible and frustrating.

I tend to stay away from trading these lower time frames for this very reason.

The level of concentration along with the mental discipline required to deal with making and losing money at such a fast pace is too great for most people me included, I need things to be slower so I can have enough time to formulate all my analysis and plan my trades in advance, due to this I stick with placing trades using the daily chart and the 1 hour chart.

 

No Free Time – Use The Daily Chart

 

The daily chart is perfect for people who would like to trade when they are not free during the day if you have a job for example, most of the strategies I layout on this site can all be used on the daily chart.

They only take a few minutes at the end of each day to set up so you can go to work or whatever, come home and see that you have made some money, there’s no better feeling than coming home after work looking at the trade you placed the night before and realizing you’ve made a weeks wages in one night.

If there is one downside to trading the daily chart it would be that it requires more money to be able to trade effectively.

A trader who does not have a job will not likely have much money to begin trading with, so if you are one of these people I suggest you shy away from placing trades based upon the daily chart. The overall risk on each trade will be too great in terms of how much money you have in your account, if you put £200.00 into a trading account it works out to you being able to place around five trades on the daily chart assuming your trading pin bars and engulfing candles.

Compare this with trading off the 1 hour chart which, with the same £200.00  works out to you being able to place around 20 trades.

If you work full-time and you’re a beginner trader then trading using the daily chart is fine because if you do happen to lose during the learning period, you’ll be able to recover the loss using a small bit of the money you make from work.

Compare that with someone who doesn’t have a full-time job and is free for most of the day but does not have much money to invest in the markets then you can see where the advantage lies.

Lots Of Free Time – Use The 1 Hour Chart

 

If you do happen to be lucky enough to be free during the day then I suggest you trade using the 1 hour chart.

The 1 hour chart offers flexibility in terms of what you want to do, the market moves slow enough for you to be able to analyses the chart for trading opportunities and also generates enough trades so you have lots of decent chances of making money.

Also, the size of the stop-loss will be much lower than if you were trading the daily chart.

Because the daily chart contains a days worth of information, when you place a trade the distance of the stop-loss from your entry is larger, meaning you have to put more money at risk, on the other hand due to the 1 hour chart containing only an hour’s worth of information the stop distance is smaller, allowing you to risk less money which is great for people who have small accounts.

Combining The Daily Chart And The 1 Hour Chart

 

If you like, you could use the daily chart and the 1 hour chart together, that way your placing longer term trades which you can make more money with and short-term trades which will make up for any losses you might take.

This is the strategy I’ve been using for a while now and so far the results have been pretty good.

Check this out.

Aviary Photo_130919011005853059

On the daily chart above you can see my first trade was taken just before the market started moving higher, unfortunately this was the only pin bar signal that appeared in the market during this up move on the daily chart.

So after I had this trade placed I switched to the 4 hour chart to see if I could find any more pins to trade.

(I usually use the 1 hour chart for this but MT4 was messing me about and showing a big gap in the market so I had to use the 4 hour to see the pins)

Aviary Photo_130919012595756716

The three ticks on the chart show the additional trades I took after trading the pin on the daily chart.

All of these trades were successful minus one which I ended up losing money on. The first two trades I closed around the same time I exited the daily pin trade, however the other one I continued to hold until the market hit the 109.00 level.

These trades made me pretty significant amounts of money, this just goes to show the potential of combining two time frames together.

If you listen to the gurus online who propose that you should only trade one time frame this opportunity would be missed by you. There was only one pin bar signal on the daily chart yet there were an additional three found on the 4 hour chart! I almost made more money off the last pin bar signal than I made off the first one on the daily chart.

Why limit yourself to you one method of thinking, you need to open your mind to all the opportunities available if your going to make it big trading forex online, combining multiple methods of analysis is the quickest way to generate large amounts of trading capital.

 

 

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3 comments

  1. Thank you for opening my eyes.I think this is the first time a mentor is telling me to locate a pin bar in the Daily chart then drop down to the 4hr chart to locate further pin bars to take a trade to make profit.
    Thank you for this set up sir.Pls,i want to subscribe to your newsletter to learn more.I am tired of buying online indicators that brings loses and useless software that does not work in the African context.They are designed to fail always because of market volatility.
    Thanks,
    Tony Uyeh

  2. Becks

    Thank you for this article, a real eye opener. I work full time and everyone told me daily time frame i should trade. However, in the morning and evenings i can still look at the charts, 1H or 4H and actually take trades from there, i am at GMT+2 time zone.
    If i enter or see a set up on daily but enter on 1H, which time frame should i manage my trade, such as trailing my stop?

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