Long before I began mentoring and coaching other traders, I was stuck in the same ‘one step forward, two steps back’ cycle of boom and bust that you are likely suffering through right now. Unfortunately, I’ve noticed that most traders never get past that point.
Most traders spend the majority of their – often short – careers trading over and over, day in and day out, over-analyzing short time frames in the market.
What’s worse, is that when these traders don’t get the returns they want, they often double-down on what’s not working; they try trading even more than the unsustainable rate they’re already at.
In today’s lesson, I’m going to share with you the three ideas that completely transformed my trading career, allowing me to move beyond the boom and bust cycle and keep my equity curve moving upwards. By the time you get to the end, I’m confident you’ll have gained some seriously actionable insight that will allow you to start transforming your trading career as well.
Trading on Higher Time Frames
I’m very fortunate that relatively early on in my career, I learned the importance of trading on higher time frames. If I hadn’t, there’s a good chance I would’ve joined countless others who simply burned themselves out, and who knows what I’d be doing now.
I literally went from being a frazzled, confused and frustrated chart watching addict, with no other hobbies, to a relaxed and much less stressed out family man, all in a matter of months, after I stopped watching lower time frame charts. To this day, I truly feel sorry for the poor trader still trying to analyze low time frames; every five to fifteen minutes is a new adrenaline-fueled trading cycle. Four times an hour, they chase noise and signals. This wouldn’t be a problem if they were successful, but as it turns out, the vast majority of them crash and burn quickly, largely due to analyzing these intra-day charts so much.
The reason I have gone so far as to write an article calling daily chart trading the ‘Holy Grail’, is multifaceted:
- Daily charts give the most important view of the market.
- Less noise and false-signals than intraday charts.
- Teach you that patience and discipline pay off in the long-run.
- Trading daily charts is less time-intensive, gives you more free time.
- Daily chart or end-of-day-trading allows you to fit trading in around any schedule.
- Less chart watching and involvement means less temptation to over-trade.
- Daily chart trading slows everything down and allows you to focus on one trade at a time, forcing you to become laser-focused rather than scatter-brained.
- Trading less often on daily charts does not mean you take on more risk per trade and does not mean you can’t make as much money per month (two common daily chart trading fallacies).
These are just some of the reasons trading higher time frames transformed my trading career, you can read more about it here.
On a side note, I do teach 4 hour and 1 hour chart trading in my course in addition to the daily charts and weekly. However, I emphasize the daily because I firmly believe they are the most important time frame to learn to trade. I consider any time frame under the 1 hour to be a complete waste of time and energy and extremely dangerous for most people to even look at.
Most beginning traders are at least somewhat attracted to the adrenaline-junky lifestyle that traders are often depicted as having in movies.
Either from movies or through the grapevine, most beginning traders have some notion that day-trading is ‘cool and will make them rich fast’. Sorry, but I have to laugh at that, because it’s just sooooo far from the truth, which nearly everyone finds out for themselves once they start trying to day trade.
Now, to be fair, you can trade this way if you want to. You can do it for about a week. Then, you’ll either be out of money or your energy levels will be so shot that you can’t possibly go on.
This dovetails nicely with my point above about trading higher time frames. Shortly after realizing I needed to focus on higher time frame charts, I also switched to what I call low-frequency trading.
As I mentioned earlier, trading higher time frames (and trading less often) means you will be less likely to over-trade and lose money.
However, that’s not where the benefits end.
Another reason I made this switch – and stuck to it – is because it meant I could afford to take bigger risks on the trades I did take. I refer to this as capital preservation, and it’s an important concept to understand. The basic premise, is that you want to preserve your trading capital for the trades that meet your trading strategy criteria and that are obvious well-formed setups. Rather than risking money on those setups you aren’t sure about.
This is how you can still make good money trading low-frequency. Think about it. If you’re entering 30 trades a month, what is your risk per trade going to be? If you’re entering 3 trades per month, you can still risk the same overall amount if you want, but you’re breaking it into 3 parts rather than 30.
When you’re trading high-frequency, you’re naturally going to suffer a higher percentage of losses. There simply are not a high number of high-probability trade setups in any given month in the markets. The lower in time frame you go and the more frequently you trade, the closer you are getting to gambling, simply because the element of randomness and false-signals / noise comes more into play.
I can afford to take on a bit more risk with each trade since I trade infrequently. For one thing, this is calculated risk – literally. I have the time to sit down, analyze the risk involved and decide whether it makes sense. I am not just entering trades ‘on the fly’ without measure or careful consideration.
If one of my riskier trades doesn’t pay off, I’m not in terrible shape because I’m not about to make a dozen more. I can sit back, regroup and focus on a higher-likelihood opportunity.
In my experience, this kind of trading is usually difficult for people because it’s so counter-intuitive. We’re taught to believe that the more we do something, the better we’re going to get at it; if you want real results, you have to put in repetitions.
This is not going to help you with trading. What will help you is putting in the time by studying your markets, learning the ropes and trading only when it makes sense.
Another reason the low-frequency, sniper or crocodile trading approach is so awesome is: Quality of life.
In my experience, people who chase the ‘white noise’ of trading are constantly stressed, full of anxiety and almost completely unable to relax.
I much prefer enjoying life in and outside of trading.
Price Action Signals and Confluence
Finally, the last change that really transformed my life as a trader was finding higher-probability trade entries based on price action trading signals from confluent levels in the market.
Let’s break those down for anyone unfamiliar with this concept:
- Price Action – This is the movement of a price over a given amount of time. If you’re able to read this, you can also ascertain the market’s directional bias. You can confidently trade based on reoccurring price patterns.
- Confluence – This is a point in the market where at least two levels intersect, or a level and a signal, forming a confluent point. The main thing to remember here is my T.L.S. principle or Trend Level Signal.
Here are some common examples of confluence that I look for:
- An upward or downward trend
- Exponential moving averages (e.g. 8 and 21-day EMAs on the daily chart)
- Static support and resistance levels
- Event areas
- 50% to 61.8% retrace levels
There are other forms of confluence as well, and I discuss this concept much more in-depth in my trading course and members’ area.
When I realized that I could boil down my technical approach to looking for a few key market conditions, it had a huge effect on my trading. No longer was I sitting there, staring at multiple indicators every day, trying desperately to make sense of their contradicting signals. When I discovered how to use price action combined with naturally-occurring chart-based confluence, the veil of confusion lifted for me.
Leveraging the Combination of Confluence and Price Action Signals
When I look at the markets, I’m searching for obvious signs of a price action pattern that has originated from a confluent point in the market.
The only reason these things are “obvious” to me, of course, is because I’ve put in the hours to learn how to spot them. Fortunately, anyone can easily learn to do the same.
Combining confluent price action signals with higher time frames and a low-frequency approach is the most succinct way to describe my trading philosophy and approach. There’s obviously more to it than what I’ve described here, and you really need to see many examples before it all truly sinks in. But, that is where my price action trading course comes in; I have distilled down everything I have learned in 15 + years as a trader, into a comprehensive training package that in my opinion and the opinion of many others, is the fastest way to learning the best way to trade.
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