Are Short Timeframes Too Risky For Beginners? | Articles-Business-Management

I have been watching those videos on your website and the more I watch them, the more sense they make. They are great, but as you may have guessed I have questions.

Firstly, your style of trading would have to be deemed as "scalping". I mean using the hourly chart to find S/R levels then picking your trades on the 1/5 minute charts is scalping surely. However most authors, experts, or whatever they call themselves do not advise this and warn especially against learner traders trying the faster time frames.

Do you think your style may be a little to risky for novice traders?

Thanks from Brian.

Answer:

Hi Brian,

I don't consider myself a scalper at all (despite calling one of my setups a 'scalp' trade). Just because it's a short timeframe does not mean it's scalping. Scalping typically refers to methods making up to hundreds of trades a day, profiting from the bid/ask spread, or similar small profit/small loss trades, in and out quickly, in order to profit as price changes from wholesale to retail levels.

I consider my methods more like swing trading, entering at support or resistance and targeting the next support or resistance areas. Essentially, trying to profit from the swings of the market. It just happens on a smaller timeframe.

In no way do I ever suggest that this is the best way or the right way of trading for all people. Everyone's different and needs to find their own trading niche. To suggest that my style of trading is best would be wrong. Similarly though, to suggest that longer timeframes are best, is also wrong. There's no best timeframe or trading style - just what works for you.

Is my style too risky for novice traders? All trading, regardless of timeframe and strategy, involves risk of loss of funds. Serious, account destroying risk, comes from failure to appreciate the risk in the markets, and failure to implement appropriate risk management strategies. It's just as possible to completely blow out an account in one trade, while momentum trading based off daily charts, through excessive use of leverage and failure to apply stops, as it is to blow out an account while trading one min charts.

So, is it riskier? No. Does it happen faster? Yes. If your strategy is flawed, you'll find it out faster by doing 5 trades a day, than if you did 5 a month.

A key thing to remember, is that as a newcomer to the markets, you're strategy IS likely to be flawed. Or if you do happen to have a valid strategy, then your implementation of it is more likely be flawed. So, yes, you may destroy your account quicker through lower timeframes, than if you used longer timeframes. On the other hand, you'll learn faster. Real learning occurs through repetition, making mistakes, identifying them and devising strategies to improve in future. This learning process therefore occurs faster in the lower timeframes, simply due to the fact that you'll experience more trades on a 5 min chart than you will on a weekly chart. The rate of learning is directly related to the rate of exposure to trades and trade setups.

Summary - Every timeframe is dangerous if risk is not appropriately managed. Once risk is managed to minimize the likelihood of loss of your account, the rate of learning is directly related to the rate of exposure to trades.

Rapid exposure to setups is a natural occurrence on short timeframe charts, which is my preferred method of trading. Of course, it can also be achieved for longer timeframes, simply through trading a market that offers a wider universe of tradable instruments (eg. scanning the whole stock market for stocks matching your setup). Which way you choose to go is your call.

Oh, and regardless of timeframe and strategy, you shouldn't be trading live until having proven success on a demo/simulation platform.

As always, these are just my thoughts, and in now way any recommendation for an appropriate strategy or timeframe suited to your needs (standard financial disclaimer!!!)

Cheers,

Lance Beggs

Added 18 Apr 09:

Follow-up to Article - Are Short Timeframes Too Risky For Beginners?

In communicating via email with a couple of newsletter readers over the last week, I realized there was a very important point missing from the previous article.

One of the main problems with beginner traders on the shorter timeframes is a tendency to take too many setups. You can find dozens of them every day without too much effort. The key is to be patient and wait for the quality setups that perfectly meet your trading plan criteria.

It takes time and experience in the markets to learn to do this. Experience allows you to internalize the nature of movement of price such that you can then intuitively feel the higher probability setups, and (hopefully) avoid some of the losers.

So, certainly, in this respect the short timeframes could be considered more difficult. As discussed in the original article though, all timeframes are risky if the risk is not respected. Successful short timeframe trading requires combining this patience and intuitive selection of trade setups with money management and risk management to protect yourself from risk of ruin.

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