I Trade the Daily Chart, but I Am a Day Trader

Most traders think they should refer to the daily time frame only when they are swing traders (they hold their positions for more than a day). This is not true. Daily candlestick shows us the direction of the market AT LEAST for the next trading day and this is very important for the day traders, also known as intraday traders.

Unlike what most traders think, daily time frame is not a long time frame. They think it is a long time frame because they are used to trade the very short time frames like 15min. Unfortunately making money through these short time frames on such a volatile and liquid market (Forex) that is also noisy most of the time, is very hard, if I don’t say it is impossible. Making some profit every now and then which is what day traders who trade the shorter time frames do, is very different from being a consistently professional trader.

This Is How I Trade the Daily Time Frame:

Every day when the daily candlestick is closed and the new one is opened, I refer to the daily chart and check the candlesticks. Sometimes I can find a strong trade setup that shows the direction of the market during the next day. I take my position (set a pending order sometimes), set the stop loss and target and I come back the next day. I do not spend more than 30 minutes a day to analyze the market. I check the daily time frame of 19 currency pairs, and usually I am lucky enough to locate some good signals (trade setups) every week, which is more than enough. Of course sometimes I check my positions a few times per day, but it doesn’t take me more than few minutes to do that.

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Reading the candlestick signals needs some good knowledge and experience, but if you are not that experienced and knowledgeable yet, you can simplify the work and only focus on some special signals that are the strongest. This is what I do too. I look for the strongest signals and ignore the rest. That is why my success rate is good.

Thus, you can be a day trader, but unlike the other day traders who spend several hours in front of the computer every day looking at the 5min or 15min charts, you can spend only 30 minutes on your day trading journey.

I do the same when the weekly and monthly candlesticks close and the new ones open. This helps me locate the trade setups on the weekly and monthly time frames too. Therefore, even if you don’t have 30 minutes per day to check the daily time frame, you can still find a reasonable number of trade setups on the weekly and monthly time frames.

Candlestick and Bollinger Bands are all you need to have on your charts. Sometimes just a candlestick can tell you what direction the market will take “at least” for the next day (if not for the next several days). And sometimes a strong candlestick signal on the daily chart indicates that the market will be bullish or bearish at least for the next a few or few days.

My target order is usually limited to the next day movement. This is my style. I know some traders disagree with me, but this method has been working for me for such a long time. In some cases, I set a bigger target, but this doesn’t happen every day, because I need a very strong signal for it.

For example, on the below chart, the candlestick #2 tells me that most probably the market will be bearish during the next day too. Why?

The market had been bearish for several consecutive days and a downtrend is formed. Although candlestick #1 has a bullish body, its upper shadow tells me that bears took the control at the end of the day. Therefore, if the market forms a bearish candlestick the next day (candlestick #2), then it confirms that bears will have the control and the downtrend will be continued, or at least the market will be bearish for the next day. After that, when I see the candlestick #1 and then #2 formed on the chart, I set a sell pending order a few pips below the low price of candlestick #2. The stop loss will be around the candlestick #2 open price and the target will be the same as the stop loss size. That is all.

This was the example of the signal that tells me about the next day’s market direction only. So my target will be limited to next day movement and nothing more than that.

Short Trade Setup Formed by the Daily Candlestick

Here is another example on the same screenshot (below). Candlestick #1 tests the the Bollinger Middle Band on a bear market. Its upper shadow tells me that bears are still strong and will not allow bulls to take the control. However, I have to wait the for the next day candlestick to form. If the next candlestick forms with a bearish body, it means I was right and bears still have the control and most probably the next day candlestick will also be bearish.

As you see, the next day candlestick (#2) closes with a strong bearish body. I set a sell pending order a few pips below the low price of the candlestick #2. The stop loss will be at the middle of the candlestick #2 body (because it is a big candlestick with a big body) and the target will be the same as the stop loss size. As you see, although bulls resist for several days, but it finally goes down and hits the target.

Short Trade Setup below the Middle Band

Now let me show you two STRONG setups and one false signal at the same time.

Please look at the the below screenshot. Candlestick #1 and #2 have formed a strong signal that tells me that the market will be bearish at least for the next a few days. The reason is that candlestick #1 Bollinger Band breakout is strong, and then it is strongly confirmed by candlestick #2. After such a strong breakout that candlestick #1 formed, candlestick #2 with its strong bearish body tells me that bears will take the price down. So, I set a sell pending order below the low price of candlestick #2. The stop loss will be at the middle of candlestick #2 body (because it is a relatively big bearish candlestick), and the target will be x3 of the stop loss size (a 30 pips stop loss and 90 pips target).

Candlestick #3 has broken out of the Bollinger Lower Band strongly too, but candlestick #4 is not as strong as I want. So I ignore the signal that candlestick #3 and #4 form. However, candlestick #5 is too strong to be ignored (its Bollinger Lower Band breakout, its size and its bullish body). So I go long. The stop loss will be around the candlestick #5 open price and the target will be x3 of the stop loss.

While the market is still bullish, candlestick #6 forms a strong breakout. However, it has to be ignored for two reasons:

First, the signal that candlestick #5 has formed was TOO strong and it could still move the price up. Second, candlestick #6 has to be confirmed by the next candlestick.

The next candlestick (#7) did not confirm candlestick #6 breakout and its bearish signal.

True and False Signals

Why Do I Love the Daily Chart?

Novice traders always ask what time frame is the best to trade. Most platforms support different time frames from 1min to monthly. Even some of them support exotic time frames like 10min or 2hrs. My goal is to convince you to stop using the short time frames like 1min, 5min, and even 15min and 1hr, because it will result in nothing but loss.

I love the daily time frame for some important reasons:

1. It takes 24 hours for each of the candlesticks to form. Therefore, each candlestick is the representative of the past 24 hours movements and events. This is a big advantage because the movements and events of the past 24 hours can have a strong impact on the movements of the next 24 hours at least. And this is a good opportunity to take positions and make some money.

Similarly, a 5min candlestick is the representative of the past 5min movements. And nobody knows what will happen during the next 5min. The patterns, support and resistance lines and levels are less reliable on the shorter time frames. Therefore, your stop loss will be triggered easier and your success rate will be lower.

With the short time frames, you have to deal with more noise and false movements. Few years ago, even one hour time frame was strong and reliable enough to trade, but now it is not reliable anymore, because Forex market has changed a lot and the volume of the transactions is increased dramatically. When 1hr is not reliable, what do you expect from 5min and 15min charts?

2. When I trade the daily chart, I do not have to sit at the computer several hours per day.

Day traders have to sit at the computer and gaze at the price charts several hours every day. They get tired and frustrated, especially when they cannot locate any trade setup, or when they lose in a trade after several hours of monitoring the charts.

Sitting at the computer for several hours per day can cause physical problems too. After a while you will experience neck, shoulders and back pains. It affects your vision, and it is possible you experience headaches too. Then it will become even harder to trade properly and make money.

I turn on my PC about 20min to half an hour before the daily candlestick close or a while after that. You know that on most platforms the daily candlesticks are closed at 5pm EST. I spend about 15-30min to check the daily charts of 19 currency pairs and gold. As I only look for the strong signals and I ignore the weak ones, I finish my daily job very fast. If I locate any trade setups, I take the position, set the stop loss and target (sometimes I set pending orders of course). That is all. My daily Forex trading job is done within 15-30min, and sometimes even sooner.

This is what I do on the weekends to check the last weekly and daily candlesticks. I check the monthly time frame as well when the new monthly candlestick opens.

These are the pairs that I follow:


I ignore the other pairs, because many of them move similar to one or a few of the above pairs, and many of them are not reliable. I think 19 pairs and gold are more than enough, and you really don’t have to check more pairs. It will not make more money for you.

Some people think that Forex is like the other businesses: If you want to make more money, you have to work harder and more.

But this is not true about Forex and online trading. Working harder and spending several hours at the computer doesn’t equal making more money and having a higher success rate. It can even cause you to lose more. When you are experienced, knowledgeable and wise enough to pick the strongest signals from the daily charts, why should you spend more time at the computer?

I think I will forget about the daily time frame and will only trade the weekly and monthly time frames when I get older. But I will never think about using the shorter time frames, even 4hrs. Forex trading is for making money. It is not for keeping us busy, because it is not a “business”. It is an investment opportunity.

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By The LuckScout Team

I don't believe in luck. I believe in sweat. The more you sweat, the luckier you get.

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