I also lay out a few of those reasons in a more light-hearted tone in my Scalp vs Swing Article which has gotten a lot of attention. I have had many traders say something like this to me: I am now using a long term strategy, trading the hourly charts. See, I think the above statement is one of the issues with Forex Traders today and why so many have a lot of trouble being profitable.
In the above chart, you see that there is a lot of bullish momentum moving toward higher highs. If we move a little bit ahead in time, you can see a bearish bounce off the resistance level. To the trader viewing only the 4HR chart, this may look like a great time to buy again in anticipation of Bullish trend continuation…. What the 4HR trader may not realize is that this is not a pullback of the 4HR trend, but rather a continuation of the Weekly trend. So to the 4HR trader, this looks like an unexpected major reversal in the market, but to a long term trader, it is an obvious and expected continuation of market flow, looking like this on the Weekly view:.
Again, so many people looking at 4HR charts think they are long term traders, but they are ignoring the real long term time frames—and that can get you into big trouble just like in this real life example… Those two bearish weekly bars you see would crush someone trying to take long positions on the 4 Hour chart, yet they are just part of the flow on the Weekly view. Now, I am not saying that you cannot trade profitably on the 4HR charts; I am saying that it is very difficult to make consistently profitable trades when you do not have a good perspective of the markets longer term movement—especially when trying to trade an intermediate time frame like the 1 or 4 hour time frames.
One major note about this strategy is that you must be disciplined if you want to succeed. One of the biggest mistakes that unprofitable traders make is over-trading and over-managing their trades. As human beings, we have the desire for action and involvement which tends to cause us to always want to have a trade open or always want to manipulate the trades we do have open, and I can promise you that this will only lead to less and less profitability.
Looks for trends on these longer term charts that have good momentum in the respected direction. Identify the direction of the trend bear or bull and make a note to only look for entries in the direction of that trend for instance, if it is a bullish trend, look for buys.
In other words, the criteria has lined up for you to make a trade, now all you need is the signal to confirm your forecast. For this strategy, the signal is a momentum daily bar in the direction of our long term trend.
An ideal daily signal candle will have a tail that has tested pierced through the Fib level, but then reversed back into the direction of the trend:. Place your stop and target. Trading is all about Math—a good strategy has winners and losers, but at the end of the year, the winners out-weigh the loser.
They will in the strategy if you follow it with discipline! Hope you guys enjoyed learning one of my favorite long term strategies. Please leave a comment with any feedback. The trade shown, in my opinion, was not a solid trade. If you wait for the full bodied decision candle going in the direction of the trend bearish here after piercing a major fib level you would not have entered until the 50 fib was pierced.
That may have prevented you a loss on entering on any trend following candle with no substantial body decision by the market. Thank you for the information, they are helpful and exciting. I think the reason most people try to scalp is they are taught to be scared of the market by teachers that are trading failures…I agree with Nathan, the trader that is here for the long term is a swing trader…..
I trade this way but often have to close a trade due to the overnight swaps. What broker do you use? I am looking for a broker with competitive swap rates, I know some pairs have a positive value but I cant consider that when looking at the longer trends. It is my favourite strategy.
My problem is I lack the necessary patience it needs to be profitable. They will, in the strategy, if you follow it with discipline! I am definitely going back to this strategy in Excellent strategy, I have been looking for a good simple long term strategy,this will free up my time and still allow me to be involved in trading. But the main think is: But makes much more sense betting higher time frame than lower, because of volatilty and more clear trend.
If I would know something about the future I can bet on it, otherwise makes no sense You give me hope. Here is my question: Nathan you are simply a God send. I v been struggling so much with my strategy and have lost quite a bundle but this gives me hope. I am based in Nairobi Kenya and I want in on anything you can teach me just throw it my way coz am willing to learn. Hey Mike, glad you enjoyed the article!
Thanks for sharing your strategy, Nathan. It is simple and you explained it very well. It does demonstate that a simple strategy can be very effective and it highlights the importance of patience and money management.
One of my major challenges in trading is patience and that can be very costly. I feel a strong urge to trade every time that I switch on my charts and I know that I am not alone. I am gradually getting comfortable with trading longer term strategies and your reasoning and logic for favouring those give strong evidence that longer term strategies are the way to go.
Thanks Olu, I appreciate you taking the time to read and leave a comment, and am really glad that the article may be of use to you! Hey Roy, thanks for reading and leaving a valuable comment! Yes, I do agree that understanding your personality is a big part of trading. To me, it is amazing that anyone can be profitable on smaller time frames because the room for error is so minute, but that is certainly very impressive on your behalf!
Thanks Shivam, those are very kind words and I really appreciate you taking the time to read and leave a comment. Glad you enjoyed the article! Thanks for reading Sean! I appreciate you taking the time to leave a comment as well. I am very glad that you enjoyed the article! Hey Anthony, thanks for reading and thanks for the comment! To determine the trend, I usually take a look at the weekly chart and take into account a year or so..
Hey David, thanks very much for reading and leaving a comment. I appreciate the compliment and look forward to a lot more good stuff next year! Thanks so much for taking the time to read and even trying the strategy; be sure to let me know how you do using this strategy!
Hey Gil, that is great! Glad to hear you are having success using the fibs—they can definitely be a great tool if you use them the right way! Thanks so much for reading my article and leaving a comment, I very much appreciate it! Hey Dave, Yeah I agree with you on that. Thanks for the comment, I think you are right on with the issue of ignoring the big picture!
Hey Tony, thanks for reading. I appreciate you taking time out of your day to read my article and leave a comment as well. Using a long term strategy, like this one, takes a lot of patience but it can be very profitable if you stay disciplined. I am glad this article may serve as a useful piece of information for you.
Feel free to re-post here later on and let us know how your strategy is going using these longer time frames. Thanks Louis, I appreciate you taking the time to read and also leaving a comment. Let me know how you do using this strategy!
Hey Joe, thanks for the great comment, I really appreciate you putting the time and effort into adding value to this post with a great, informative comment. I would love to learn more about your strategy, Perhaps you could write out a nice explanation of it like I did in this article and we could post it on the blog as a guest post by you.
I am sure our readers would love to get your perspective! Hi Nathan, I agree with longer time frames and specifically days not hours, minutes or weeks. I my self only trade off day charts, and these are my reasons. The broker is acting against you — he loses if you win, and he wins if you lose. This is in the fine print of all new accounts. A dealing desk will give lower spreads but will actively make you lose.
Candles were always meant to be on days — from the earliest time in Japan this is how they started. Days means you can plan trades at ease. If you are interested, I just look for trends and jump on. When the MAs are both rising, and the 8 is above the 12, I put a long entry just above the most recent high.
I raise the stop to below a candle that suggests the trend may have ended eg a pin bar against my trade. Will advise outcome down the road. Thanks for the information, I plan to start the new year with longer time frames and I was going to use 4 hour charts. But now I will look at weekly and daily charts more.
Always thought 4hours was long term. My problem with long term as you presented is the fact that stops and loses are usually greater too. This makes a lot of sense. It is entirely too easy to look only at a single time frame and ignore the larger picture. Very good article, Nathan!More...