Selecting the right trading time frame depends mostly on the trader’s personality and ambitions. For most day traders, lower term time frames are their favorites as it gives them the opportunity to perform dozens of trades from the opening bell to the closing bell.
What are Short Time Frames?
Almost all stockbrokers have similar time frames. The lower time frames range from 4 hours to 30 seconds. This includes;
- 30 seconds
- 1 minute
- 5 minutes
- 15 minutes
- 30 minutes
- 1 hour and
- 4-hour time frames.
In as much as lower time frame trading is a quick way to make money in forex and CFDs trades, it has its own setbacks and it is a strategy that sucks to most traders.
Why does Lower Time Trading Suck?
Despite being a gold mine for day traders, short time frames come with its own disadvantages. Let’s have a look at these dreaded disadvantages;
Carries High Risks
Forex markets can be very volatile and unpredictable, without proper discipline and strategy; traders can end losing a great deal of their investment.
The markets are affected by different factors being released every second in different parts of the world. A single minute can be a determining moment between a red or a green outcome.
Another risk with lower time frame trades is that; traders get very tempted to carry out too many trades hence overtrading. Overtrading can lead to heavy losses as a trader may start revenge trading, where they hope to recover lost investments only to end losing more.
This calls for a lot of patience and research in order to spot the best opportunities. There goes a famous saying by Zweig (2006) which states that “…traders are advised to buy stocks as they buy their groceries not perfume, only choose the best opportunities and leave emotions and label attractions”
Has a lot of Pressure
Lower time frames require traders to enter and exit trades many times in a day. This is because the traders mainly depend on momentarily flow of action in the markets. A minor change in the market volume can rock the whole boat. A good example is a security issue in the United States can cause the US Dollar to fall within minutes. These minor fluctuations are not felt in long term trades.
This can be a significant source of stress which when coupled up with losses from a bad day may lead to frustration and even depression.
It is Time Consuming.
Since lower time frames expire real fast, it requires one to keep a keen eye on the market movements. This is the only sure way to beat failure in short term trading.
You have to be very keen to cease the right time to get into the market and the right time to exit. Calls and Puts are separated by small margin pips; hence concentration is the key to success.
It has Low Returns.
This point might be open to controversy but; compared to high time frame trade of the same value investment, lower time trades have lower returns.
For this reason, traders are forced to make many trades a day in order to make a similar profit as a long term trader. However, the same applies to losses.
It is Expensive
With lower time frames, comes extra analysis and research. You will have to keep your eyes on several markets at the same time waiting for that opportune moment to place that order. This comes at a cost as you will require more computer software and extra hardware. Acquiring these assets, especially the software, come at a hefty price.
Since you will be making several trades in a day, you will definitely suffer more taxes and commissions from your broker compared to long time frames traders. This comes as a disadvantage to your hard earned money.
From the points above, it is evident why most traders find lower time frame trading a pain in the neck.
