Falling Out of Love With Short-Term Charts

June 6th, 2018

As far back as I can remember, I always wanted to be a daytrader.

Long-term charts were for schmucks.

Long-term charts were for my grandparents’ IRA or for traders who wanted to take a few trades a year so they could pocket a few pennies.

Real traders didn’t look at Daily charts. Real traders rolled up their sleeves and did work every day.

That’s what trading is all about and that’s the only way to trade-for-a-living (and make the big bucks).

So that’s where my focus was and that’s where I spent all my time: analyzing, testing, and sweating the short term charts.

I started with the 1-minute charts and then spent some time on tick charts. You can always find trades in those arenas.

And I made some money. A nice chunk of money, in fact.

But in the middle of my win streak I learned something: things can change pretty fast on those short-term charts.

After three months of quick wins, I got into a nasty drawdown. After all, who needs stoplosses when you win all the time?

I ended up getting lucky on that horrible trade, somehow escaping trouble and making a nice profit.

But I was shook. We were one or two more big moves down away from losing our entire account.

When I looked back on the 1-minute charts, I found several other times when my system would’ve lost our entire account (using the aggressive betting level we were using). It turns out we’d been living on borrowed time.

In short, the 1-minute and tick charts are just too volatile. Moves that happen on those charts are filled with fake-outs, meaningless noise, and manipulation. I had to let them go.

But traders need to trade, so I found the next best thing: 15-minute charts.

Fifteen-minute charts are sublime. The moves are more solid and you don’t have to stare intently at the screen for hours at time, living and dying with each tick.

I’d found a home.

Over the next few years, I spend about 2,500 hours testing daytrading strategies on 15-minute charts. Finding a viable, consistent strategy was a lot harder than I had anticipated.

But, finally, I think I got there. I found a strategy (the Hornet) that stayed consistent through the years (according to my research) and I even made a 100% return in one year trading this strategy with a robot.

I was home.

Then I built on all that research and developed a similar robot on the 15-minute charts (the Heron). That strategy had the backbone of the Hornet and many additional hours of research behind it.

I was home again.

But all is not perfect in the land of 15-minute bars.

There are some negatives that come from daytrading.

One, and maybe most important, execution is critical. If you need a 20 point target or have a 50 point stop, then you absolutely, positively must hit those numbers. If you don’t get those exact numbers, then the numbers will be off.

This, of course, means that your reasonable expectations for the system will be off, too.

For example, earlier this year, my broker closed my trade for a full stop-out even though price didn’t come anywhere near my stoploss. Allegedly, it was due to the widening spreads on the Forex open on Sunday. I only get about 4 of those losses a year, and now I have one that may or may not be legit.

In fact, some of my Lifetime Members got that stop-out and others didn’t. How fun.

But that’s part of the game in small daytrading charts–and it’s not pleasant. If you don’t get the exact execution on a trade, then results can vary. It won’t turn a good system into a bad system, but it’s annoying.

And tiresome. So, so tiresome.

There is a way out of this execution worry, though: long-term charts.

If you’re trading on long-term charts, it doesn’t really matter if the execution is exactly right.

When you’re seeking a 100 point target and you get 99, your expectations might be 1% off. When you’re seeking a 10 point target and you get 9, your expectations now might be 10% off.

What’s more, everything works better on long-term charts.

If you have an entry rule that’s based on an efficient indicator or based on a philosophical truism, chances are it’s going to work pretty well on a long-term chart.

When something happens on a Daily or Weekly chart, something is definitely happening. There are almost no significant fake-outs or manipulation on longer-term charts.

What I’ve learned during the past few years of watching Daily charts is that it’s a calm, peaceful experience.

The spreads just got wide for some reason? Shrug.

My entry was two points off? Boring.

The trade gapped overnight? Yawn.

When you’re looking for big moves, little insignificant things don’t matter. And that might be what I’ve all been looking for all along.

While that sounds good and is making me rapidly fall out of love with daytrading, there still is one big question looming?

Does long-term trading make enough money?

And we’ll talk more about that in Thursday’s YouTube video.