SCOTT WELSH TRADING BLOG

The Timeframe is Crucial (Step 12)

The Timeframe is Crucial (Step 12)

July 22, 2020

We recently decided to embark on a journey to beat the market.

To do that, we decided to start from scratch. 

Our goal is to build a system that will easily outperform the market over time and build this system step-by-step so anyone can follow along. Feel free to ask questions as we go. 

To review, here’s what we’ve done so far:

  1. We chose Forex over stocks and futures for the leverage and because we can trade any size account;
  2. We picked a system that suits our psyche (buy-low-sell-high) so we wouldn’t get discouraged, and then did a quick run-through of some numbers to see if it’s profitable;
  3. We chose one of the most popular currency pairs (EURUSD);
  4. We used ATR to build a hypothesis on how our system could work;
  5. We calculated a legitimate trade size we could use.
  6. We looked at what max drawdown means and how to manage it cautiously.
  7. We looked at how to not be so careful and manage max drawdown aggressively.
  8. Then we did a quick checkup to see if our system is beating the market. (It did by a nice margin.)
  9. We investigated moving to break-even.
  10. We examined if certain trading days are better than others.
  11. We stressed the importance of quality data.

We’ve done a lot. Surely, we’re ready to trade.

Not quite yet.

Remember when we said, “Amateurs talk about tactics, but professionals study logistics”?

We have another logistical problem to solve.

In our rush to get the “next great system”, we get excited about any new, shiny toy.

And in our excitement, we neglect to look at whether we can actually trade the new system.

For example, what if we have a full-time job and the shiny system trades the 5-minute charts to perfection. This system even has a chat room to help you make your millions.

Problem?

We have a job; we can’t be in the chat room. And we can’t take the trades. Thus, the logistics of the new system are a non-starter (even though the tactics of the system seem great).

What can we do? We could automate.

But new, shiny systems sometimes don’t offer that option because they’re discretionary.

We’re excited but out of luck.

So, does our system from scratch have this problem? Does it have a timeframe that’s logistically possible?

Yes.

First, this system trades the 1-hour timeframe. That timeframe is normally fine for traders of all types.

Second, it actually could be traded on almost any timeframe because all we need is a move away from fair value. Our trade is dependent on a logical principle, not a bar-pattern in a specific timeframe.

Here’s a winning trade from 2020 on the 1-Hour chart:

Price moved away from the Pivot and we entered as soon as it got far enough away.

To compare, here’s the same trade on the 4-hour chart:

We got the same trade on either timeframe.

Furthermore, this system is automated. A robot could trade it for us.

Logistically, this system presents no problems and is viable for any trader.

Good to know.

Because the timeframe issue kills a lot of systems for a lot of traders.

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Talk to you soon.

 

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Disclaimer:
It should not be assumed that the methods, techniques, or indicators presented in these products will be profitable or that they will not result in losses. Past results are not necessarily indicative of future results. Examples presented on these sites are for educational purposes only. These set-ups are not solicitations of any order to buy or sell. The authors, the publisher, and all affiliates assume no responsibility for your trading results. There is a high degree of risk in trading.

HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT ACTUALLY BEEN EXECUTED, THE RESULTS MAY HAVE UNDER- OR OVER-COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN.