There are only few really important things you should consider before you start your trading experience and, undoubtedly, choosing the right financial instrument for trading is the most important one.
The choice you’ll face will require a detailed study of different financial markets, their participants, main factors behind the market moves, liquidity, volatility and last but not least, the costs of trade. Such a research can not be done in a blink of an eye, so prepare yourself for a prolonged process, which could last years, in order to be sure you’ve dedicated enough time to observe the complete market cycle of a particular financial instrument.
This however is not the end of the road, when your choice is made, the next major question will pop up – the time frame. Should you stick to the senior frames and be a long-term trader, or an intra-day trader and what are the main advantages and disadvantages of these two types of trading?
There is a widespread belief that the large time-frames are governed by the fundamental factors and the intra-day is ruled by technicals. Whether that’s true or is just a nuance of the complex market mechanism is not essential for our choice, but the way it alters our trading is.
For example, a fundamental strategist will profit from the larger frames as macroeconomic data tends to influence the market for prolonged periods of time and with an investor horizon of weeks and months, instead of days, the trader will always have a more clear outlook, untroubled by the minor daily swings.
Another major advantage is the cost of trade, as the spread in FX or the commission in bonds, stocks, futures and options is a relative percentage of the nominal profit/loss outcome of a trade.
Things are not so pink from a statistical point of view, because the long-term trader will suffer from one of the biggest problems in strategy testing – a sample that’s not large enough. With only few deals for a long period of time there is no proper way for a correct evaluation of almost all the basic strategy parameters like: maximum, absolute and relative drawdown, distribution of consecutive profit and loss trades, profit factor, win/loss ratio and the lack of such evaluation will not allow any kind of MM optimization.
Or in plain words, nobody can tell whether your strategy works or it is just a matter of a beginners luck.
Being an intraday trader is definitely not a place for fundamental traders if they don’t want to get their fingers burned, but is full of advantages for every chartist. All the set-ups are present just like on the senior frames, but in a fast forward mode.
Spend a week on the minute chart and it will feel like a year of a screen time in front of the daily one. Who can even dream for more?
Screen time is experience and experienced traders always win the prize. Unfortunately, this advantage of the smaller frames will come at the expense of a significantly higher trading costs, but you’ll have to learn to live with that.
Time is money
Time is money, so don’t waste it in worthless waiting, use it for active trading, every tiny bit of it. And
remember, that trading is a journey, not a destination.
DF Markets is a trading name of Delta Financial Markets Limited, which is authorised and regulated by the Financial Services Authority, FSA Register number 534027. Registered in England & Wales, company number 07280005.
This article reflects the writer’s personal view. The information provided is for general information only and is not intended to be relied upon by individual readers in making (or not making) specific investment decisions. Appropriate independent advice should be obtained before making any such decision.
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Warning: Remember, particularly if you are new to trading in the stock market and in forex, that the prices of shares and other investments can fall fast and you may not get back the money you originally invested. The material here is for general information only and is not intended to be relied upon for individual investment decisions. Take independent advice before making such decisions. Also, the BullBearings free stock exchange simulation portfolios are a good way to practice trading techniques.
Thu, 1st Jan - * Well-received results from a number of FTSE 100 heavyweights and a sharp drop in consumer-price inflation in the UK lifted London's benchmark index to fresh multiyear highs on Tuesday.