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the most profitable TF

  • #1
  • First Post: Feb 25, 2011 6:32am Feb 25, 2011 6:32am
i have heard that a scalping is the most profitable way of trading, but who knows if it really is. Isnt more profitable strategy based on 4H TF than 1min TF? Or another words, which TF is generally the most profitable?
  • #2
  • Feb 25, 2011 9:41am Feb 25, 2011 9:41am
Quoting petertrader
i have heard that a scalping is the most profitable way of trading, but who knows if it really is. Isnt more profitable strategy based on 4H TF than 1min TF? Or another words, which TF is generally the most profitable?
All time frames can be profitable. The real question is, which time frame will you find profitable.

  • #3
  • Feb 26, 2011 2:09am Feb 26, 2011 2:09am
Quoting petertrader
i have heard that a scalping is the most profitable way of trading, but who knows if it really is. Isnt more profitable strategy based on 4H TF than 1min TF? Or another words, which TF is generally the most profitable?
the higher your time-frame, the more profitable it is, just because of these factors: spread, commissions and slippage.

Example:
if you trade the 1 min and have already a spread of 2 pips, commission of 1 pip and slippage of 1 pip, then you start 4 pips in the negative. Now try being profitable on a 1 min chart when each time you entering a trade you are automatically 4 pips negative.
Now, let's take the other extreme, if you try to "scalp" the monthly chart, the 4 pips won't matter much, cause you are shooting for a couple of hundred to thousand pips.

So, the higher your time-frame, the more profitable.
  • #4
  • Edited 3:40am Feb 26, 2011 2:56am | Edited 3:40am
I've been thinking about this a lot lately and have come to the conclusion that:

higher time frames improve the spread for the reasons Custos mentioned but increase the time it takes for the round trip of opening a trade and closing it so the frequency of trades diminishes.

So lower time frames increase the spread and commissions you pay by way of relative size and frequency (assuming you are trading more often on lower time frames than higher time frames). But speed up the trade frequency.

You need to find the right trade off between the two. A big question is - what is the difference in profits on a lower time frame compared to higher time frame in terms of win rate and returns. If a higher time frame doesn't increase your win rate then it makes sense to stay on a lower time frame for faster round trips.

EDIT: I've made a couple of assumptions there the main one being that the greater the time frame the greater your SL and TP in relative terms and the second one being that your goal is to maximize your profits and you have the ability to choose whatever time frame you want.
Time hides Nothing
  • #5
  • Feb 26, 2011 3:17am Feb 26, 2011 3:17am
The other thing to bear in mind is the stress and increased activity on lower TFs. I personally prefer higher TFs (Daily or even Weekly), simple because I don't need to check more than a few times a day. Besides that, I don't fancy making the broker a mint on commissions as well for hundreds of entry/exits that are needed on smaller TFs.
Still, if some people crave excitement, what can you do

Quoting CindyXXXX
I've been thinking about this a lot lately and have come to the conclusion that:

higher time frames improve the spread for the reasons Custos mentioned but increase the time it takes for the round trip of opening a trade and closing it so the frequency of trades diminishes.

So lower time frames increase the spread and commissions you pay by way of relative size and frequency (assuming you are trading more often on lower time frames than higher time frames). But speed up the trade frequency.

You need to find the right trade off between...
  • #6
  • Feb 26, 2011 3:47am Feb 26, 2011 3:47am
higher timeframes are better,i think 4 h is the best.
  • #7
  • Feb 26, 2011 4:44am Feb 26, 2011 4:44am
Agree with all above.

Might add that one's personality type ('about my speed'),
trust of a trade (watch vs. leave alone)
and other commitments (can only trade X # hours a day / week) only allow so much speed from oneself,
as does what devices (corporate algorithms within the spread, vs. MT4) one has to work with.
  • #8
  • Feb 26, 2011 7:53am Feb 26, 2011 7:53am
If your trading style generates 1 trade every 25 candles per ccy pair:
1 min: ~ 30 trades per day (12 hours)
15 min ~ 2 trade per day (12 hours)
H1 ~ 0.5 trades per day (still 12 hours per day, maybe a bit more if you use pending orders)
H4 0.25 trade per day (you can trade 24 hours with pending orders maybe)
D1 ~ 1 per month

-----------------------------
Trading costs
1 min
Most likely just trading eurusd, so circa 15-30 trades per day, total cost per trade maybe 2 pips (spread+slippage+commission, shouldn't be any swap)
Average TP/SL probably around 10-20 pips, Win rate required just to BE = 55-60%

M15
Maybe trading upto to 4 ccy pairs, so circa 2*4=8 trades per day, average trading cost per trade maybe 3 pips (spread-wider on other majors+slippage+commission, little swap - only 4 ccy and rarly hold overnight)
Acerage TP/SL maybe 30-50pips, Win rate required just to BE = ~ 53-55%

H1
Maybe trading upto to 10 ccy pairs, so circa 0.5*10=5 trades per day, average trading cost per trade maybe 3-6 pips(spread-wider on crosses+slippage+commission, swap-could be alot)
Average TP/SL maybe 40-70 pips, Win rate required just to BE = ~ 52-54%

H4
Maybe trading upto 15 ccy pairs, so circa 4 trades per day. average trading cost per trade maybe 4-7 pips
Average TP/SL maybe 80-200 pips, Win rate required just to BE = ~ 51.5%

------------------------------------
Other Considerations

Analysis tools have varying predictive power across the different time frames, such as Support/Resistance, Trend Lines, Elliot Waves, Candle Stick Patterns, and technical indicators. Generally these tools are more robust on higher timeframes, however when trading higher time frames there is the confounding factor of unexpected news releases, which can be avoided when trading on M1 - M15. Some say easier to predict M1 than H4 because you only have to forecast the next ~ 5-30 minutes of price action, not the next ~ 1-2 days of price action, in which period there is more likely to be unexpected events such as news/current affairs/market open/close which may alter your analysis and negatively affect price action.

Faster trading frequency allows the trader to more quickly construct a performance history and establish confidence in their trading system. If taking 10 trades per day, it only takes 2 months to have taken 500 trades which is a large enough sample size to perform statistical analysis on with a sufficient degree of statistical significance, however if only taking 1 trade per day, then you need to trade for 1.5 years before you can comprehensively review your trading performance.
  • #9
  • Feb 26, 2011 12:42pm Feb 26, 2011 12:42pm
The amount of time spent on trading a certain strategy on a given time frame must be taken into consideration to work out the profitability. For example if it takes 1 hour of time to achieve 100 pips a day trading on Daily timeframe vs 10 hours of time to achieve 100 pips a day trading on 5 min time frame.
In the first case the average pips/hour spent is 100 whereas in the second case its 20.
  • #10
  • Feb 26, 2011 3:13pm Feb 26, 2011 3:13pm
Lots of good points, to add my own I would say that lower time frames have the higher potential profit in terms of pips/day as there is more movement but whether this can be realised is another matter which obviously depends upon the strategy being used.
  • #11
  • Feb 27, 2011 8:56am Feb 27, 2011 8:56am
Thanks for your oppinions boys, I agree with you,

IMO, on lower TF you have a one advantage, within 1 hour you can trade 2 or 3 trades up and down, while on the higher TF you can only do 1 trade in 1 direction.

Or, apparently on the trading competitions (who will reach the most % on his account within 1 month) in the statement I see that lot of them on the 1st places used a 1min or lower TF (som of them tick TF). This way look the most succesful...doesnt it?

thanks for your answers
  • #12
  • Feb 27, 2011 9:28am Feb 27, 2011 9:28am
Quoting petertrader
i have heard that a scalping is the most profitable way of trading, but who knows if it really is. Isnt more profitable strategy based on 4H TF than 1min TF? Or another words, which TF is generally the most profitable?
FX is too noisy on lower timeframes, plus it lacks information about market dynamics such as volume, TICKS, and so on that are used by scalpers on the US markets.

Secondly, and most importantly the majority of traders don’t have the right mindset to be scalpers anyway. If they spent whole day glued to their monitors they tend to take sub-optimal trades. What often happens to scalpers is that they make few pips here and there, and then their profits get wiped out in one losing trade which they didn’t want to cut (FX can move very fast). The fast action of scalping magnifies your psychological weaknesses, and this is why most traders fail as scalpers, even though they won’t admit it publicly.

4 hour time frames have fairly clean trends that can last for few days.
  • #13
  • Edited 9:44am Feb 27, 2011 9:33am | Edited 9:44am
Quoting petertrader

Or, apparently on the trading competitions (who will reach the most % on his account within 1 month) in the statement I see that lot of them on the 1st places used a 1min or lower TF (som of them tick TF). This way look the most succesful...doesnt it?

thanks for your answers
The fact is that those trading competitions (my broker had one recently) run over say a 3 month period so a guy with a 1minutes strategies can CRANK out the trades and if he is successful will be more profitable than say someone who could only put in a few trades over those 3 months,.,

The question though, is it sustainable? Can that guy continue to make competition winning returns on a 1 minute chart?

Or will it be a double edged sword where when things don't go so well for his strategies he loses on the same relative scale?

The interesting thing would be What time frame did the loses of those competitions use?

My guess is that the ones who lost were also using the 1 minutes charts or similar!

I watched my brokers competition closely and it was funny to watch the winning traders one week up 200% the next week down 70% etc..

Higher reward attracts higher risk in nay endeavor,

The ones laughing are those who no maybe they didn't win a trading competition but they consistently make money month in month out by settling for smaller but more consistent profits which over the long run make THEM the winners. Add to that compounding and even though they are making less % they could still be making 100 times more than those who make those 100% gains followed by 50% losses.

I hope I've made sense I think its a very important point. Mainly the part in bold
Time hides Nothing
  • #14
  • Feb 27, 2011 1:29pm Feb 27, 2011 1:29pm
Quoting CindyXXXX
The interesting thing would be What time frame did the loses of those competitions use?

My guess is that the ones who lost were also using the 1 minutes charts or similar!
Yes, you are partly correct, but IMO the number of trade which made 1st participants in competition was about 30-40/day so 20days*30trades = 600trades/month, it is sufficient number of trades to prove that man is consistently profitable...(it isnt only 10 or 20 trades)

another words, i dont think that another month the man wont make similar equity (%)....

Yes the most losers was on 1min or lower tf, but also most winners was on 1min tf or lower, the my question was which TF is the most profitable, no where is the most losers, hence i think lower TF is the most difficult to trade, but the most profitable...or? (i would like to see some study or probe regarding this question)... do you have another opinion ? ;-)
  • #15
  • Feb 27, 2011 1:34pm Feb 27, 2011 1:34pm
Quoting Herd_master
FX is too noisy on lower timeframes, plus it lacks information about market dynamics such as volume, TICKS, and so on that are used by scalpers on the US markets.

Secondly, and most importantly the majority of traders don’t have the right mindset to be scalpers anyway. If they spent whole day glued to their monitors they tend to take sub-optimal trades. What often happens to scalpers is that they make few pips here and there, and then their profits get wiped out in one losing trade which they didn’t want to cut (FX can move very fast). The fast...
Yes you are correct , but on 1min TF you dont need to do only scalping, you could be intraday trader but not scalper, and in my case i have a Risk:Reward 1:2,5, no contrary...so it is enough safety for me. I know it is much more difficult to trade lower TF but i think there is a bigger gain...;-)
  • #16
  • Edited 6:50pm Feb 27, 2011 1:54pm | Edited 6:50pm
Quoting petertrader
Yes, you are partly correct, but IMO the number of trade which made 1st participants in competition was about 30-40/day so 20days*30trades = 600trades/month, it is sufficient number of trades to prove that man is consistently profitable...(it isnt only 10 or 20 trades)

another words, i dont think that another month the man wont make similar equity (%)....

Yes the most losers was on 1min or lower tf, but also most winners was on 1min tf or lower, the my question was which TF is the most profitable, no where is the most losers, hence i think...
Well sure if you can be as consistent on a 1m chart as you can on higher time frames the 1 minute will be the most profitable due to the number of trades you can crank out all things being equal.

But do you think the best traders win those competitions? Or the most lucky gamblers? Its hard to answer this but the interesting thing would be to see those traders long term results. Are their 500% winnings over 3 months crushed by subsequent draw downs long term? Or have they really found a method that creates returns that simply defy gravity?
Time hides Nothing
  • #17
  • Feb 28, 2011 3:45pm Feb 28, 2011 3:45pm
Quoting petertrader
Yes, you are partly correct, but IMO the number of trade which made 1st participants in competition was about 30-40/day so 20days*30trades = 600trades/month, it is sufficient number of trades to prove that man is consistently profitable...(it isnt only 10 or 20 trades)

another words, i dont think that another month the man wont make similar equity (%)....

Yes the most losers was on 1min or lower tf, but also most winners was on 1min tf or lower, the my question was which TF is the most profitable, no where is the most losers, hence i think lower...
600 trades is nothing, especially on the one minute time-frame. Maybe if he traded 10 years ago, his technique wouldn't have worked. Maybe in 10 years it will not work anymore.

One month of data is definitely a too short period of time. Not enough market conditions. Even if he traded a couple of thousand trades. A method needs to be tested across various market conditions: trending, ranging, massive selling/buying, low volatility, inflationary periods, deflationary periods, changing economic drivers, changing economic climate...
But of course you don't have to believe me, just speaking from experience.
  • #18
  • Feb 28, 2011 8:38pm Feb 28, 2011 8:38pm
I agree with Custos. Market conditions can change over time. As a personal example, during 2010 I made about 70% of my total annual return during the 2 months when there was talk of possible collapse in Europe, and I kept shorting EUR-based currencies. An approach grounded in robust abstracts (trend, S/R, etc) has a better chance of holding its own during times when market conditions are less favorable, and hence a longer shelf life.

Trading competitions are a vehicle for vendors to sell their EAs, and therefore ignore prudent risk management. There's no publicity for finishing in the upper half of the field; you need to make the top 10, and hence it's necessary to take outlandish risks to do so. If the EA fails dismally, no problem, the vendor can always repackage it, and try his luck in the next competition. IMO CindyXXXX is correct: if you test 1,000 EAs (that are all tuned to trade as aggressively as possible) over a short 3 month timeframe, there are bound to be some exceptional winners, purely as a matter of course.

Re scalping, I believe that it's possible to become profitable, but many aspiring scalpers underestimate the significant impact that the spread will have on their P/L. Hence the greater importance of selectively entering only the strongest prospective trends.

Re timeframe, my favored approach is to find potentially low risk entries on the intraday (e.g. M15/M30) TFs of the strongest trending pairs, get my SL to breakeven, and then let these trades play out over anything up to 5-10 days. Not as easy as it sounds, but makes for some great RR trades. You need only a few 10:1 and 20:1 trades to compensate for the small losses on the botched entries.
  • #19
  • Feb 28, 2011 9:28pm Feb 28, 2011 9:28pm
Statistically speaking:

 

  1. The smaller your timeframe, the higher the "house edge" (the effect of spreads) against you; and vice versa.

  1. The smaller your timeframe, the quicker the true underlying expectancy (edge or lack thereof) will manifest itself in your results; and vice versa. (law of large numbers)


Psychologically speaking:

 

  1. Trading higher timeframes is generally less stressful, and vice versa.

  1. Trading higher timeframes, your positions remain open for longer and therefore your exposure to the temptations of modifying your position settings and deviating from your original plan will be greater; and vice versa.
  2. Trading higher timeframes, you are generally less likely to over-trade; and vice versa.


Other things to note:

 

  1. Trading higher timeframes generally requires higher capital (in order to make the potential reward in function of time worthwhile); and vice versa.
  2. Trading higher timeframes may generally require more awareness of market fundamentals.

  • #20
  • Feb 28, 2011 10:44pm Feb 28, 2011 10:44pm
Quoting Marv
Statistically speaking........
Marv, great post, as always.
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