Do Higher Timeframes Trend Better? Not Always!

It’s commonly stated, particularly in the currency markets, that higher timeframes trend much better than lower timeframes and are therefore much easier to trade. It's stated that lower timeframes are subject to too much "noise", with choppy, overlapping price action full of stop running and false breakouts.

Well like most so-called trading "truths", the reality is much different.

The first chart, which shows the smoothly flowing trending market, is actually a recent 5-minute chart of EUR/USD. And the second chart, the choppy, directionless, range-bound market, is the current daily EUR/USD chart, as at the time of writing this article (Sept 6th, 2011).

Ok… before you complain… yes I have cherry-picked these examples. And I'm sure I could easily find examples which show the opposite.

And maybe if I was a student of market statistics I could analyse some samples of data to prove that the daily timeframe does average 12.7% greater "trendiness" than the 5-min timeframe (I made that figure up by the way).

But for a discretionary trader, I would suggest it's largely irrelevant.

We don't trade statistical averages. We don't trade generalisations. We trade the raw data of individual price bars, whatever the market provides.

So learn to adapt to whatever environment the market provides; whether range-bound or trending or anything in-between. Because even if the daily does statistically trend more often, it still has significant periods of sideways movement that will cut you to pieces if you blindly trade a trend-following method. And even if the 5-minute chart does statistically have more noise than the higher timeframes, it still has periods of great trending action that require a completely different approach to trading.

Learn to identify the ACTUAL environment. Then adapt as required, or stand-aside if it's not suited to your trading approach.

Happy trading,

Lance Beggs


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YourTradingCoach – Admin

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