Trading Forex With The 1 Minute And 5 Minute Charts

September 15, 2011 by admin | Comments: 0

If you have ever tried to to come up with a forex trading strategy using the 1 minute charts and the 5 minute charts, you will know that it is notoriously difficult. This is particularly true when you compare these time frames to some of the longer ones such as the 4 hour or daily charts, for example. So why is it so difficult to come with a profitable forex strategy using the 1 minute and 5 minute charts?

Well for a start if you ever watched some of the major currency pairs on these shorter time frames, you will have noticed how quickly the price moves around, particularly during the busiest times of the day. Therefore you have very little time to think, and you have to make snap judgements at times when you are thinking about opening or closing a trade.

You also have to bear in mind that a lot of the price movements that you see are often quite random. So because they can be impossible to predict, no matter how many different technical indicators you use, it can be really difficult trying to squeeze out a profit.

Even if you do manage to come up with a half decent forex trading system based on the 1 minute or 5 minute charts, you can still run into difficulties. This is because you never know how much the price is likely to move in your favour. For example there may be an instance where all your indicators line up, the trade moves in your favour, but because you are using a short time frame the price move fizzles out after just 5 or 10 points.

If you are going to make money as a short term forex trader, you need to come up with a system that has quite a high success ratio, and this is harder to do on the 1 minute and 5 minute charts. You will find that technical analysis doesnt work as well as on these time frames because there is a lot more noise, ie random price movements, whereas if you switch to the 1 hour, the 4 hour or the daily chart, for instance, the various indicators that you can use give much more reliable trading signals.

It is also true that trading the 1 minute and 5 minute charts can be a lot more stressful. You need to be fully alert at all times and you can rack up big losses within seconds of opening a trade if you are not careful. Due to the fact that profit targets are a lot smaller, you may find that you are closed out of a trade when your stop loss is triggered fairly soon after entering a trade, which is never a nice feeling.

It is a real adrenalin rush trading these charts, but it is not the easiest ways of making money from forex trading. In my opinion if you do insist on trading the 1 minute or 5 minute chart, I would suggest you stick to the 5 minute chart in particular, and concentrate on trading early morning breakouts.

These are much easier to trade, particularly when the overnight range has been very small before the main European markets open, and there are generally more points on offer. For example if the average trading range for a particular pair is 150 points and it has only moved 30 points so far, then you know that any breakout could yield a lot of points. However if you wait until the US markets open, for instance, and the pair has already moved 130 points by that time, then it may be a fruitless activity trying to trade any subsequent breakouts.

If you do not want to trade breakouts, then I would suggest that you lengthen your time frame and try and find high probability trades on these charts instead. These time frames are a lot less stressful and it is easier to come up with a winning system because the price moves are a lot bigger and technical analysis works so much better.

The truth is that trying to come with a winning forex trading strategy based on the 1 minute and 5 minute charts is a massive challenge, and very few traders manage to make money trading these charts in the long run.