How to Trade the Market Using Daily Charts

Why trade the market using daily charts?

What’s so special about daily charts? Why should you trade the market on daily charts? What’s all the fuss about?

Daily charts mean that 1 new price action bar forms each day. It means that there is only 1 new piece on information each day for you to take into account. This makes your trading decisions less emotional as you aren’t rushing a mile a minute to keep up with the data as it loads onto your screen. In short, it allows you to become a lazy trader. You have time to make your trading decisions, trading the market on the daily timeframe really does allow you to fit trading into your lifestyle.

Higher timeframes V Lower timeframes.

Higher timeframe charts really do give you the opportunity to fit trading into your lifestyle. It also means that broker transaction costs are a very small percentage of the trade. If you’re stop loss is 100 pips and your spread (transaction cost) is 2 pips you have a 2% transaction charge. Whereas if you’re trading a smaller timeframe chart, with say a 10 pip stop, but still a 2 pip spread, you have a 20% transaction charge. That’s a huge difference and has a dramatic impact on your trading.

Lots of new traders start off their journey to trade the markets and begin on the smaller timeframes trying to make money as quickly as possible, fighting against market noise, and high impact news events, not to mention the significantly higher transaction charges. Ultimately it’s not hard to see how they end up losing money, become disillusioned and stop trading. A simple solution to this is to focus on the ‘less is more’ approach and trade the markets on the higher timeframes like the daily charts and avoid the issues of high impact news events, higher transaction charges and market noise. Focussing on these higher timeframes is a much more sensible approach to trading the forex markets. It is also much easier to make money on these higher timeframes.

If you were given the option of A or B, and you knew that option A was easier, why wouldn’t you choose it?

Trade the market in less than 30 minutes a day.

If you’re going to trade the market in less than 20-30 minutes a day, you really need to have a structure and a routine that you stick to on a day to day basis. You also need to make sure that you follow your routine day in day out. This way your trading habits become instinctual and it becomes almost like riding a bike, something that you don’t need to actually think about to do. You’re subconsciously doing all the work without having to consciously think about doing it. Of course, this takes time to get this level, but this should be your goal when starting out.

Go from being unconsciously incompetent, to becoming consciously incompetent, so you’re aware of the mistakes you’re making. Then moving on to consciously competent where you are profitable and making money, then progressing onto unconsciously competent, where you are a consistently profitable trader, not having to focus all your energy on what you’re doing.

It’s this step by step process that you want to progress through as you learn to trade the markets.

How to trade the market using daily charts.

First of all, strictly ensure that you’ve got your charts set up correctly with price action being the most important thing on the screen.

Secondly, restrict yourself to 10 or so currency pairs. Don’t look at 30 different currency pairs every day, as it’ll just be too much work.

Thirdly, ensure that you have your charts on the daily timeframe.

Now you can focus on the daily charts and trade the markets with strong price action signals and fit trading into your lifestyle.

The Market Maker – Providing Liquidity For Stock Exchanges

Have you ever wondered how you can buy and sell shares so quickly in the stock market? When you place a buy order with your broker, there has to be a seller in order for you to get the shares. So if there are no sellers, then how do you get your shares? This is where the market maker steps in and sells his shares to you. Market makers accumulate an inventory of shares and sell them when there are no sellers. People often refer to these market makers as MM’s.

Each stock exchange is going to have different market makers and some are designated to a certain stock. The NASDAQ Stock Exchange has many MM’s that are providing liquidity to the market. While the New York Stock Exchange has designated MM’s to each specific stock, they are known as specialists and they have to provide liquidity in the market. A major difference between a market maker on the NASDAQ and on the NYSE is that a specialist on the NYSE has face-to-face action with traders. This is because the New York Stock Exchange is an auction based exchange that has traders on the floor to interact with the specialists and it also is an electronic exchange while the NASDAQ is only an electronic exchange. When you get into the penny stock world, such as Pinksheet stocks and OTCBB stocks, there are many MM’s that are providing liquidity for the stocks.

Every MM is going to have a four letter symbol that they trade with. A popular market maker in penny stocks would be Knight Equity Markets which is symbol NITE. Market makers that trade on the NASDAQ or OTCBB would be large investment companies and they are not actually at the exchanges because there are no exchange floors, they are just trading electronically.

You are probably wondering by now, how do the market makers make any money for themselves?

They make money by scraping change off the spread of the bid/ask price that they are maintaining. Let say that they bought shares at 20.30 a share, he then turns around and sells the shares at 20.31 and takes the minuscule profit for himself. But they can trade millions of shares a day, so these small profit add up to quite a bit at the end of the trading day.

Can You Beat the Market?

There is a theory out there called the efficient market hypothesis which states that you cannot beat the stock market regardless of what you try, how good of a trader you are, or how well you cut your losses short.

According to this theory both fundamental analysis and technical analysis are completely worthless. It sounds pretty catchy, but it isn’t true.

Anyone who has actually looked at the history of successful traders can tell that this rule has been disproved multiple times throughout history. In fact you don’t need to look any further then our present time to see many examples of something that should not be if the market is truly efficient.

People like Warren Buffet, George Sorros, and Ed Seykota have been able to beat the market on a consistent bases for a very long time period. If stocks where efficient something like that would not occur, or at least not 3 times.

Once more if you look at a stock chart you will be able to tell that stocks do trend in a somewhat predictable pattern. It is clear that if a stock is trending in a direction that it is likely to continue trending that same direction, at least in the short term.

Riding those trends and exiting quickly when they turn around has been proven to work by some of the greatest traders of all time.

There are ways to make a better return than just buying and holding a large market ETF. Trading or investing isn’t just a fantasy that people like to come up with, regardless of what a few intellectuals believe.