Very sensibly, most traders will not trade lower time frame charts because of the effect many news announcements have, seemingly unpredictably, on price.
Let me give an example by following me through a (common) recent day of trading.
The day I have chosen has a good array of news announcements, many of which have no effect on price but one does – the announcement that the UK interest rate will remain unchanged at 0.25%.
At mid day, and within a few seconds of the (seemingly) unspectacular news, this happened to the chart:
This is a chart of sterling to yen. The chart jumped just over 100 pips, which to a higher timeframe trader, say someone who trades using daily closed bars, and, as the chart will often move over 100 pips in a day, this is no big deal.
To the lower time frame trader it is not the amount of the move but the little time that it took. That is what scares people away from short-term trading, and on the lower time frame chart this can happen a few times each week.
However, through a combination of knowing when the news will be announced and (more importantly) reading the chart, we can be in the flow with price and very rarely risk being caught on the wrong side of such a price move. Conversely, because of risk, I’m rarely on the right side of such a large move either. That is not where I get my gains.
Here’s the day per trade before that event.
The chart always looks different prior to a big (relative to timeframe) move due to proportionality of the chart.
My day started early, about 6am on the chart, concentrating on the one chart. Due to a combination of low bar size (price change) and high spread a start at 8am (UK time) is probably better, but there is nothing set.
The close of bar number one was my first trade taken long. Not the best of trades as we have two small attempts to push up prior to bar one which ended up being a third and final, and possible exhaustion, push. A good out would have been the doji three bars later; however, I held and came out at a loss, but before my stop, as bar two crashed short.
I entered the close of bar two short. Changing direction of trade is not the easiest of things for a trader to do; and because of this I only entered with one-third of my usual amount.
I held that trade through the pull back. At the close of bar three I went short with the remaining two-thirds. I’m now fully committed short. The doji four bars later gave me pause for thought, but I held through until target which was a measured move to near the bottom of the next and large bar short.
Very good, we’re nicely in profit at this stage. The close of bar six was the next take short. This was an early take and I didn’t get my measure until the next but one bar and this provided another 18 pips of profit.
Bar five, for me, provided a good probability long. So I entered long at the close of bar five. My target was 17 pips above. Excellent, that worked.
Easily the most sure trade of the day was the close of bar six short. My target was below the low of the day, however, with the doji at the bottom of that leg, I exited the trade with 22 pips of profit. Moreover, the interest rate news announcement was imminent, so a great time to be flat.
After the news announcement and the rapid 100 pip bar long my strategy is to take the close of that bar long expecting another 100 pips. I didn’t as emotionally I was uncomfortable with the 100 pip risk. By early evening the move was completed.
I’m pleased that after the news announcement, I then positively managed one swing and two further scalps, but amounting to significantly less than the subsequent 100 pips on offer for the afternoon. That is not disappointment on my part (an emotion that a trader has to ignore) but a reinforcement of my strategy, maybe for next time.