A common question that traders ask me is whether I use intraday or “slower timeframe” charts and if so how I use them.
The answer is mostly: yes, I use intraday charts. However (you knew there would be one, right?) There is a time and place for everything, especially for intraday charts. It is important that you understand when and how to use them. This is something that I will go into in much more detail in my course on advanced pricing. In today's lesson, however, I wanted to give you a brief overview of how I incorporate intraday charts into my daily trading routine.
This tutorial shows some of the key ways I use intraday chart timeframes to further confirm daily chart signals, manage risk, manage position size and improve the risk reward of a trade.
My favorite intraday chart time frame for trading…
Usually people who email me about the intraday timeframes want to know if I can ever trade with those lower timeframes. The answer is yes, sometimes I swap the 1-hour or 4-hour charts on my own without considering the daily or weekly time frame. However, in 90% of the cases, I use the 1-hour and 4-hour charts to confirm the higher timeframe signal, mainly the daily chart timeframe.
In this way, the intraday charts act as an additional confluence point to add weight to a trade and further confirm whether I want to enter it or not. The other big advantage of the intraday charts is that I can optimize my entry to achieve better risk management. Later more.
- The most important thing is that I never go under the 1-hour chart, because in my experience, every time frame under the 1-hour table is just noise. The shorter the time frame, the more meaningless price bars you have to look through. This makes the history of the market increasingly cloudy until you reach a 1-minute chart where you are basically just trying to create gibberish sense.
- I only look at the 1 hour and 4 hour charts when I look at the intraday time frames. The anchor chart on which I base most of my trading decisions is always the timeframe of the daily chart.
- For those who like to look at weekly charts, the concepts in this lesson could also be applied there. You would essentially use the daily charts to confirm weekly signals and increase their confluence as well as optimize your risk management. It should be noted that I rarely only exchange weekly charts, but for die-hard weekly chart traders you should take this into account when reading the rest of this tutorial.
- Remember that it is NOT absolutely necessary to trade the daily chart with an intraday confirmation. It's just something you want to implement if you are more advanced and have mastered the basics of trading daily chart timeframes.
- Remember this is not a day trade! The period in which we hold these trades should continue to be a full overnight position or several days / weeks. Remember that the initial trade trigger is still the higher timeframe chart.
Use intraday charts for second chance trading entries
Everyone hates missing a perfectly good deal, including me. Fortunately, there are several ways you can get a good second chance trade entry with a signal you originally missed.
One of these ways is to search for a signal a few hours or even days later using the 1-hour or 4-hour charts to re-enter the original daily chart signal that you missed.
In the following example we see a clear pin-bar buy signal from the support of the S & P500, which is circled in the following table. If you missed this, you definitely kicked yourself …
For savvy price dealers, however, they know that a second chance entry often appears in the intraday charts not long after the daily signal has been triggered. Note that the following table shows an incorrect combination pattern for the pin header just after the daily pin header. Also note that there was a larger 4-hour pin bar that formed on the same day as the daily signal and added more confluency to this daily signal.
Use intraday charts to confirm daily signals
Sometimes you may see a potential daily signal, but you may not feel confident. It may not look right to you and you feel that further confirmation is needed. This is normal and is common.
Sometimes you will get a 1-hour or 4-hour chart with a convincing signal after the daily that you were not sure about.
Note that in the chart below, we had a bullish tail to support an uptrend market. But by the time this bar formed, you would probably be wondering whether or not it is really worth taking, given its bearish conclusion and previous deeper swing.
Rescue intraday card. Notice the two compelling 4-hour pin bars that formed around the time of the bullish-tail bar on the daily chart above. You could have used these 4-hour pins to further confirm your feeling for the daily chart signal, which you were not sure about.
Sometimes you see a daily chart signal, but there is no obvious confluence with a strong trend or an important chart level. In these cases, you can rest assured that a clean intraday signal is the confluence that you need to either enter the market or pass it on.
Note in the daily S & P500 chart below that there was an intense sell-off in early 2018. It would have been very difficult for most traders to buy straight after such a sellout. There was a lot of bearish momentum and pressure over us and this would have raised doubts about the daily chart's pin bar signals shown below.
The 1 hour chart would have helped us in this situation. As can be seen below, consecutive 1-hour chart pin bars formed at the time of the above daily signals, indicating another confluence and giving us further confirmation. It was safe to go in for a long time. Entering these 1 hour pin bars also resulted in a much narrower stop loss and thus a better risk / reward profile, as explained in the next section.
Use intraday charts to optimize your risk reward and position size
As we know, we have to use wider stops on the daily chart most of the time (unless we use the 50% setting entry as an exception). So in most cases we can implement the 1 or 4 hour intraday chart with a narrower stop loss and adjust the position size accordingly. This enables us to significantly improve our risk-return, as the stop-loss gap is reduced and the position size can be increased, but the profit target remains the same.
This will not be the case for every trade on intraday charts. Sometimes risk management on its own is very similar to that on the daily chart. However, there are many cases where you can double or triple the potential reward for a trade using intraday signals.
In the following example of the Dow Jones daily chart we see a clear pin bar signal. If you had entered the classic pin-low placement near the pin-high, you would likely get a 2R reward, possibly 2.5 or 3R at most.
The 4-hour Dow Jones chart at this time triggered a 4-hour pin strip shortly after the daily pin above, which gives us the potential to trade that pin strip instead. This reduces the stop loss by about half and allows us to double the position size, increasing the reward to a maximum of 6R instead of 3R. Maximizing the profit of trades is essentially how you turn a small account into a large account and make a lot of money in the markets.
A similar situation in the following example. A nice bearish GBPJPY pin header was formed, albeit a fairly wide one. Your stop loss in this case would have been more than 300 pips from pin high to low, which severely limits the potential risk reward:
The 4 hour chart triggered a much smaller pin bar after the daily pin above. This allowed us to turn a 1R winner into a 5R potential or more.
The intraday optimizations and tricks I showed you in today's lesson are just a few examples of how I use the 1-hour and 4-hour charts with my three core price action strategies in my trading plan.
Trading in price promotions is not just looking for a few candlestick patterns on a chart and then placing a trade that is not even close. There is much more to it. The process of actually finding and filtering trades, managing risk / reward, and then executing the trade and managing it both technically and mentally cannot be learned overnight. Every trade has a technical and a mental side, and both parts have to be learned and practiced again and again before you really get the ability to make money on the market.
After reading today's lesson, I hope that unlike most traders, you will have a better understanding of how to use the intraday charts correctly. Don't make the mistake of using the intraday charts to manage your position and over-trade. This is wrong and will result in you losing money.
Instead, use the tips and tricks learned in this lesson and the other ones in my trading course to take advantage of the intraday charts. Trading is about getting the best out of a good signal, and I use the intraday charts to avoid over-negotiating or interfering in my trades like most traders. I hope you too can now take advantage of the intraday charts by implementing the theory and concepts in this tutorial to ultimately improve the chances of a particular trade in your favor and maximize its profit.
What do you think about this lesson? Please leave your comments and feedback below!