One of the most common mistakes novice day traders make is thinking that there is any stable reality to trading the markets.
There isn’t. It’s all relative.
Knowing this can actually make your trading more simple and allow you to trade with more confidence and higher profits.
We’ll explore the concept in this article by discussing one of the most basic concepts of technical analysis: trend.
Traditionally an up trend is defined as a market making higher highs and higher lows, and a down trend is defined as the market making lower highs and lower lows.
You could look at a 2 minute chart of any market and find a period of time during which the market is in a down trend. But does that mean that “the” trend is down? Not necessarily.
If you look at that same point in time on a 60 minute chart you may see that what looked like a down trend on the 2 minute chart was actually a very brief retrace in a strong up trend on the longer time frame.
And you can take it much further.
You can look at a 1 minute chart, a 2 minute chart, a 3 minute chart, a 5 minute chart, a 10 minute chart, a 15 minute chart, a 30 minute chart, a 60 minute chart and even a daily chart … and they are all going to look a little different, giving you different perspectives on “trend.”
So which one is the real trend?
None of them!
It’s all relative.
I know people who trade with many computer monitors because they watch 4, 5, 6 or more time intervals of their market concurrently. This is a mistake because it only leads to confusion. It’s too much information and completely disorienting.
Einstein said that we should make things as simple as possible, but not simpler.
While he wasn’t’ referring to day trading specifically of course, it’s good advice for every area of life, including day trading.
Since everything is relative based on the point of reference you establish, what a trader must do is simply choose a time interval they are comfortable with (based on the speed of execution required, the risk involved, trade frequency, etc) and establish that as your set up chart.
Then I recommend that you also use one more chart of a higher time interval (I use one that is 3 times the length of my set up chart) so you can see the market from one other perspective. This gives you a bird’s eye view of the market and allows you to witness a “bigger scale energy” so you know if it is working with you or against you.
This will keep your trading simple … but not too simple.