Phase 3: Choosing between timeframes and currency pairs

If you start practicing the basic version of the OFS Trading System, I’ll advise you to trade on higher timeframes like the 4 hours chart and higher, because these are the most reliable timeframes for beginners. However when you have completed the first two phases, you should already have gained a lot more experience and insight. The time has come for you to make a choice as regards timeframes and currency pairs based on your personality, personal situation and personal preference.

Personal situation and personal preference

Personal situation

When you have a full-time job, there is a fair chance that you’ll be lacking the time to monitor the smaller timeframes and that you’ll logically end up using the 4 hours chart as well as the higher timeframes. The freedom of choice is naturally going to enlarge, the more your available time and your flexibility is likewise going to increase.

Personal preference

The personal preference is playing an important role when it comes to choosing the timeframes and the number of currency pairs. For that reason I’ll first discuss the advantages as well as the disadvantages per timeframe and the number of currency pairs.

The influence of spread

The spread could substantially differ per currency pair. This means that in case of the major currency pairs the spread will frequently be a lot lower in comparison with the currency pairs which are being traded a bit less frequent. While calculating the risk/reward ratio you should however definitely be taking the spread into account! So the spread could be playing a decisive role in determining the choice which currency pairs you would prefer to trade.

The spread could also play a big role with regard to choosing the timeframes. In this case the following rule applies: The larger the timeframe, the less influence the spread will have. When you’re trading on the four hours chart, it so happens that the spread percentage-wise will have a lot less influence in comparison with you trading on the 5 minutes chart. This doesn’t mean by definition that trading on the smaller timeframes should be less profitable, but nevertheless you’ll have to calculate the risk of the disadvantage of the percentage-wise higher spread without this being at the expense of your risk/reward ratio’s.

Reliability and the number of trading setups per timeframe

In general the following rule applies: The larger the timeframe, the more reliable it should be. This has to do with the fact that on the larger timeframes there is less noise. The smaller timeframes are also often characterized by random price action and it requires some more experience to filter good quality trade setups.

Though the larger timeframes in general are more reliable, you’ll also find considerably less trade setups. Especially when monitoring the smaller timeframes of several currency pairs, almost every day you’ll surely encounter one or more trade setups, whereas this is quite another story while trading from the 4 hours chart.

Comparing reliability with the number of trade setups, is a personal choice. However you should realize that the number of trade setups doesn’t automatically involves that you’re going to gain more profit.

Set-and-forget or monitoring continuously

Are you someone who prefers to quietly analyze a trade setup, to carefully open a position and then to take his/her time to wait for the result? In that case the larger timeframes will suit you best. If on the other hand you are an action junk, who likes to trade fast and continuously wants to monitor his/her positions, then the smaller timeframes most probably will provide a better outcome.

This choice mainly has to do with your personality, however in both cases it will always be very important that you’ll stick to handle the principle “plan the trade, trade the plan”. So you should also carefully consider at which version you yourself will be able to employ this principle in the easiest possible way!

Choosing to broaden versus deepen

Currency dealers employed by a bank are often trading only one single currency pair. The advantage of this method is that they learn by heart the ins and outs of this currency pair. Just give it a try. You should continuously and intensively study one single currency pair during a full month’s time and you’re soon going to notice that you’ll learn to recognize certain patterns and identifying marks of this currency pair.

Of course you can also choose to monitor a whole lot of currency pairs at the same time. The advantage of this method is that you’re probably going to discover more trade setups, but generally speaking the knowledge of each currency pair will logically be somehow more limited compared with the first mentioned method.

The choice of to broaden versus to deepen will also particularly depend on the timeframe you prefer to choose. If you’re going to trade on the larger timeframes, it’s obvious that you shall be monitoring a lot of currency pairs. As for the smaller timeframes it so happens that such an extensive monitoring process is becoming relatively more difficult.

Conclusion:

The choice concerning the timeframes and the number of currency pairs has little to do with the extension of the basic version of the OFS Trading System, but it nevertheless is really important to make a good choice regarding this subject matter. Doing this, take your personal situation, your personality as well as the different advantages and disadvantages, which are specifically mentioned in this article, into account.

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