The most common question I hear about trading Contracts for Difference is what is the best time frame when trading CFDs on the day. Today we are going to take a look at the three most important factors to consider when finding your ideal time frame to trade CFDs.
1. What size profit are you looking for compared to your losses?
2. Always use three different time frames to trade safely
3. Stock CFDs vs. Indices or Forex CFDs. The various time frames to consider
What size profit are you looking for compared to your losses?
One of the most critical and overlooked components to day trading success is identifying the proper win:loss ratio or what some people refer to as risk:reward ratio. All day traders should have the idea firmly planted in their mind how important it is to spot day trading opportunities where the probability of reward is at least 1.5 to 2 times the size of your risk.
By keeping this ratio firmly planted in your mind, you will ensure that you find high probability opportunities and completely ignore the need to trade just for the sake of trading. Trading for the sake of trading not only wastes you valuable time and money, but it can also drain your confidence level to the extent that you are hesitant or reluctant to jump into any other trade. In light of this, you want to select the time frame that gives you ample opportunity to make a profit once your setup has been set.
Using three different time frames to locate high probability day trades
It is vital for day traders to have a success rate or probability of winning greater than 60%. This comes as a result of trading in a short period of time, reducing the chance of letting winners run. To locate high probability setups that win more than 60% of the time, it would be best to identify short, medium and long term time frames to put the chance of success in your favor.
If you trade using a 30 minute chart, it would be best to trade in the direction of the trend and have the five minute chart and one hour chart in the same direction as your 30 minute chart. The five minute chart will identify early setup, the hourly chart will ensure you are trading with the most dominant trend and you can use the 30 minute chart to time your entry. The combination of three different time frames will put the odds of success in day trading in your favor.
Daily trade CFDs on Stocks vs. Forex or CFDs on Indices. What deadlines to consider
Depending on the type of CFD broker you use and the charts they give you access to, you will find that the best time frame to trade CFDs on stocks on the day is to use the one minute chart for the first 35 to 40 minutes, then move to both minute chart over the next two hours and move towards the close using a five minute chart. When trading Forex or Indices CFDs, you will find ample opportunity and liquidity using any chart, from a minute to an hour chart.