In today’s episode, you’ll discover what matters most when you’re trading on the 1-hour timeframe (and it’s not what you think).
So tune in right now…
Hey, hey, what’s up my friend? In today’s episode, it’s all about the 1-hour timeframe, baby. I want to share with you a few truths about the 1-hour timeframe that you might not be aware of.
Let’s talk about the 1-hour timeframe. This is one of the most popular timeframes among traders, especially for Forex trading since it’s one of the default timeframes that comes with MT4 of Trading View.
In the 1-hour timeframe, it’s fast enough to give you enough action but at the same time, it’s not too fast to the point where you’re scalping the markets or making reckless decisions. The 1-hour timeframe kind of gives you a little bit of breathing room to plan and execute your trades.
But there are still a few things that you must be aware of when you’re trading on the 1-hour timeframe. Let’s get started.
1. Expect your holding period to last up till 3 days
Although you’re entering your trades on the 1-hour timeframe, maybe you bought at support and you’re looking to sell at resistance, but the market won’t immediately reach resistance within the next hour.
Yes, you could have that scenario. But more often than not, when you buy at support, the market needs time to reach your profit target, which could be three or four candles later, which translates to three or four hours later.
There are also times when you buy at support, but the market consolidates, then play with your feelings before finally reaching your profit target. By the time that happens, it could be after 30 or 40 candles.
So you can see that if you enter on the 1-hour timeframe, be prepared to hold your trades for even a day or two. That’s highly possible.
2. Identify a relevant higher timeframe using a factor of 4 to 6
Let’s say you want to do multiple timeframe analysis and you want to reference a higher timeframe. What is a timeframe that’s relevant to your 1-hour timeframe?
If you’ve studied the earlier episodes that we discussed called the multiple timeframe cheat sheet, we use something called a factor of 4 to 6 (a technique I learned from Adam Grimes and Dr Alexander Elder).
If you’re entering your trades on the 1-hour timeframe, then you’ll apply a factor of either 4 to 6. That means your higher timeframe will be anywhere between the 4-hour timeframe to the 6-hour timeframe.
It could be the 4-hour timeframe, the 5-hour timeframe or the 6-hour timeframe. It’s up to you to decide, but that’s just kind of the range of higher timeframes that you can consider using for your higher timeframe analysis.
In this case, if you’re entering your trades on the 1-hour timeframe, then the weekly, the monthly and the quarterly timeframes would be irrelevant to your trading. That’s the second thing.
3. News matters
If you enter trades on the 1-hour timeframe, then yes the news matters. I’m not saying that you need to trade the news, but rather, if you’re managing a trade on the 1-hour timeframe, then when a news is released, that spike could be large enough to stop you out of a trade.
If you are trading on the 1-hour timeframe, you must be aware of news release because any sudden news release could stop you out of your trades.
So there are few things you can do…
Firstly, if you notice important news release coming up that is about the market that you’re trading, you can just bail out of the trade and not get involved in the news.
Secondly, you can also manage your risk by reducing your position size. Let’s say if you have one lot of EUR/USD, you might look to sell half a lot and have half a lot remaining.
Those are a couple of things you could consider when there’s high impact news coming up.
4. Not all markets are suitable to be traded on the 1-hour timeframe
For forex markets, particularly for most major and cross currency pairs, they’re suitable to be traded on the 1-hour timeframe because they are liquid. You can pretty much enter your trades and exit them relatively easily.
But if you trade exotic pairs like the USD/ZAR or the USD/INR, the spread can be pretty large. And if you were to trade on the 1-hour timeframe, a huge percentage of the profit will go to paying the spread.
So be aware of exotic currency pairs when you’re trading the 1-hour timeframe, especially since their spread can be pretty wide.
If you trade stocks, you’ll have no problem with trading large-cap stocks on the 1-hour timeframe since they’re liquid. But if you want to trade penny stocks or illiquid stocks on the 1-hour timeframe, it might not make sense because there’s not enough liquidity.
Generally, highly liquid stocks or most FX pairs can be traded on the 1-hour timeframe. But at the same time, there are markets out that won’t make sense on the 1-hour timeframe. So be aware of those.
5. Is the 1-hour timeframe suitable for you
Let me share with you who the 1-hour timeframe is and isn’t for.
First and foremost, if you’re having a full-time job, then the 1-hour timeframe is not suitable for you. Because a new candle get painted every hour, and if you have a full-time job, I don’t think you can check the charts every hour.
For those who have a full-time job, I would say this timeframe is too fast for you.
Now if you’re someone who is into day trading and you want more trading opportunities, but at the same time, doesn’t want as much screen time as day trading, then you can consider the 1-hour timeframe.
You can maybe adopt a longer-term swing trading approach relative to your day trading endeavour. Or maybe if you have a part-time job or if you’re a student and you have pockets of free time available, then the 1-hour timeframe might be suitable for you as well.
These are the few things to consider when you’re about to embark on trade the 1-hour timeframe.
Let’s do a quick recap…
- If you trade on the 1-hour timeframe, be prepared for your holding period to be anywhere between a few hours to even a few days
- If you trade the 1-hour timeframe, your higher timeframe can be anywhere between the 4 to 6-hour timeframe
- The news matters – because when there’s a sudden news release, your 1-hour charts could look out of whack with huge spikes
- Most markets are suitable for the 1-hour timeframe but be aware of exotic currency pairs and less liquid stocks
- The 1-hour timeframe is suitable for those of you who are studying or those working part-time, but not so suitable for those working full-time
With that said, I wish you good luck and good trading. I will talk to you soon.