What Time Frame Should You Trade Your System On?
The smaller the time frame you choose, the harder it is to create a successful trading system.
For example, designing a system to trade on a 5-minute chart is much more challenging than building one for the daily chart.
This is because lower time frames have a lot more market “noise,” making it difficult to distinguish real trends.
Plus, testing a system over many years of data on smaller time frames requires processing huge amounts of information, which can be overwhelming.
Smaller time frames typically mean smaller profits and lower risk per trade.
It’s important to find the right balance between the size of your trading account and the amount of risk you’re comfortable taking.
The New Trader’s Trap
Here’s what’s known as the “New Trader’s Trap”:
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The smaller your trading account, the smaller the time frame you think you should trade.
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But the smaller the time frame, the harder it is to trade successfully.
Do you see the problem?
New traders often start with very little capital, hoping to make quick profits by trading short time frames like 1-minute or 5-minute charts.
They try to scalp small profits frequently, but this puts them in a tough spot because trading these fast charts requires experience.
It often leads to quick losses and frustration.
It’s much easier to build profitable systems on the daily chart than on the 5-minute chart.
That’s why we recommend beginners focus on developing systems using daily charts first.
Even if you don’t plan to trade daily charts later, starting here helps you build confidence and skill in creating effective systems.
Why struggle with fast charts and get discouraged early?
Start with the daily chart, build your skills and confidence, then move on to more challenging intraday time frames.
Should You Try Scalping?
Scalping—taking quick, small profits on short time frames—is tempting because it seems like low-risk trading with many chances to win.
Scalpers usually trade on charts of 5 minutes or less, aiming to capture just a few pips per trade.
Because the risk per trade is small, scalping can be done with a small account.
Scalping setups happen more frequently and often have high win rates, which might lead to accumulated profits over time.
Why Scalping is Difficult for Retail Traders
Most retail traders who try scalping end up failing.
Why? Because when scalping, you’re competing against high-frequency trading (HFT) firms using powerful automated algorithms created by expert teams.
It’s like a beginner basketball player going up against LeBron James.
Other challenges include transaction costs—spreads and slippage—which can eat up a large portion of your profits on very short trades.
For example, if you pay a 2-pip spread to enter and exit a trade and only make 4 pips profit, half your gain goes to paying spreads!
In contrast, on a daily trade gaining 400 pips, the spread cost is a tiny fraction of your profit.
As time frames get smaller, transaction costs and slippage take up a bigger share of your earnings.
Even a single pip of slippage can ruin a scalp trade, while it’s barely noticeable on longer trades.
Add in possible delays from your computer or internet connection, and the margin for error is razor-thin.
On longer time frames, exiting a trade a few seconds early or late usually doesn’t matter much. Not so with scalping, where every second counts.
Final Advice
If you’re new to building trading systems or don’t have proven strategies trading live yet, focus on developing systems on higher time frames first.
It’s a much better way to build a solid foundation before trying faster, more complex time frames.