Choosing the Better Timeframe
Weekly vs Daily Chart to Maximise Profit
Stopping out of a trade position too soon is annoying especially when price recovers and resumes its direction after our exit. In certain conditions, analysing and opening a trade from the weekly chart instead of the daily chart may be the preferred option for maximising profit.
Why trade the weekly chart
· Smooths out the price noise of the daily chart. Price volatility is lower
· Less monitoring required. Open of a weekly candle is at the beginning of the week and close of the candle is at the end of the week. There is more time for making decisions
· Reduces false signals by smoothing out price noise signals from the daily chart
· Good for less active trading and taking time back for yourself
· Suitable for longer term position traders, trend traders and other types of trading where positions are held over a period of weeks or months
Trading on the daily chart
· Taking advantage of short-term movements intraday or over a period of days to weeks
· Need discipline for closer monitoring of trades
· Fast decision making required
· Higher price volatility. Stops are positioned closer to price action. May stop out easily
· Suitable for day traders or short-term swing traders
Preferred Environment for Trading from the Weekly Chart
· Market conditions are good with the relevant market index trending up. This leads to the “risk on” behaviour of investors as well as traders. Risk on is an environment where investors/traders are willing to take on more risk in the search for higher returns. Everyone is optimistic about the future
· Weekly chart of the stock is in an uptrend/beginning of an uptrend or shows signs of a breakout to the upside
· Time in the market is an acceptable risk in exchange for the potential of more profit over the coming weeks
· Price triggered the sell signal too often in the past making it hard to stay with an uptrend on the daily chart. The same stop loss indicator may work better on a weekly chart allowing wider price moves up and down without stopping out
· Daily chart shows a good entry setup. Together with a trending weekly chart, the probability of further price movements over the longer-term is increased.
In this article, we will be taking a look at a past trade based on the weekly chart of LRV.
Analysis of the LRV Daily
On the right-hand side of the daily chart of LRV, we saw a major sell off from traders. Short-term GMMA lines had turned downwards towards the long-term GMMA. Price eventually rejected the lower edge of the long-term GMMA and appeared to be making a recovery. Long-term investors were supportive of the general uptrend in place as the exponential moving average lines were well separated and sloping upwards. Based on this information there was a good probability of price heading higher.
Given the favourable market conditions at the time where the XJO was in an uptrend, we had the confidence for taking on more time risk by staying in a trade for longer. We open the weekly chart for further analysis.
LRV Weekly
An uptrend was in place for LRV on the weekly chart. By using the weekly chart, the initial ATR stop loss was 0.40. In comparison, an ATR stop loss on a daily chart set the initial stop loss higher at 0.47. This is a difference of 15%.
Choosing to trade from the weekly chart means placing a stop loss further from price, thereby risking a bigger initial loss compared to a stop loss placed closer to price on the daily chart.
LRV was a good stock candidate as it was in an uptrend on the daily chart as well as the weekly chart.
One stock trending up on two different timeframes increases the probability of price continuing to trend upwards.
A position was opened on LRV.
🎯 Target Profit 0.77
❇️ Entry at 0.59 as marked by arrow
🛑 Stop Loss at ATR 0.40
This trade reached the target profit price of 0.77 twice. As price began to fall away again for the second time, the trade was closed at 0.79 on the candle marked by the star. A profit of 34%.
LRV fell heavily during this particular week, ending down 17% on a closing price of 0.72. This position was closed before the Friday afternoon close, before the weekly candle had finished for the week.
In contrast, Trader A opened a position based on the daily chart, entry as marked by the arrow. We see price initially move up then sell off. Another rally followed though not quite reaching the target of 0.77, eventually selling off again and triggering the ATR stop loss at 0.47. Trader A stopped out a couple of months earlier compared to the weekly chart resulting in a loss of 20%.
Extended time in the market may work for or against us. Depending on our analysis, trading from a weekly chart may keep us in a trade for longer compared to the daily chart. It may prevent early exits leading to losses or reduced profits.