Trading in a minute interval is difficult and risky but also has some distinct advantages. But, and that’s a very big but, it has to be done right.
Unfortunately, the rather fast paced nature of the minute interval tends to draw the worst behavior from traders. It might be simply inherent but when things move fast, when minutes count, traders tend to rely more on instinct than logic. It’s as if trading at a fast pace is akin to driving rather than trading.
Ironically, it’s those instincts that traders so blindly rely on that lead to the inevitable crash. In this article I will focus on how to trade in a minute interval with logic rather than impulsiveness. That way, you can really be in the driver’s seat.
Put your Risk Belt on Before Trading
Continuing on with the driving analogy, what’s the first thing you do before you put the car in drive? You put your seat belt on. In trading, and especially in minute trading, you need to first calibrate the risk you’re able to take.
The key risk when implementing short-interval strategies is too many consecutive losing trades. That string of losses can throw you for a tailspin and leave you with no margin.
When you trade in order to gain single pips, or even 20 pips, you’re effectively taking more risk and gaining less.
Hence, the first step would be to decide how much of a stop loss you need. That way even if you have a string of losing trades you won’t be tossed out of the game. The fact is short term strategies can produce many consecutive losing trades before turning profitable. And if you’re not able to take that risk you’ve practically guaranteed your own failure.
Of course, it also depends on how frequently your strategy performs a trade. To illustrate, let’s say your strategy generates 3-4 entry signals a day. In that case, you would need to be able to lose at least 20-25 consecutive trades to weather bad days.
Another pitfall to avoid when trading in minutes is using complicated strategies that are hard to follow quickly. Usually those strategies tend to have a lot of gray areas, especially at the “moment of truth.” In other words, at that crucial moment, it’s not clear whether or not you should engage.
And when you encounter gray areas and are forced to make a snap decision? Well, you know what happens. You let your gut instinct take the driver’s seat. It is, in fact, those hunches that will end up drying up your account.
On the other hand, a very simple, easily implementable strategy gives you a much better chance. A simple strategy becomes the norm and you gain consistency.
Of course, if you have a problem with that as well the simplest thing would be an algo. An algo would automatically execute based on your simple rules of engagement.
Don’t Ignore the Long term
Even if you trade in short duration you must always relate to the mid to long term trend above you. Because going against a long term trade, even if your duration is merely 30mins, is a recipe for disaster. That was a lesson that I learned the hard way.
For example, say you’re trading long while the long term trend is bearish. There’s a greater likelihood for the trend to unexpectedly flip to the other direction.
Then you can pretty much flush your profits down the drain. Because if the long term trend is heading one way it means that the market’s big movers might be looking for an opportunity to jump on the trend.
And that could happen just when you’re trying to squeeze out a 30 pips profit. But if you at least consider the long term trend when trading in minutes you reduce the chance for a negative surprise. Think of it; a multi-week support on a minute interval is much more reassuring than a support generated only a few hours ago.
Take More than a Few Minutes
Once again, we return to the risk of impulsiveness and how to avoid it. Which brings us to our final point; don’t trade at a duration that is too short. For example, if your trades are an average of 2mins you’re taking a bigger risk than if you trade at 20min or 50min.
Because, let’s face it, who can make a wise decision in just 2min, when the clock is ticking down? So when you trade in such short durations you, once again, leave room for your impulses to take charge. The more minutes your average duration the easier it will be for you to make logical decisions.
Mind the Spread
And finally the last point you should take notice of is the spread. When you gain 100 pips and pay a spread of 2 pips that’s okay; the commission is “merely” 2% of your trade. So, when you trade in short duration, let’s say 20min or less, it’s tempting to settle for smaller gains.
But be forewarned; say you expect to gain 10 pips in total from a single trade and you pay 2 pips as a spread. Your commission is not 2%; rather it’s 20% of your total profit. And guess what? You pay that 20% when you lose, as well. When you trade in order to gain single pips, or even 20 pips, you’re effectively taking more risk and gaining less.
Weigh the Pros and Cons
Finally, and in conclusion, weigh the pros and cons. The pros being that trading by the minutes, when done correctly, can be useful and lucrative.. And the cons? It takes a lot of discipline, adherence to the rules and work to keep your risk low and your profits steady. Certainly, it’s considerably more effort than in longer term trades of days or weeks. So while you can squeeze profits out of a “dead’ market you have to work harder for it.
Want a free scalping EA? Check out the Scalper EA, a free expert advisor developed by Shaun Overton.