Forex Trading: Low-Frequency vs. High-Frequency

Many people who trade the currency market believe that the key to success is to trade more frequently so that you may take advantage of more opportunities and ultimately make more money. It's the opposite; high-frequency forex trading is associated with increased stress, frustration, and the making of deals with low probabilities. Visit mex 

You won't feel the urge to trade all that often if you've figured out your trading edge and are confident in your ability to always use it. Day traders and scalpers are shown to have a lower average profit compared to slower traders. 

In this post, the term "high-frequency trader" refers exclusively to retail human traders, not to the commercial computer trading programs or algorithms that can generate thousands or tens of thousands of deals each day. 

Putting less time into trading is the quickest method to increase your results. It's human nature to get enticed to make a trade after staring at a price chart for a while. After staring at a 5-minute chart for a while, the idea that we worked hard to earn the money in our forex trading account seems to be completely forgotten. We also tend to exaggerate our ability to foresee the market's direction and to downplay the likelihood that we will lose the money we are risking. 

With more deals comes more work and greater pressure. It's common knowledge that most traders end up losing money. Because most traders likewise trade frequently, it stands to reason that if we trade less frequently (contrary to most traders), our returns will be higher in the long run.

If you are clear on your forex trading edge and know exactly when and how to trade it, you will have a much easier time ignoring the market when it does not provide you with an edge. When you trade fewer times each week, you have the option to increase your risk per trade if you feel confident doing so. Consider two traders, one who makes 30 transactions per month and the other who makes 3 deals per month.  

The trader who makes 30 trades per month obviously cannot trade with the same position size on every trade as the trader who makes 3 trades per month. The higher-frequency trader will also spend more time than is ideal in front of his computer, where he is likely to feel irritated and dissatisfied. 

What's the main point here? 

The idea is that rather than trying to battle the forex market, you should just remain patient and act only when the market clearly exposes your edge. Doing so can help you maximize your earnings in a shorter amount of time. Although spending more time in the markets would lead to more success, the opposite is true for most traders. You should therefore resist the temptation to engage in excessive analysis, make too many trades, or rely on charts with a low period. 

Low-Frequency vs. High-Frequency 

When discussing the frequency of deals done in the Forex market, there are two main categories of traders who participate in retail Forex trading:

 

• High-Frequency Trading
• Low-Frequency Trading

 

Now that we know what to look for, let's compare two popular trading methods to see which one works best for all of us.

 

HIGH FREQUENCY FOREX TRADING 

High frequency forex trading does not relate to the rapid succession of trades executed by automated trading algorithms, but rather to the rapid succession of trades executed by human retail traders on short-term charts. In fact, this approach represents the norm for retail traders operating in today's market. There's a common misconception that more trading equals a better likelihood of profit. 

Because of Robert Kiyosaki's "rat race" metaphor, many people think that their worth is directly proportional to how much time they spend working. Increased compensation is directly proportional to the number of hours worked. This, however, has been shown to be false in the foreign exchange market. Spending less time on anything increases the odds that you'll have a clear enough head to choose deals with a high reward-to-risk ratio. Overexposed chart watchers and frequent forex fx traders are vulnerable to the following pitfalls.

 

• You have a distorted view of your own abilities and the state of the art.
• When you do this, you deplete your margin and leave yourself with little room to make a potentially profitable deal in the future. 
• In other words, you don't give things a chance to come together well.
• Possibilities that aren't therebegun to appear to you.
• To make up for your losses, you start to overtrade and pursue the market.

 

All these factors contribute to sloppy forex trading and financial losses. Why should it come as a shock that 95 percent of retail dealers lose money? The data does not lie. 

So, if statistics demonstrate that high frequency trading driven by humans is not profitable, why do individuals continue to engage in it? 

Arrogance is a contributing factor. High-frequency traders often develop an inflated sense of confidence after a string of successful trades. By attributing their temporary success to skill rather than chance, these traders are encouraged to trade more aggressively and take greater risks.  

Taking on additional risk increases the likelihood of incurring losses, which can quickly wipe out any gains. When you start to lose money and panic, you may make rash decisions to recoup your losses. This may lead to further losses and eventually a margin call from your forex broker.

 

LOW FREQUENCY FOREX TRADING 

Low frequency trades involve extremely few trades throughout a monthly cycle, mainly because they are based on long-term charts (such as daily charts) and take longer to develop but deliver superior profits. All position and long-term traders know that the daily chart shows the trend better than short-term charts. Major trends persist for more than 6 months, intermediate trends are corrections of the primary trend, and minor trends are short-term noise. 

A short-term upswing may be a daily upside retracement (intermediate trend). High-frequency forex traders who utilize short-term charts to go long will be blown off course by low frequency traders who are waiting to sell on the short-term rally in the underlying trend's direction. Because institutional traders that dominate market volume trade on long-term charts, a small boat can easily be blown away. Small boats can only navigate rivers without a counter current. The enormous counter current will blow even the greatest small boat rowers off course. 

Low-frequency trading is better in certain ways, given below:

 

• Your eyes and health benefit from less time in front of the computer.
• Your trend-trading possibilities improve. It's like using sails to harness the wind instead of rowing against a strong tide.
• You trade less.
• Each deal has greater reward-to-risk.
• Low-frequency trades have higher-probability trade settings than high-frequency trades.
• You have more time for important things.

The Bottom Line 

The most important thing to remember from this lesson is that no single transaction should be given undue emphasis. Do not let your newfound confidence in forex trading lead to reckless behavior after a string of successful trades. Keep in mind that you can maintain the same long-term R factor with fewer trades. Know more mex global 

To do this, you should prioritize the quality of your trades over their quantity. Learn to trade in accordance with these realities, rather than against them, by reading the price action the forex trading market creates for us and acting only on high-probability price action trading setups.