For new Forex traders, choosing the right trading time frame is absolutely essential for long-term profitability. However, when they start Forex trading, many novice traders mistakenly opt for shorter time frames like the 1-minute or 5-minute charts.
While these faster charts (scalping and day trading) seem more exciting, they actually expose beginners to significant hurdles that hamper performance.
Instead, trading off of daily charts offers unique benefits, especially for price action traders. The daily chart Forex strategy filters out noise and allows most traders to identify high-probability setups.
Read on to discover why trading the daily chart can set you up for sustainable trading success.
What Is The Daily Timeframe Strategy In Forex?
Daily chart Forex trading strategies analyze price action using 24-hour candles aiming to detect long-term trends and avoid reacting to normal market volatility. Since daily charts cover a full day of trading, strategies based on them focus on larger market moves versus minute-by-minute fluctuations.
These trading strategies operate on the assumption that daily charts provide more reliable signals compared to shorter time frames. The longer time horizon better reflects macro market forces versus random market noise that can be found while doing short-term trading on lower time frames.
By studying daily price action, traders can spot emerging trends, make informed analyses, and maximize profits by capturing long-term trends while at the same time taking fewer trades.
Benefits of Using Daily Charts for Beginners
Compared to lower time frames, daily charts offer distinct advantages for new traders:
Clearer Trend Identification - Pinpointing the market trend is critical for spotting high-probability trades. On smaller time frames, volatility, and noise can obscure the prevailing trend but the daily charts better highlight long-term price movements.
Catch Long-Term Institutional Activity - Large players like hedge funds drive the price movement in most markets. Their bulk orders show up clearly on daily charts as they accumulate positions versus lower time frames which only reveal a partial picture.
Less Vulnerable to Manipulation - Daily charts are harder to manipulate than small time frames where coordinated pumping is common. Longer timeframes reflect natural market forces rather than fabricated volatility.
Dampen Impact of News Events - Fundamentals like economic reports and news events already get priced into daily charts in comparison to shorter time frames which are vulnerable to knee-jerk reactions.
More Time to Analyze Trades - Daily charts provide greater thinking time to evaluate trades based on risk management rules without succumbing to emotions like overtrading, analysis paralysis, or impatience. Lower timeframes encourage impulsive trading decisions.
Improve Execution Skills - Finding optimal entry price and stop loss levels is easier on daily charts, which can help beginner Forex traders master sound trade execution principles.
Lower Transaction Costs – Forex trading the daily chart means lower trading frequency which positively impacts the total transaction costs paid in the form of the spread and commissions.
Now let’s explore some actionable daily chart trading strategies for new traders…
Daily Chart Forex Trading Strategies for Beginners
The two most popular trading style of trading daily charts are:
Position Trading or Trend Trading
Swing trading aims to capture a single directional move and exit before any reversal with the goal of booking profits relatively quickly while limiting drawdowns and losing trades.
Source: TradingView GBPUSD Daily Chart
On the other hand, position trading looks to hold trades through retracements and ride out extended trends over weeks or months by holding positions overnight. The aim is to maximize profit potential from major price movements.
Source: TradingView XAUUSD Monthly Charts
Both the swing trader and the position trader enter trades using the daily chart to benefit from the clarity and reduced noise of daily time frames. In some instances, swing traders may also use intraday time frames like the 4-hour time frame or the 1-hour time frame.
Many traders, including day traders, use the daily time frame and the weekly chart before making a trading decision because professional traders know the importance of the top-down approach.
Now let's examine some profitable trading strategies that can be used with the daily price charts …
Price Action Strategies for Trading the Daily Time Frame
Price action focuses purely on candlestick patterns, support, and resistance levels, trends, and chart patterns. These raw price signals can be very effective on daily charts. Here are two beginner-friendly examples:
Inside Bar Breakout Strategy
An inside bar forms when the daily range is encompassed within the prior day's range. This reflects consolidation before a potential breakout. If the inside bar breaks above or below the mother bar, we can trade the breakout direction.
Spot consolidation after a daily trend move
Identify inside bar setup
Open trade on a breakout above/below mother bar
Place stop beyond inside bar trading range
Source: TradingView EURUSD Daily Chart
Here the break above the mother bar signals uptrend continuation. We buy on the daily close above the mother bar and place a stop below the inside bar low.
Moving Average Crossover Strategy
A crossover occurs when a faster moving average crosses above or below a slower moving average. This signals a shift in momentum.
Identify crossover on the daily chart
Go long on bullish crossover
Go short on bearish crossover
Place stop beyond nearest swing point
Source: TradingView USDJPY Daily Chart
Here the 20-day MA crosses above the 50-day MA, signaling an uptrend. We open trade on the crossover day close and place a stop below the recent swing low.
These are just two examples of price action strategies that translate well to daily time frames. Look for sustainable trends and high probability chart patterns.
How Beginners Can Start Trading the Daily Chart
The daily chart is an excellent timeframe for new Forex traders to master long term trading. Trading off the daily chart removes a lot of the noise and confusion that plagues short term traders. It allows beginners to spot high-probability setups easily.
Here are some tips to begin trading the daily chart successfully:
1. Find a Simple Trading Strategy
Start with a straightforward trading strategy based on daily charts. As a novice, you'll want a good strategy that is easy to understand and implement. For example, a moving average crossover system or a breakout pullback setup that needs to be backtested to ensure it works consistently on the daily timeframe across different currency pairs.
2. Create a Detailed Trading Plan
Having a trading plan is crucial - it outlines your risk management rules, position sizing guidelines, entry/exit tactics, and money management system. Be very specific on elements like:
Maximum risk per trade (e.g. 1-2% of capital)
Stop loss placement rules
Take profit levels based on risk/reward ratios
Drawdown limits before reducing position size
Walkaway threshold if hit max drawdown
3. Find a Daily Chart Scanning Tool
Use charting platforms with built-in scanning tools that can detect your strategy's signals automatically on a daily time frame. Most platforms can scan for crossover, breakout, and candlestick patterns on the daily chart across every Forex pair.
4. Keep a Trading Journal
Maintain a trading journal to record details on every trade: entry price, stop loss, exit price, risk amount, profit/loss, and your emotions/mindset. Review your journal to improve your weaknesses.
5. Analyze Your Trading Statistics
Track key performance metrics like profit factor, win rate, reward/risk ratio, max drawdown, etc. Review the statistics regularly and aim to improve them through proper risk management and psychology.
6. Stay Disciplined With Your Trading Plan
The daily chart requires patience - stick to your trading plan and don't override your trading strategy based on emotions. Execute entries and exits according to your system's rules and wait for price action confirmation signals on the daily timeframe even if that means fewer trading opportunities.
Mastering the daily chart provides beginners with a profitable path forward. Take an organized approach and use the daily close to confirm high-probability setups.
Your trading account will thank you in the long run.
Tips for Trading the Daily Chart
Here are some tips when using the daily chart Forex strategy:
Review charts at the end of the trading day to find reliable trading setups
Use limit orders to enter trades on daily close breakouts
Size positions appropriately to risk only 1-2% of capital
Trail stops to protect open profits on trades
Stick to your profitable trading strategy and trading rules
Master reading price action and spotting high-probability trading setups
Don’t risk real money trading on a live trading account before you practice first on a demo account
So is daily chart trading right for you?
Find the answer below…
Is trading on the daily chart good?
Daily chart trading is not suited for all beginner traders. It's not ideal if you:
Want consistent trading income from high-frequency trading
Prefer fast-paced trading and quick flips
Are impatient and struggle holding long term trends
Can actively monitor charts throughout the day
But for beginners who want to filter out market noise and focus on high-conviction trades, the daily chart can be an excellent fit.
Just be aware of these common daily trading mistakes:
Overtrading due to boredom
Not waiting for clear trend confirmation
Risking too much per trade
Poorly placed entries and exits
Lacking a structured trading plan
Success lies in exercising patience and discipline when trading off daily charts. Use the daily close to properly time entries, wait for momentum to confirm the trend, and target larger profits on extended moves.
If you avoid short-term noise and distractions, the daily chart can provide the clarity needed to prosper in your trading journey as a profitable trader.
Final Thoughts
Trading off the daily chart can provide beginner forex traders with a calmer, stress-free approach to the markets as compared to day trading. For those with busy lives, full time job, families, and other commitments that prevent sitting at the computer all day, the daily time frame and the daily chart Forex strategy allows participation in the Forex market without constant monitoring.
When starting out, stick to trading instruments you understand and can afford the risk on. Try to think in terms of larger moves and long-term trends. Patience and discipline are key when holding trades for days or a few weeks versus minutes or hours.
I hope these tips help beginner traders who want to participate in the markets but have limited time.
Visit the best Forex brokers page to find top-rated brokers that provide advanced daily charting tools, level 2 pricing, and backtesting options to help implement your successful daily strategies.
