A look at the different factors influencing the number of trades one makes
Well, how often should I expect to trade?
question that many beginner traders ask is, ‘How many trades should I take each
month?’ It is obvious why it is asked as traders are trying to calculate what
their potential gains might be from trading.
Also, being aware of the dangers of overtrading,
and wanting to avoid that, the obvious question arises, ‘well how many trades should
I be taking each month’.
The number of trades taken depends on a number of different factors
answer to the question, ‘how many trades should I be taking each month‘
is, ‘it depends’. That might sound like an unsatisfactory answer but this
article will show you some of the most significant factors which determine how
many trades you should be taking each month.
Three of the most relevant factors include:
Market dynamics, trading timeframe, and entry style’.
as not all weather is good for sailing, so too not all market dynamics are good
for trading. The market dynamics will dictate the number of trades that you
take each month. The best type of trades that you are looking for is trades
that have a high conviction level.
find these high conviction level trades by finding shifts in sentiment or
fundamental analysis. For example, say the Federal Reserve had just indicated
to the market that it is going to scale back its intended pace of interest
rates in 2019, then we can expect to see USD selling.
say that at the same time we are entering a ‘risk-off’ mode and the Nikkei
index has sold off -2% on the news of a renewed opening in the US/China trade
war, then we can expect to see USD/JPY selling off.
would be a high conviction trade to look at taking. Now, not every day will
provide a high conviction opportunity. So, the obvious trades don’t come along
all the time. A recent real-world example has been the GBP/USD pair.
Over the course of the last few weeks there has
been a near constant sell sentiment for the pair. On the 4hr chart below each
time the 100 EMA has been tested price has sold off from that level. There
could have been four trades taken on the 4 hr chart during November and
December that offered high conviction trades.
In fact, the
sentiment was so bearish with GBPUSD and Theresa May’s bungled Brexit plans
that traders would have been looking for trades on the lower timeframes too. In
fact, at the time of writing GBPUSD bearish sentiment remains. See below here
for pivot point opportunities on the 1-hour chart.
upshot of this is that the market dynamics (a strong GBP sell sentiment) has
meant that savvy traders will be looking to short the GBPUSD pair as long as
this sentiment remains. How many trades will this provide?
Who knows? However, the old saying, ‘Make hay
while the sun shines’ springs to mind as the market presents a great
opportunity. Trade as long as the decent chances are there.
timeframe of your trade will also affect the frequency of your trades. For
example, if you are trading from a higher timeframe, such as the daily, weekly
and monthly chart then you will be trading less trades per month than if you
were trading the 15-minute charts.
intraday trader may easily be taking between 1-3 trades a day on the lower
timeframe. If that was the case then an intraday trader might expect to be
making somewhere between 20-60 trades per month.
course, this is only a rough guide, with individual traders potentially trading
more or less than this. However, it does give you an idea of what an intraday
trader’s trade frequency might be. By contrast, a trader who only uses the
daily timeframe and above, may be trading between 4 and 15 trades per month as
a rough guide.
The general rule of the thumb is the higher the
timeframe, the less trades you can expect to trade per month.
is the final aspect that may impact the number of trades taken per month. Some
traders will scale their positions in. Say for example a trader is going to
trade 5 lots on US Crude futures. They might divide that 5 lots into separate
units of 1 lot.
They might enter one lot at 50.50 cents, another
at 50.60 cents, and the remaining lots at increments of 0.10 cents. In this
instance the ‘one trade’ has been broken down into ‘five separate trades’. Obviously,
a trader who regularly scales their positions in will be taking more ‘trades’
per month than a trader who doesn’t.
How many trades you might typically expect to trade per month
summary, an intraday trader can expect to trade between 20-60 trades a month
and a swing trader somewhere between 4 and 15 trades per month. Obviously, if
you mix styles of trading together, like intraday and swing trading, then you
can expect to achieve a figure that allows for that.
a different note, some algorithmic trading will reach hundreds of trades per
day. This would mean thousands of trades per month. So, there you have it,
a rough guide to the number of trades that you will expect to take per month
and the reason why you can’t pre-determine the number of trades due to changing
market conditions and trading styles.
article was submitted by Instaforex.