A look at the different factors influencing the number of trades one makes
Well, how often should I expect to trade?
Onequestion that many beginner traders ask is, 'How many trades should I take eachmonth?' It is obvious why it is asked as traders are trying to calculate whattheir 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 shouldI be taking each month'.
The number of trades taken depends on a number of different factors
Theanswer to the question, 'how many trades should I be taking each month'is, 'it depends'. That might sound like an unsatisfactory answer but thisarticle will show you some of the most significant factors which determine howmany trades you should be taking each month.
Three of the most relevant factors include:Market dynamics, trading timeframe, and entry style'.
Market dynamics
Justas not all weather is good for sailing, so too not all market dynamics are goodfor trading. The market dynamics will dictate the number of trades that youtake each month. The best type of trades that you are looking for is tradesthat have a high conviction level.
Youfind these high conviction level trades by finding shifts in sentiment orfundamental analysis. For example, say the Federal Reserve had just indicatedto the market that it is going to scale back its intended pace of interestrates in 2019, then we can expect to see USD selling.
Now,say that at the same time we are entering a 'risk-off' mode and the Nikkeiindex has sold off -2% on the news of a renewed opening in the US/China tradewar, then we can expect to see USD/JPY selling off.
Thiswould be a high conviction trade to look at taking. Now, not every day willprovide a high conviction opportunity. So, the obvious trades don't come alongall the time. A recent real-world example has been the GBP/USD pair.
Over the course of the last few weeks there hasbeen a near constant sell sentiment for the pair. On the 4hr chart below eachtime the 100 EMA has been tested price has sold off from that level. Therecould have been four trades taken on the 4 hr chart during November andDecember that offered high conviction trades.
In fact, thesentiment was so bearish with GBPUSD and Theresa May's bungled Brexit plansthat traders would have been looking for trades on the lower timeframes too. Infact, at the time of writing GBPUSD bearish sentiment remains. See below herefor pivot point opportunities on the 1-hour chart.
Theupshot of this is that the market dynamics (a strong GBP sell sentiment) hasmeant that savvy traders will be looking to short the GBPUSD pair as long asthis sentiment remains. How many trades will this provide?
Who knows? However, the old saying, 'Make haywhile the sun shines' springs to mind as the market presents a greatopportunity. Trade as long as the decent chances are there.
Trading timeframes
Thetimeframe of your trade will also affect the frequency of your trades. Forexample, if you are trading from a higher timeframe, such as the daily, weeklyand monthly chart then you will be trading less trades per month than if youwere trading the 15-minute charts.
Anintraday trader may easily be taking between 1-3 trades a day on the lowertimeframe. If that was the case then an intraday trader might expect to bemaking somewhere between 20-60 trades per month.
Ofcourse, this is only a rough guide, with individual traders potentially tradingmore or less than this. However, it does give you an idea of what an intradaytrader's trade frequency might be. By contrast, a trader who only uses thedaily timeframe and above, may be trading between 4 and 15 trades per month asa rough guide.
The general rule of the thumb is the higher thetimeframe, the less trades you can expect to trade per month.
Entry style
Thisis the final aspect that may impact the number of trades taken per month. Sometraders will scale their positions in. Say for example a trader is going totrade 5 lots on US Crude futures. They might divide that 5 lots into separateunits of 1 lot.
They might enter one lot at 50.50 cents, anotherat 50.60 cents, and the remaining lots at increments of 0.10 cents. In thisinstance 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
Insummary, an intraday trader can expect to trade between 20-60 trades a monthand a swing trader somewhere between 4 and 15 trades per month. Obviously, ifyou mix styles of trading together, like intraday and swing trading, then youcan expect to achieve a figure that allows for that.
Ona different note, some algorithmic trading will reach hundreds of trades perday. 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 monthand the reason why you can't pre-determine the number of trades due to changingmarket conditions and trading styles.
- Thisarticle was submitted by Instaforex.
