Financial trading, whether it is futures, stocks, options, currencies, exchange traded funds (ETFs) or any other instrument, is a highly competitive environment. You will compete against a broad scale of opponents. This includes individual traders, investment companies, hedge funds and banks. Needless to say that the playing field is not leveled. Not everyone can effort to spend millions each year on infrastructure alone for example.
Understanding this should bring you to the conclusion that not every market style is suited for every market participant.Finding the best trading time frame will be very subjective. There will be trading time frames better suited for each market participant and some they should avoid.
When a retail investor tries to get into High Frequency Trading (HFT) for example the odds are already skewed heavily against him. The time until his orders are reaching the broker via the internet already is a factor to consider. The data might also take a couple of seconds to travel from the exchange to the trader’s computer. This can easily add up to several seconds. This is a huge difference in the world of high frequency algorithmic trading, where major players are dealing with milliseconds.
What can a retail trader do?
To make money in this highly competitive field of trading is possible even for the retail traders, but the time horizon should be thought trough carefully. In general I would say that the smaller the time frame and the more trades you execute, the more likely there will be disadvantages working against you.
Consider a trading system based on a four hour chart for example. It might take two trades a week and targeting the larger market swings. This will probably not be affected too much in case the data takes two seconds to reach the system’s computer.
On the other hand these two seconds might be enough already to break a system running on a fast tick chart. As it would probably trade more and only try to make a couple of ticks per trade.
This can be one of the issues while a system showing profitable back testing results is not able to reproduce these results when it’s trading live.
This article should give you an idea why it makes sense to carefully choose your time frame. Do some research on the variables you can influence, before you start developing a trading idea.