I’ve been running a variety of my algos, both for the BK chat room and for my own account, and the longer I trade the variations the more it becomes evident that the one hour chart is the perfect frame for the retail trader.

There are two principal reasons for this. The one hour is responsive the daily swing flows of the market while at the same time long enough to avoid the random ebb and flow of intraday prices. As retail traders, we simply can’t compete on the sub pip level of market makers and HFT algos. It’s akin to driving the Autobahn in a Chevy Cruze. No matter how hard you try you will never be able to drive against the BMWs, the Audis, the Mercedes’ and the Porsches.

It is fun to try, however, which is why we all gravitate to the 1-minute or the 5-minute chart. But the spread, the commission, the market volatility create an almost impossible execution environment and that’s why we should allocate most of our capital to the longer time frames (say in a 70/30 split) in order to truly optimize the chance of success.

The 1-hour chart is no panacea and certainly won’t guarantee success and is not even immune from news bombs which could flip sentiment in an instant and wipe out perfectly good trades. Still, it is slow enough to catch most of the more meaningful market signals and it allows for larger stops and limits which by their very essence protect you from the randomness of the lower level charts.

Yet even on lower level charts, the algos have taught me that less is more.

There is nothing quite like attaching a new EA on 12 or more pairs and seeing it trigger a multitude of trades on 1 minute and 5 minutes charts. It’s exciting! It’s fun! It’s action packed! But very soon you see one, two, three trades go sour all once and then it’s no longer enjoyable. The profits of the past few hours begin to melt away and then quickly turn to losses and then to truly bad losses, especially if you are trading your regular size. Very quickly you realize that you can’t trade a lot and win. You are not a market maker with infinite capital, split-second execution and access to near choice spreads. You are price taker like it or not and that means you need to choose carefully.

That’s actually one of the great advantages of trading retail. Unlike market makers and HFT algos, you are not compelled to trade. You can step away anytime you want -- that’s a huge edge that most retail traders overlook because they just want to be in a game. But an algo, even a very good one quickly shows you the folly of your ways.

On my 1-minute chart, I’ve winnowed myself down to just three pairs and 5 most liquid hours of market trade. That means I may only do 2-4 trades per day. And that’s enough. In fact ideal. The more you trade, the more you lose -- it’s the everlasting truth of the markets but algos help you discover it, mighty quickly.