What is big-scale trading? How to operate?
"See big, do small" is a highly effective trading logic that many friends have heard of, but have not used. Friends often ask me how to match large and small cycles, how to enter and exit positions, and why it is effective, among other questions. Today, I will thoroughly discuss the ins and outs of "see big, do small," including how to implement it in practice, how to match cycles, and I will directly share a "see big, do small" trading system. It can be said to be a guide at the level of a nanny, and I believe it will be helpful to everyone.
1: What is "see big, do small"?
Here, "big" and "small" refer to the time cycles of the K-line.
"Big" and "small" are relative terms. For example, choosing 1 hour as the large cycle and 15 minutes as the small cycle, or choosing 1 hour as the small cycle and the daily line as the large cycle, are both feasible.
"See big" means finding the direction in the large cycle; the large cycle is the trading cycle that leads the direction of the trade.
"Do small" is divided into two modes: one is to enter the position in the small cycle, and the other is to complete all trading in the small cycle.
Let me explain each mode separately.
Mode 1: Entering the position in the small cycle.Here, the larger time frame is responsible for determining the direction, while the smaller time frame is only responsible for the entry operation. After entry, the exit still relies on the larger time frame.
The purpose of this approach is to use the smaller time frame for entry to capture a more precise entry point, reduce the space for the stop loss, and after the trend in the larger time frame emerges, to achieve a higher reward-to-risk ratio.
The chart shows the EUR/USD candlestick, with the left side at the 1-hour level, which is the larger time frame, and the right side at the 5-minute level, which is the smaller time frame.
First, we look at the larger time frame, where the top of the high-level consolidation in the larger time frame breaks, confirming that the trend is in a downtrend.
Switch the candlestick chart to the right at the 5-minute level, and operate the entry at the 5-minute level.
When the 5-minute moving average forms a death cross, and the trend line of the 5-minute consolidation pattern breaks, enter short after the resonance, with the stop loss set at the inflection point above.
At the hourly chart level, the entire segment of the market fell by 800 pips. Since the entry was made at the 5-minute level, the stop loss space was only 90 pips. A 1-hour level drop in the market achieved a 9-to-1 reward-to-risk ratio, which is very high.
Pattern 2: All trades are completed within the smaller time frame.
In this pattern, both entry and exit are within the smaller time frame, aiming to profit from the fluctuation space of the smaller time frame.
The purpose of doing this is, under the condition of a trend determined by the larger time frame, to trade in the same direction as the trend in the smaller time frame, thereby increasing the success rate of trades in the smaller time frame.The chart shows the EUR/USD candlestick chart, with the left side being the 1-hour timeframe, which is the larger cycle, and the right side is the 15-minute timeframe, which is the smaller cycle.
First, let's look at the larger cycle. After a continuous uptrend, the market broke below the ascending trendline, indicating a shift from a bullish to a bearish trend.
Switching to the 15-minute timeframe, at the 15-minute level, using the moving average indicator to enter the market for swing trading, there are multiple opportunities to go short. The first few times the market did not take off, and the profits were minimal. As the market initiated a bearish move, it was possible to catch three main downtrend waves (the three blue arrows in the chart), with substantial profits.
At this point, you might wonder, if the 1-hour timeframe is the larger cycle, the smaller cycle could be 5 minutes or 15 minutes. So, in practical trading, how should one pair the cycles?
2: How to pair the cycles?
The cycle pairing of "looking at the big, doing the small" is quite important. Sometimes, a poor pairing can actually do more harm than good. I will now tell you how to pair the cycles.
(1) First, choose the larger cycle.
Because the larger cycle is the primary cycle, it determines the general direction of trading, as well as the duration of holding positions and the frequency of trading, which are key factors affecting the trading system.
Traders should choose the larger cycle based on their own specific circumstances.
For example, if you are a part-time trader who needs to balance work and trading, then select a larger cycle, at least above the 1-hour level. The 1-hour, 4-hour, and daily timeframes are all viable options.If you have ample time and are interested in day trading, then time frames below one hour are suitable, such as one hour, 30 minutes, and 15 minutes for larger cycles.
The one-hour time frame is highly recommended; it is a versatile level that can be used for both larger and smaller trades. When entering a position based on the one-hour trend, the typical holding period is more than two to three days.
Focusing on the broader direction indicated by the one-hour chart, you can trade smaller cycles, and both 15-minute and 5-minute entries are viable, with positions typically resolved within the day.
(2) Choose the larger time frame first, then determine the smaller one.
Selecting the smaller time frame is more complex than the larger one because it involves technical considerations.
In the two examples provided at the beginning of the article, the larger time frame is one hour, while the smaller time frames are 5 minutes and 15 minutes, respectively. However, attentive readers should notice that the entry methods for the 5-minute and 15-minute time frames are actually different. The 5-minute entry uses a combination of trend lines and moving averages, while the 15-minute entry relies solely on moving averages.
This is a more core issue.
In the 5-minute chart, moving averages change more rapidly than in the 15-minute chart. If entries are made solely based on moving averages, the frequency of trading signals on the 5-minute chart will be high, and stability will be compromised.
Therefore, on top of the moving averages, the 5-minute chart incorporates trend line breakouts to filter signals and enhance stability.
Let's compare: in the second example above, where the entry was made using moving averages on the 15-minute chart, what would the performance look like if we switched to using only moving averages for entry on the 5-minute chart? Please see the image below.The trend in the chart is the same as the one in the second example above, but with 5-minute K-lines instead, using moving averages for entry. The trading frequency has increased significantly, as has the number of erroneous orders. This leads to a higher likelihood of consecutive errors in trading, increased trading costs, and overall, the trading results are not as good as with 15-minute K-lines.
Due to the slower changes in 15-minute K-lines, it is sufficient to use only moving averages for entry on the 15-minute chart. The frequency of signal generation is low, and the stability is good.
Therefore: 5-minute moving average + trend line = 15-minute moving average.
Once the larger time frame is established, when choosing the smaller time frame, there is a general principle to follow:
If the method of opening a position is more complex and does not occur frequently, one can choose a smaller K-line. If the method of opening a position is more aggressive and occurs more frequently, a larger K-line should be selected.
Ignoring the technical details and only discussing the choice of time frames is meaningless.
Here, if you have determined the larger time frame but are unsure about the frequency and stability of your smaller time frame trading signals, then you need to go back and test.
After establishing the direction with the larger time frame, test the smaller time frame entries in backtesting, and calculate the trading frequency and success rate to determine the smaller time frame that suits you.
That's why I always emphasize that there is no universally excellent combination of large and small time frames; there is only what is suitable or not suitable for oneself. Everyone can arrange the most suitable trading method according to their own trading habits.
Additionally, today I want to clarify and thoroughly explain the concept of "looking at the big picture while trading the small," so I will directly provide a trading system for this approach to help everyone better understand.
Please note that the translation is done in a way that maintains the original meaning and context of the Chinese text, while ensuring that it is clear and coherent in English.3: Scalping Trading System with a Macro Perspective and Micro Execution
The macro perspective and micro execution short-term trading system involves entering trades with a high risk-reward ratio after a significant reversal is anticipated in the larger time frame, and then executing these trades in a smaller time frame.
(1) On the large time frame candlestick chart, identify one key support and one key resistance level above and below the current price, and mark these levels on the chart.
(2) After the market tests these levels, switch the chart to a smaller time frame.
(3) When the smaller time frame shows a sideways consolidation pattern, indicating a potential halt in the trend, connect the trendline. Once the market breaks through the trendline in the opposite direction and forms a moving average crossover, enter the trade with a stop loss set at the previous high (or low) point, aiming for a risk-reward ratio of more than 4:1.
The chart shown is of spot gold's candlestick chart, with the left side being the 1-hour time frame and the right side being the 5-minute time frame.
On the left side, at the 1-hour time frame, identify the key support level and wait for the market to test it.
After testing, switch the chart to the 5-minute time frame, where the market consolidates sideways, indicating a potential stabilization of the trend. At this point, connect a downward trendline and wait for the market to break through the trendline and form a moving average crossover to enter the trade. Set the stop loss after the previous low point, and the market may then rise significantly.
The reason for sharing this trading system is its simplicity and versatility across different time frame combinations. It can be used for intraday trading, where every morning you can identify the two most critical support and resistance levels on the chart, set alerts at these levels, and wait for the market to test them.Upon arrival, switch the candlestick chart to a smaller time frame, and when an entry signal appears, open a position and set stop-loss and take-profit orders accordingly.
You can also engage in trades that last for several days. On the daily chart, first identify a key level both above and below the current price. Once these levels are identified, wait for the market to move up or down until it tests these key levels.
When the test is in place, switch the candlestick chart to an hourly time frame. When the hourly candlestick chart shows signs of consolidation, it also indicates that the market is stabilizing. At this point, wait for a trend line break and moving average crossover on the 1-hour chart to enter the position. After entering, set stop-loss and take-profit orders.
This approach does not require frequent trading and is not demanding in terms of monitoring the market, making it suitable for part-time trading operations.
Most traders engage in intraday short-term trading or swing trading that lasts for a few days. These two trading cycles basically cover more than 80% of everyone's trading scenarios, which is very practical.
However, before engaging in actual trading, there are a few precautions to keep in mind:
(1) The trading methods mentioned above, if you intend to use them in real trading, you should conduct backtesting and simulated trading before actual use to find the details of practical operation and see if they are suitable for you and if any modifications are needed.
(2) The method is not the only one. For example, if the entry criteria are not comfortable for you, you can change them to the indicators you are most familiar with and best at. After changing, test to see if it is feasible and profitable.
(3) The "trade the big, do the small" system is a combination of time cycles and technical methods. Time cycles and technical methods influence each other. When building a trading system, consider the balance between cycles and methods thoroughly.