How slow a timeframe can the spread afford

[Fairman]

How slow a timeframe can the spread afford

The smaller the timeframe, the larger the share of each move that goes to costs. A one-minute chart with a 3 pip average move and a 0.6 pip spread loses a fifth to cost before anything else. A five-minute chart with an 8 pip average move loses less than a tenth.

That arithmetic is why many scalpers drift toward slightly longer timeframes over time. The edge per trade needs to be large enough to pay the spread and slippage with room to spare.

A simple test: compute the average absolute price change over the strategy's typical holding period and divide the round-turn cost by it. If the ratio is above 20 percent, the strategy is fragile. Above 30 percent, it's hard to justify.

The ratio also varies by pair and session. A pair with a low spread and high volatility supports faster trading. A thin pair does not.

The decision of how fast to trade should follow from this arithmetic, not from a preference for action. Some of the best results come from strategies that trade only when volatility justifies the cost.

Being willing to move to a slower timeframe when conditions are expensive is a sign of maturity in the process.

What cost-to-move ratio does the strategy sit at, and how does it change across sessions?