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How to Choose the Best Charts Frame For Day Trading
When it comes to day trading, it’s important to have a visual representation of every movement on the trade as they happen. This is why learning and understanding different chart time frames is important.
Time frames in day trading are all about time-based chart intervals. All major trading platforms allow traders to choose from different time frames. However, you have to know that each time frame comes with its benefits, so choosing the best chart time frame for day trading plays a huge part.
As the name suggests, day traders are never trading overnight – the positions are opened and closed on the same day. And because of this, larger time-frame charts are not going to work with day trading.
With the use of chart time frames for day trading, you will see the larger trends and more granular price action that may be taking place. By switching between different time frames on the same stocks, you can form different viewpoints, which can make or break the analysis. This is why it’s important to have a solid understanding of day trading time frames.
After reading this article, you will have a better understanding of chart time frames for day trading and what time frame to use for day trading.
Importance of Choosing the Best Time Frame for Day Trading
Knowing the best charting time frame is a total game-changer. Remember: the lower the time frame, the longer the screen time. And the longer the screen time and higher the trading frequency, the higher the possibilities of making mistakes.
It might seem pretty obvious to know which time frames you should be trading. However, this can still be confusing for many, particularly for beginners. There are a lot of factors that can make it more difficult to select the best time frame, for example even the timezone is different for traders around the world.
You also have to keep in mind that different time frames require an extremely different mindset. Trading on a 15-minute time frame (which we will talk about later in this article) requires a calm mind, with clear entry, exit, and stop placements. Often there’s simply no chance for you to think. If it does not work for you, then you should accept it and move on to the next time frame.
Unlike trades that are designed to last a week, a month or longer, day trading is fast-paced. Your targets have to be further from the actual stock positions for you to avoid being stopped out during retracements. Your objective is to have much bigger profit per trade, but this, of course, also comes with a much bigger risk. If you’re going to chop around with time frames, you’ll lose your focus and you’re likely to make poor decisions. So, on top of planning, you must choose the most suitable time frame for your needs. Putting more thought into selecting the optimal time frame for your trading strategy will most likely positively affect your trade success rate.
Different Chart Time Frames for Day Trading: Which is the Right One for You?
One of the main reasons why many traders choose day trading over longer-term trading is that it offers instant results. You don’t have to choose a stock based on the current and expected fundamentals and wait months or even years to see whether you made the right decisions or not.
In day trading, you see a pattern or read an article talking about a certain stock’s potential, you enter a trade and get the results in minutes. But then again, as exciting as it can be, day trading can be very risky, just like any other form of day trading. But with enough knowledge and proper planning, you’ll be able to reduce the number of bad trades and increase the number of good ones. And one of the best ways to do this is by choosing the right chart time frames for you.
Most Common Time Frames of Different Traders
1-Minute Time Frame
A 1-minute time frame might be ideal for traders who like seeing detail in the price movements and potentially getting in and out for quick trades that only last for a few minutes. Trading on a 1-minute time frame requires constant attention as the price bars are generated every minute and trade signals may take place regularly. Since a 1-minute time frame occurs frequently throughout the day, traders have the chance to take more trades per day compared to longer time frames. Traders who execute orders primarily on the 1-minute time frame are called scalpers.
5-Minute Time Frame
If you want to focus on bigger intraday trends and don’t care about seeing graph movements every minute, then a 5-minute chart might work better for you. This strategy requires focus, but not as critical as the 1-minute time frame. Candles are forming every 5 minutes, which means you’ll have more time between data points. 5-minute chart traders tend to trade on a less than a 1-minute chart time frame since there are fewer data points involved. One or two trades may progress in a two-hour trading window, possibly more, but less compared to the 1-minute time frame.
15-Minute Time Frame
The 15-minute time frame is probably the most popular interval for day traders who want to focus on multiple stocks throughout the day. Trading on a 15-minute chart time frame requires less constant focus as bars/candles are forming over a longer period. Casual traders who choose this time frame might only be taking one or two trades per day. If only trading throughout a two-hour or less window, many days may have no trade signals. If a trader cannot find enough trading possibilities on a 15-minute chart it is suggested to switch to a smaller one.
Multi-Time Frame Analysis
Even though sticking to a specific time frame is great most of the time, this doesn’t mean that the trader can’t use other chart time frames to their advantage. More experienced traders often prefer to use multi-time frame analysis to increase their trade success rate. The best thing about them is that they can be used as technical indicators that often help to understand either a more generic trend of the market (if the trader switches to a larger time frame) or understand what is happening at a very specific time on the market (If the trader switches to a smaller time frame).
This can be really good and work to your advantage. However, it also has drawbacks as changes are usually obvious on lower time frames before the higher time frames. So, filtering based on higher time frames might not always offer immediate results, which can lead to missing good opportunities.
Some day traders choose to only trade on a one-time frame, while others choose multiple time frame analysis for day trading to develop trading opportunities. Single time frames usually mean that when you see trade on the 1-minute chart, you take the plunge on it. On the other hand, multiple time frame trading means that you look at a longer-term chart and use it as a filter for trades on the lower time frame. In this case, a trader might check the other time frames for the overall trade direction, and then look for opportunities to get in that trend direction.
4 Tips on Choosing Your Main Chart Time Frame for Trading
- If your trading account happens to be very modest and your greatest risk is a small percentage of that, then you might have to use a time frame that is faster-paced. Obviously, you’re already at high risk, and your only way out of this is to have a larger trading account. Generally it is suggested to risk a small percentage of your overall account balance despite your preferred trading time frame.
- The faster the interval, the less time you have to think and identify the trade you’re entering. This may lead to missing entries. But how fast is too fast? This depends from person to person, but is usually brought down to experience and speed of executing orders. If you feel like you’re having a hard time getting into trades that have shorter intervals, then you may want to try larger time frames in the meantime.
- If you go to a chart time frame that is too large, then your trading frequency might become faster than your attention span. Longer-term intervals are ideal for proving much more precise signs, but they offer fewer trades in a provided period. This may lead to missing trades, not because the market is moving too quickly, but for the reason that you don’t have enough time to execute orders.
- If you’re a beginner, start with the most common one. And what is the most common time frame for day trading? The majority of experts agree that it is the 15-minute time frame. This is because trading opportunities on such a time frame are easier to follow and there is enough time to think over and analyze your decision. So, keep doing your research and go with the flow, as this may help you to figure out what time frame to use for day trading.
The time frame for day trading is something that’s commonly overlooked by many traders. It defines how you trade and the methods you use to trade. All in all, the best time frame for day trading depends on you – you choose your intervals based on your skills, strategy, and trading experience.
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