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The Best Chart Time Frames For Day Trading

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New traders tend to test every possible time frame and often choose a time frame for the wrong reason. But there is a simple concept to chose the right time frame for day trading to make the right decision right from the beginning.

What Is a Time Frame?

When people talk about a time frame in day trading, it's all about the time-based chart interval. All major trading platforms offer time frames like the daily, weekly, monthly, or even yearly charts. But those time frames have only limited benefits for day traders. As a day trader, you need intraday time frames to time your entries and exits. The intraday time frames allow you to enter trades with an excellent risk-reward ratio.

60-Minute Time Frame

Swing-traders frequently use the 60-Minute time frame, but there is also the potential for profitable day-trades by combining this chart interval with a lower chart interval utilizing multi-time-frame analysis. One thing to keep in mind, the regular trading hours are from 9:30 a.m. to 4:00 p.m., and the first candle starts at 9:30. Therefore, the last 60-minute candle of a day only contains data of the last 30 minutes of the regular trading hours session from 3:30 p.m. to 4:00 p.m.

15-Minute Time Frame

The 15-minute time frame is probably the most popular interval for day traders focusing on multiple stocks throughout the day. The longer the watchlist, the higher the chart interval should be. You need to have a realistic chance to scan and analyze the current market behavior. If the chosen time frame is too low, and too many stock symbols are screened at a time, the chances of missing the best possible entries increases.

5 Minute Time Frame

High volatile stocks move fast, and traders who focus on only a couple of stocks a day use the 5-minute time frame frequently. The 5-minute chart is especially helpful in the first 60 minutes of a trading day. The time per candle is long enough to analyze the stock and to prepare the orders. 

1-Minute Time Frame

Trading in short-term time frames such as the 1-minute chart requires discipline and an excellent understanding of the market structure. You need to know what you are looking for. For example if a highly volatile stock breaks the previous day high with high momentum, chances increase that the next higher low in the 1-minute time frame allows you to open a trade with low risk and high potential.

Multi-Time Frame Analysis

Trading against the primary trend is a big trap that new traders fall into. Often, the higher time frames are not considered at all. The right way is to work from the highest time frame to the lower one to spot entries with a high profit potential. If the current price is above the previous day high, above the 60-minute opening range, and with higher lows and higher highs all over the place, the sentiment is bullish. Shorting such stocks is against the trend, and the chances are that a short squeeze will lead right to the next high. The higher time frames determine the trend, and it is the most profitable approach to trade with the trend until it's broken.

Things To Consider

Slippage

Slippage is the difference between the fill price you were looking for and the price you got. The slippage increases if the spread gets wider and when trading high volume in less active markets. Limit orders can be used to reduce the slippage, but a limit order has the downside that there is no guarantee that the order will be filled.

Choosing the right charting time frame is important. The lower the time frame, the longer the screentime. The longer the screentime and higher the trading frequency, the greater the chances of making mistakes. That's why it is essential to choose the charting time frame based on your time and trade frequency preferences.

Higher time frames like 60-minute or 15-minute charts have the benefit that they can be traded from a mobile device with less time commitment. Time frames like the 1-minute chart should only be considered for trading systems or hotkey trading.

The preceding article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.

 

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