It is important to note that the appropriate time periods to watch and trade should be specified in your trading strategy. If you haven’t already developed a trading strategy, utilize this material to learn more about your day-trading alternatives.
If you already have a trading strategy in place, it’s time to clear the air and learn about the optimum time frames to monitor when day trading. What time frame to utilize while day trading is an essential decision, but there is no single correct answer. The ideal time period will differ depending on the individual, their trading technique, and how they choose to spend their trading time (relaxed versus more intense). Here are the advantages and disadvantages of each day trading time frame so you can determine which is best for you.
What Is a Time frame?
When individuals discuss a time frame in day trading, they are referring to the time-based chart interval. Every major trading platform provides time periods such as daily, weekly, monthly, and even annual charts. However, both time ranges provide very limited benefits to day traders. Day traders use intraday time frames to time their entry and exits. Intraday time frames enable you to enter trades with a high risk-reward ratio.
How Many Types of Time Frame? What Are They?
Time frames have no effect on volatility, and they have no effect on the information you see—though they will show it differently. Shorter-term charts give more detail, whereas longer-term charts disclose less. The long-term chart still includes the data, but it zooms out to show long-term patterns rather than short-term details. Here are some of the common types of time frame that traders should pay attention to:
60-Minute Time Frame
Swing traders commonly employ the 60-Minute time frame, however combining this chart interval with a smaller chart interval using multi-time-frame research can result in winning day trades. Keep in mind that regular trading hours begin at 9:30 a.m. to 4:00 p.m., with the first candle lighting at 9:30 a.m. As a result, the last 60-minute candle of the day comprises just data from the last 30 minutes of the regular trading hours session beginning at 3:30 p.m. to 4:00 p.m.
15-Minute Time Frame
The 15-minute time frame is arguably the most popular for day traders who trade many equities throughout the day. The higher the chart interval, the longer the watchlist. You must have a practical opportunity to scan and assess current market activity. If the time period chosen is too short, and too many stock symbols are screened at once, the likelihood of missing the best possible entry increases.
5-Minute Time Frame
High volatility equities move quickly, and traders who only trade a few stocks each day usually employ the 5-minute time frame. In the first 60 minutes of a trading day, the 5-minute chart is extremely useful. The time each candle is sufficient to examine the stock and plan orders.
1-Minute Time Frame
Trading in short-term time frames, such as the 1-minute chart, necessitates patience and a thorough grasp of market structure. You must be aware of what you are looking for. For example, if a highly volatile stock breaches the previous day’s high with strong momentum, the odds of the following higher low in the 1-minute time frame allowing you to place a trade with low risk and great potential increase.
Some traders just trade on a single time frame, whilst others generate trading opportunities over many time periods. When trading a single time period, you take any deal that appears on that time window. There is no need to look at other time ranges for confirmation.
When you trade on several time frames, you look at a longer-term chart and use it as a filter for trades on a shorter time frame. In this situation, a trader may look at the 5-minute or 10-minute charts to determine the broad trend direction, and then search for chances to enter in that direction on the 1-minute chart, for example. As another example, they may utilize the 30-minute chart for general direction and then enter using the 5-minute or 10-minute chart.
What Are the Differences Among These Types of Time Frames?
|Type of time frame||Advantage||Disadvantage|
|Long-term – Long-term traders typically use daily and weekly charts.||● There is no need to monitor the markets throughout the day.
● Fewer transactions imply paying the spread less frequently.
● More time to consider each deal
|● Big swings
● PATIENCE is essential since each year only one or two commodities are produced.
● A larger account is required to ride longer-term swings.
● Months of frequent failure
|Short-term – Hourly time frames are used by short-term traders, who hold deals for a few hours to a week.||● More trading opportunities.
● Months are less likely to be lost.
● Less reliance on one or two deals each year to generate profits
|● Transaction expenses will rise (more spreads to pay).
● Overnight danger becomes a consideration.
|Intraday – Intraday traders employ minute charts such as the 1-minute and 15-minute.||● There are several trading options.
● There is a lower possibility of losing months overnight.
|● Transaction expenses will be significantly higher (more spreads to pay).
● Mentally more challenging since preconceptions must be changed often.
● Profits are constrained by the necessity to depart at the end of the day.
Which Time Frame is Best for Day Trading?
A basic rule of thumb is that the larger the time span, the more dependable the signals. The charts become increasingly cluttered with false movements and noise as you dive down in time periods. To establish the primary trend of whatever they are trading, traders should ideally utilize a longer time frame.
Once the underlying trend has been identified, traders may define the intermediate trend using their preferred time frame and the short-term trend using a quicker time period. A day trader may use 15-minute charts to describe the major trend, 60-minute charts to define the secondary trend, and a five-minute chart (or even a tick chart) to define the short-term trend.
The choice of which time periods to employ is unique to each trader. Ideally, traders will select the main time frame of interest, followed by time frames above and below it to supplement the main time period. As a result, the long-term chart would be used to define the trend, the intermediate-term chart would offer the trading signal, and the short-term chart would be used to refine the entry and exit.
If you want to get serious about trading, you must understand that it is a lifestyle, similar to a full-time job.
Knowing the various time frames accessible, as well as their flaws and virtues, will undoubtedly aid you in selecting the best one for your trade. And choosing the correct trading frame is one of the most crucial aspects in ensuring you have the right trading tools – ones that match your trading personality, style, and goals.
If you have diverse trading techniques and aims, you don’t have to stick to a single period. It is also feasible to have a short-term trading account and a longer-term trading account to best utilize all chances, depending on your time horizon and goals.