What Time Frames to Watch While Day Trading Stocks Forget the confusion. Here are the charts to monitor. l
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By Cory Mitchell
Updated February 10, 2019
Wondering which time frames to watch while day trading stocks is very common for new traders. Do you use tick charts, and a five-minute chart for context, or is just using a one-minute chart better? Should a trader monitor a 15-minute or hourly chart to be aware of major support or resistance levels created over the last several days? Scrap the confusion. Based on your trading style, here are the time frames to watch when day trading.
Note: Which time frames to monitor and trade should be laid out in your trading plan. If you haven't created a trading plan yet, this article will help you establish which time frames are most efficient for day trading.
Chart Time Frame Reveals More or Less
If you hear someone say " One-minute charts are too volatile" don't take advice from that person. How data is viewed doesn't change how volatile a market is, all that changes is how much information you see. A tick chart shows the most data because it creates a bar for each transaction (or a specific number of transactions, such as 30 or 500). Then we have one-minute charts which show how the price moves during each one minute period. A five-minute chart shows how the price moved over a five minute period.
The five-minute chart isn't less volatile than the one minute; each five-minute bar is equivalent to five one-minute bars. The one-minute chart may just appear more erratic because it reveals more.
Which Time Frames to Monitor
All time frames show the same information, just in a different way; shorter time frame charts reveal more detail, while longer-term charts show less detail.
When day trading stocks, monitor a tick chart near the open. So many transactions occur around the market open that you could have several big moves and reversals within a few minutes. These are tradable moves, but if viewing a one-minute chart, they may be missed because only one or two one-minute bars have formed, which is hard to base a trade signal off of. On the other hand, you may have 10 or 20 bars form within a couple of minutes on a tick chart, which could provide multiple trade signals.
It is especially likely if trading high volatility stocks.
Continue to trade off the tick chart throughout the rest of the day (choose the number of ticks per bar that suits the stock you are trading). It provides the most detailed information and will also let you know when nothing is happening. If very few transactions are going through, it will take a long time for a tick bar to complete (and a new one to begin).
A one minute chart, on the other hand, will continue to produce price bars as long as one transaction occurs each minute. It gives the illusion of activity, but because the tick chart isn't creating new bars we know there is little activity and therefore it's better to sit on the sidelines (day traders want movement and volume—it helps liquidity and profitability).
As the Day Progresses
As the day progresses, your tick chart is going to accumulate a lot of bars, especially if it is a volatile and high-volume trading day. When zoomed in, it may be difficult to see the entire price range for the trading day or even the entire current trend. That is when it helps to open a one- or two-minute chart. It acts as a summary for the tick chart.
Use the one- or two-minute chart to assess the overall trend, monitor major intra-day support and resistance levels, and note overall volatility.
After "Lunch"
Most day traders trade near the open, but stop trading by about 11:00 or 11:30 AM EST, just prior to the New York lunch hour. The lunch is usually quieter, so day traders stay away as there are fewer quality trade opportunities.
Day traders then commence day trading again, after the lunch hour. Some begin around 1:00 PM EST, while others wait till closer to the close before trading again.
In either case, this late in the day, the tick and one- or two-minute charts may not show the entire trading day (or, if they do, the chart will be very "squished" looking). Therefore, continue to trade on your tick chart but have a four- or five-minute chart open. It will help show the overall trend so far in the day, and major support and resistance levels are clearly visible.
What About Monitoring Prior Days?
So far we've only discussed looking at today's data. When we open our charts for the day, we see what has happened in the pre-market, and maybe a little bit of the prior session, but that is it. Typically that is all that is needed. Day traders must be focused on what is happening now. Looking at loads of history isn't going to reveal much to a day trader.
The only time you would monitor what has happened on prior days is if your strategy requires it. For example, the dead cat bounce strategy looks for trading opportunities based on price gaps. Signals for this strategy may occur days after the price gap occurred, and therefore looking at several days of price history would alert you to potential trade signals.
Bringing it Together
For most stock day traders, a tick chart will work best for placing actual trades. It shows the most detailed information, providing more potential trade signals (relative to a one-minute or higher time frame chart) when the market is active, but also highlights when there is very little activity. Always trade off the tick chart—your tick chart should always be open.
As the day progresses, you may not be able to see all the price data for the current day on your tick chart. Seeing what has occurred throughout the day is important for monitoring trends, overall volatility, tendencies, and strong intraday support and resistance levels. To reveal all the price data for the day, open a separate one-minute or two-minute chart to reveal the entire day's price action. As the day progresses, you may need to increase the time frame to see the whole day. Increase in steps, from three-minute to four-minute to five-minute.
The specific time frame isn't really important; you just want to be able to see as much detail as possible (lower time frames show more detail), while still being able to view the entire day's price action.
Don't worry about monitoring longer time frames (15-minute, hourly, or daily charts) unless your strategy specifically requires it. In that case, open a separate chart for that time frame.
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Graphical trading charts can be based on many different time frames, including time, trades, volume, and price ranges. With an essentially infinite number of choices, choosing the best time frame for a particular trading system or trading style can seem like a daunting task, but if you are trading correctly it actually becomes a very simple task.
How New Traders Choose a Time Frame
Many new traders spend days, weeks, or even months trying every possible time frame in an attempt to find the one that makes their trading profitable.
They try everything from 30-second charts up to monthly charts and then try all of the non-time-based time frames (e.g., ticks, volume, and price ranges), and when none of them make a profit, they blame an incorrect time frame and try them all again, thinking that they must have missed something the first time through.
When they still don't find a profitable time frame, they adjust their trading system or technique slightly, and then they try all of the time frames again, and so on.
The thinking behind this method of choosing a chart time frame is that each trading system or technique has a single time frame that it will work at, and/or that each market has a single time frame that best suits the market's personality. If this sounds reasonable to you, then be careful, because you may be about to enter the never-ending time frame search, from which many new traders never emerge.
How Professional Traders Choose a Time Frame
Professional traders spend about 30 seconds choosing a time frame, if that, because their choice of time frame is not based on a trading system or technique, nor usually upon the market that they are trading, but upon their own trading personality.
For example, traders that like to make many trades throughout the trading day might choose a shorter time frame, while traders that like to make only one or two trades per trading day might choose a longer time frame.
The reason professional traders do not spend endless amounts of time searching for the best time frame is that their trading is based upon market dynamics, excepting the statistical traders, and market dynamics apply in every time frame.
An Example
When evaluating a certain time frame with regard to your trading method, a price pattern that has significance on a two-minute chart will also have significance on a two-hour chart, and if it does not, then it is not a relevant price pattern at all. In other words, if your trading system or technique is not making a profit, there is nothing wrong with the time frame, but with your trading system or technique instead.
Many professional traders do not choose a single time frame at all, but use a combination of short-term and long-term time frames, and make both short-term and long-term trades on the same market.
Ticks, Volume, and Price Ranges
Finally, time frames that are not based upon time should only really be used with trading systems that are specifically designed to use them. For example, if a trading system has been designed to use a 100-tick chart (100 trades), then a 100-tick chart should be used, but not in any other case.
There is nothing wrong with using non-time-based time frames, and if you prefer them visually, then go ahead and use them, but don't use them because you think that they have some advantage over each other or over time-based time frames.
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