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Which Time Frames to Watch While Day Trading Stocks
Forget the confusion. Here are the charts to monitor.
New traders often wonder which time frames to watch while day trading stocks. Do you use tick charts and a five-minute chart for context, or is it better to use a one-minute chart instead? Is a 15-minute or hourly chart more effective at monitoring major support or resistance levels created over the last several days?
Before answering these questions, it’s worth noting that the best time frames to monitor and trade should be laid out in your trading plan. If you haven’t created a trading plan yet, use this information to learn more about your options for day trading strategies.
If you already have a trading plan, it’s time to scrap the confusion and learn about the best time frames to watch while day trading.
Chart Time Frames Don’t Change Market Volatility
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). One-minute charts show how the price moves during each one-minute period. A five-minute chart tracks price movement in five-minute increments. The five-minute chart isn’t less volatile than the one-minute, even though the chart may appear calmer. Each five-minute bar is equivalent to five one-minute bars. The one-minute chart may appear more erratic, but that’s only because it reveals more detail about trading.
Which Time Frames to Monitor
Just as time frames don’t affect volatility, time frames don’t impact the information you see—though they will display that information differently. Shorter time frame charts reveal more detail, while longer-term charts show less detail. The detail is still included in the long-term chart, but the chart zooms out to emphasize long-term trends rather than short-term 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 they occur so quickly that traders may miss them if they’re viewing a one-minute chart. Despite the high volume of trading, only one or two one-minute bars may have formed, making it difficult to determine trade signals. On the other hand, traders viewing tick charts may have 10 or 20 bars form within a couple of minutes after the markets open, and those bars could provide multiple trade signals. This scenario is especially likely when trading high volatility stocks.
Once you determine the number of ticks per bar that best suits the stock you are trading, you can continue to trade off the tick chart throughout the day. It provides the most detailed information and will also let you know when nothing is happening. If only a few transactions are going through, it will take a long time for a tick bar to complete (and for 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. This can create the illusion of activity during slow trading periods, but traders who see that the tick chart isn’t creating new bars will know there is little activity. Therefore, they may decide that it’s better to sit on the sidelines (day traders want movement and volume—those factors boost liquidity and profitability).
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As the Day Progresses, Extend Your Time Frame
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. This can create too much detail. 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-minute or two-minute chart. It acts as a summary of the tick chart, giving traders more context about the activity.
The one-minute and two-minute charts are especially helpful in assessing trends, monitoring major intra-day support and resistance levels, and noting overall volatility.
Take a Break for “Lunch,” Then Continue Extending Your Time Frame
Most day traders trade near the open, but stop trading by about 11 or 11:30 a.m. EST, just before the New York lunch hour. The lunch hour is typically quieter, so day traders usually take a break, as there are fewer quality trade opportunities.
Day traders will resume day trading after the lunch hour. Some traders begin around 1 p.m. EST, while others prefer to wait and resume trading closer to the market close.
In either case, the tick, one-minute, and two-minute charts may not show the entire trading day (or, if they do, the chart will appear squished). Therefore, continue to trade on your tick chart, but have a four-minute or five-minute chart open. Late in the day, these longer-term charts will help show the day’s overall trend. They will also make major support and resistance levels clearly visible.
Day Traders Rarely (But Do Sometimes) Monitor Prior Days
Day traders spend the bulk of their energy looking at today’s data. When they open their charts for the day, they 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 worthwhile information to a day trader.
The only time a day trader would monitor what has happened on prior days is if that trader’s personal trading 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, so recognizing trade signals depends on the use of a chart that includes several days of price history.
The Bottom Line
For most stock day traders, a tick chart will work best for actually placing trades. The tick chart shows the most detailed information and provides more potential trade signals when the market is active (relative to a one-minute or longer time frame chart). It also highlights when there is little activity. Always trade off the tick chart—your tick chart should always be open.
While your tick chart should always be open, it shouldn’t be the only chart you’re watching. 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 of your chart to see the whole day. Increase in steps, from three-minute to four-minute to five-minute. The specific time frame isn’t the most important aspect; you just want to be able to see as much detail as possible while still being able to view the entire day’s price action. The shorter the time frame, the more detail becomes visible, but the harder it becomes to fit an entire day of action onto a single chart.
While you will extend your time frame later in the day, 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.
Keep your trading simple. Focus on today and what is happening now.
Choosing the Best Day Trading Chart Time Frame
Graphical trading charts can be based on many different time frames or even on non-time-related parameters such as number of trades or price range. With an essentially infinite number of choices, choosing the best time frame or other variable for a particular trading style and type of asset can seem like a daunting task. But if you are trading smartly, 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 or parameter in an attempt to find the one that makes their trading profitable. They try 30-second charts, five-minute charts, and so on and then they try all of the non-time-based options, including ticks and volume. When none of them makes a profit, they think they made an incorrect choice and try them all again, assuming they must have missed something the first time through.
When they still don’t find a profitable choice, they adjust their trading system or technique slightly and then try all of the time frames again, and so on.
The thinking behind this dogged effort to choose the right chart time frame or other trading parameter is that each trading system or technique—and probably every market too—has one optimal time frame or other variables that it will work best with. If that belief 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 isn’t based on their trading system or technique—or the market in which they’re trading—but on their own trading personality.
For example, traders who tend to make many trades throughout the trading day might choose a shorter time frame, while traders who typically make only one or two trades per trading day might choose a longer time frame. Traders may also switch their time frame on a given day depending on how actively they’re trading.
The reason professional traders do not spend endless amounts of time searching for the best time frame is that their trading is based on market dynamics, and market dynamics apply in every time frame.
The Irrelevance of Time
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 after all. In other words, if your trading system or technique is not making a profit, there is nothing wrong with the time frame; the fault is with your trading system or technique.
Other Trading Parameters
Finally, trading parameters that are not based on time should generally be used only with trading systems that are specifically designed to use them. For example, if a trading system has been created using a 100-tick chart—with a move occurring after 100 transactions have taken place—then a 100-tick chart should be used. If a trading pattern is based on the size of a price move, then time isn’t important and you should select a chart, such as a Renko chart, that enables you to base the chart on price movement.
Having said that, there is nothing wrong with using non-time-based variables. If you prefer them visually and find them easier to read, then go ahead and use them. But beginning traders shouldn’t assume that one of them has some inherent advantage over another or over a time frame format.
The Balance does not provide tax, investment, or financial services and advice. The information is being presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal.
Multiple Time Frames Can Multiply Returns
In order to consistently make money in the markets, traders need to learn how to identify an underlying trend and trade around it accordingly. Common clichés include: “trade with the trend”, “don’t fight the tape” and “the trend is your friend”. But how long does a trend last? When you should you get in or out of a trade? What exactly does it mean to be a short-term trader? Here we dig deeper into trading time frames.
- A time frame refers to the amount of time that a trend lasts for in a market, which can be identified and used by traders.
- Primary, or immediate time frames are actionable right now and are of interest to day-traders and high-frequency trading.
- Other time frames, however, should also be on your radar that can confirm or refute a pattern, or indicate simultaneous or contradictory trends that are taking place.
- These time frames can range from minutes or hours to days or weeks, or even longer.
Trends can be classified as primary, intermediate and short-term. However, markets exist in several time frames simultaneously. As such, there can be conflicting trends within a particular stock depending on the time frame being considered. It is not out of the ordinary for a stock to be in a primary uptrend while being mired in intermediate and short-term downtrends.
Typically, beginning or novice traders lock in on a specific time frame, ignoring the more powerful primary trend. Alternately, traders may be trading the primary trend but underestimating the importance of refining their entries in an ideal short-term time frame. Read on to learn about which time frame you should track for the best trading outcomes.
What Time Frames Should You be Tracking?
A general rule is that the longer the time frame, the more reliable the signals being given. As you drill down in time frames, the charts become more polluted with false moves and noise. Ideally, traders should use a longer time frame to define the primary trend of whatever they are trading. (For more on this see, Short-, Intermediate- and Long-Term Trends.)
Once the underlying trend is defined, traders can use their preferred time frame to define the intermediate trend and a faster time frame to define the short-term trend. Some examples of putting multiple time frames into use would be:
- A swing trader, who focuses on daily charts for decisions, could use weekly charts to define the primary trend and 60-minute charts to define the short-term trend.
- A day trader could trade off of 15-minute charts, use 60-minute charts to define the primary trend and a five-minute chart (or even a tick chart) to define the short-term trend.
- A long-term position trader could focus on weekly charts while using monthly charts to define the primary trend and daily charts to refine entries and exits.
The selection of what group of time frames to use is unique to each individual trader. Ideally, traders will choose the main time frame they are interested in, and then choose a time frame above and below it to complement the main time frame. As such, they would be using the long-term chart to define the trend, the intermediate-term chart to provide the trading signal and the short-term chart to refine the entry and exit. One note of warning, however, is to not get caught up in the noise of a short-term chart and over analyze a trade. Short-term charts are typically used to confirm or dispel a hypothesis from the primary chart.
Holly Frontier Corp. (NYSE: HFC), formerly Holly Corp., began appearing on some of our stock screens early in 2007 as it approached its 52-week high and was showing relative strength versus other stocks in its sector. As you can see from the chart below, the daily chart was showing a very tight trading range forming above its 20- and 50-day simple moving averages. The Bollinger Bands® were also revealing a sharp contraction due to the decreased volatility and warning of a possible surge on the way. Because the daily chart is the preferred time frame for identifying potential swing trades, the weekly chart would need to be consulted to determine the primary trend and verify its alignment with our hypothesis.
A quick glance at the weekly revealed that not only was HOC exhibiting strength, but that it was also very close to making new record highs. Furthermore, it was showing a possible partial retrace within the established trading range, signaling that a breakout may soon occur.
The projected target for such a breakout was a juicy 20 points. With the two charts in sync, HOC was added to the watch list as a potential trade. A few days later, HOC attempted to break out and, after a volatile week and a half, HOC managed to close over the entire base.
HOC was a very difficult trade to make at the breakout point due to the increased volatility. However, these types of breakouts usually offer a very safe entry on the first pullback following the breakout. When the breakout was confirmed on the weekly chart, the likelihood of a failure on the daily chart would be significantly reduced if a suitable entry could be found. The use of multiple time frames helped identify the exact bottom of the pullback in early April 2007. The chart below shows a hammer candle being formed on the 20-day simple moving average and mid Bollinger Band® support. It also shows HOC approaching the previous breakout point, which usually offers support as well. The entry would have been at the point at which the stock cleared the high of the hammer candle, preferably on an increase in volume.
By drilling down to a lower time frame, it became easier to identify that the pullback was nearing an end and that the potential for a breakout was imminent. Figure 4 shows a 60-minute chart with a clear downtrend channel. Notice how HOC was consistently being pulled down by the 20-period simple moving average. An important note is that most indicators will work across multiple time frames as well. HOC closed over the previous daily high in the first hour of trading on April 4, 2007, signaling the entry. The next 60-minute candle clearly confirmed that the pullback was over, with a strong move on a surge in volume.
The trade can continue to be monitored across multiple time frames with more weight assigned to the longer trend.
How To Use 1 & 4 hour Chart Time-Frames to Confirm Daily Chart Signals
A common question beginning traders ask me is whether or not I use intraday or “lower time frame charts” and if so, how do I use them?
For the most part, the answer is yes, I do use intraday charts. However, (you knew there was going to be a however, right?) there is a time and place for everything, especially intraday charts. It’s important you understand when to use them and how to use them. This is something I go into much greater detail on in my advanced price action trading course, but for today’s lesson, I wanted to give you a brief overview of just how I incorporate intraday charts into my daily trading routine.
This tutorial will demonstrate several of the core ways I use intraday chart time frames to provide additional confirmation to daily chart signals as well as manage risk, manage position size and improve the risk reward of a trade.
My favorite intraday chart time frames to trade…
Typically, people who email me about the intraday time frames want to know if I ever trade solely off of these lower time frames. The answer is, yes, I sometimes do trade the 1-hour or 4-hour charts on their own without taking into account the daily or weekly time frame. However, 90% of the time I use the 1-hour and 4-hour charts to confirm the higher time frame signal, mainly the daily chart time frame.
In this way, the intraday charts work as an extra point of confluence to give weight to a trade and further confirm whether or not I want to enter it. The other big advantage of the intraday charts is that they can allow me to fine-tune my entry to achieve better risk management. More on these topics later.
- The most important thing to remember is that I never go lower than the 1-hour chart because from my experience, any time frame under the 1-hour is just noise. As you go lower in time frame, there are increasing amounts of meaningless price bars that you have to sift through and this makes the story of the market cloudier and cloudier, until you reach a 1-minute chart where you are basically just trying to make sense of gibberish.
- I only look at the 1-hour and 4-hour charts when I am looking at intraday time frames. The anchor chart that I base most of my trading decisions on is always the daily chart time frame.
- For those who like to look at weekly charts, the concepts in this lesson could be applied there as well. You would essentially use the daily charts to confirm weekly signals and add confluence to them, as well as fine-tune your risk management. It should be noted, I rarely trade off weekly charts alone, but for the die-hard weekly-chart traders, keep this in mind when reading the rest of this tutorial.
- Remember, it is NOT essential to trade the daily chart with confirmation from the intraday. It’s just something you might want to implement as you become more advanced and have mastered the basics of trading daily chart time frames.
- Remember, this is NOT day trading! The length of time we are holding these trades is still intended to be a full overnight position or multiple days / weeks. Remember, the initial trade trigger is still the higher time frame chart.
Using Intraday Charts for Second Chance Trade Entries
Everyone hates missing out on a perfectly good trade, myself included. Luckily, there are a number of different ways you can get a good second chance trade entry on a signal you initially missed.
One of those ways is by use of the 1-hour or 4-hour charts to look for a signal a few hours or even days later, to re-enter in the direction of the original daily chart signal that you missed.
In the example below, we see a clear-as-day pin bar buy signal from support in the S&P500, circled in the chart below. If you missed this one, you were definitely kicking yourself…
However, for savvy price action traders, they know a second-chance entry will often present itself on the intraday charts not long after the daily signal fires off. Notice, in the chart below, we see a fakey pin bar combo pattern formed shortly after the daily pin bar. Also, notice there was a larger 4-hour pin bar that formed the same day as the daily signal, adding more confluence to that daily signal.
Using Intraday Charts to Confirm Daily Signals
Sometimes, you may see a potential daily chart signal but you don’t feel convinced. It may not “look right” to you and you feel it needs some more confirmation as a result. This is normal, and it happens often.
You will sometimes then get a 1-hour or 4-hour chart showing a super-convincing signal after the daily one you weren’t sure about.
Notice, in the chart below, we had a bullish tailed bar at support in an up-trending market. But at the time that bar formed, you would probably be wondering if it was really worth taking or not, due to its bearish close and the preceding swing lower.
Intraday chart to the rescue. Notice the two convincing 4-hour pin bars that formed around the time of the above daily chart bullish tailed bar. You could have used these 4-hour pins to further confirm your feeling about the daily chart signal you weren’t sure about.
Sometimes, you will see a daily chart signal forms but does not have any real obvious confluence with a strong trend or key chart level. In these cases, you can rely on a clean intraday signal to be the confluence that you need to either enter the trade or pass on it.
Notice in the daily S&P500 chart below, there was an intense sell off in early 2020. It would have been very tough for most traders to buy right after such a strong sell-off. There was a lot of bearish momentum and pressure overhead and this would have cast doubt on the daily chart pin bar signals seen below.
The 1-hour chart would have helped us in this situation. As seen below, back-to-back 1-hour chart pin bars formed at the time of the above daily signals, indicating further confluence and giving us further confirmation, it was safe to enter long. Also, entering on these 1-hour pin bars allowed a much tighter stop loss and thus better risk / reward profile as will be discussed in the next section.
Using Intraday Charts to Tweak Your Risk Reward and Position Size
As we know, the daily chart requires us to use wider stops most of the time (unless we use the 50% tweak entry as exception), so in most cases, when we use the 1 or 4-hour intraday chart, we can implement a tighter stop loss and adjust position size accordingly. This allows us to substantially improve our risk reward because the stop loss distance is reduced and the position size can be increased as a result, but the profit target remains the same.
This is not going to be the case on every trade on intraday charts, sometimes the risk management ends up being very similar to what it would have been on the daily chart on its own. But there are many instances where it works out to where you can double or triple the potential reward on a trade by utilizing intraday signals.
In the Dow Jones daily chart example below, we can see a clear pin bar signal formed and if you had entered near the pin high with the classic stop placement of the pin low, you’d likely get a 2R reward, POSSIBLY 2.5 or 3R at the most.
The 4-hour Dow Jones chart around this same time, fired off a 4-hour pin bar shortly after the daily pin above, providing us the potential to essential trade that pin bar instead, this reduces the stop loss by about half and allows us to double the position size, upping the reward to 6R max instead of 3R. Maximizing winning trades is essentially how you build a small account into a big one and how you make big money in the markets.
A similar situation in the example below. A nice GBPJPY bearish daily pin bar formed, albeit a pretty wide one. Your stop loss would have been over 300 pips from pin high to low on this one, greatly limiting the potential Risk Reward:
The 4-hour chart fired off a much smaller pin bar after the above daily pin. This allowed us to turn a 1R winner into a 5R or more potential.
The intraday tweaks and ‘tricks’ that I showed you in today’s lesson are just some of the ways I utilize the 1-hour and 4-hour charts with my three core price action trading strategies in my trading plan.
Price action trading does not simply consist of just looking for a few candle patterns on a chart and then placing a trade, not even close. There is a lot more involved. The process of actually finding and filtering trades, managing risk / reward and then executing the trade and managing it both technically and mentally, is something you can’t learn overnight. There is a technical analysis side and a mental side to every trade, and both parts have to be learned and practiced over and over before you truly gain the ability to make consistent money in the market.
After reading today’s lesson, I hope you have a better understanding of how to use the intraday charts properly, unlike most traders. Don’t make the mistake of using the intraday charts to micro-manage your position and over-trade. This is wrong and will cause you to lose money.
Instead, utilize the tips and tricks learned in this lesson and the others I teach in my trading course, to use the intraday charts to your advantage. Trading is about making the most out of a good signal, and this is what I use the intraday charts for, not to over-trade or meddle in my trades like most traders do. I hope you too can now use the intraday charts to your advantage by implementing the theory and concepts in this tutorial to ultimately improve the odds of any given trade working out in your favor and maximize its profit.
What did you think of this lesson? Please leave your comments & feedback below!
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