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).
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.