Day trading is a popular trading strategy that involves taking quick and short trades during the course of one trading day. Many traders use different time frames when trading, such as 1-minute, 5-minute, 15-minute and 30-minute time frames. Different time frames can be used for different trading strategies, such as scalping, trend following, and range trading.
In this article, we will take a look at how different time frames can be used for day trading and what their advantages and disadvantages are:
- 1-minute time frame
- 5-minute time frame
- 15-minute time frame
- 30-minute time frame
What is day trading?
Day trading is the practice of buying and selling financial instruments within the same trading day. It can involve any kind of security, including stocks, bonds, currencies and commodities. As a day trader you take advantage of the small daily movements in price to enter and exit positions swiftly and profitably.
Day traders use a wide variety of time frames when they open and close their trades, referred to as “time frames”. Different time frames allow traders to capitalize on different market conditions. Traders who use different time frames often have different strategies for pursuing profits; understanding which frame works best in which market should help guide your own trading decisions.
The most popular time frames are:
- Intraday (day trading)
- Swing trading (for longer holding periods)
- Long-term investing (which involves holding positions for months or years)
Each time frame has its own advantages and disadvantages – understanding these will help you decide which one is best for you.
Benefits of day trading
Day trading is an investment strategy that involves making multiple intensive trades over the course of a single day in order to capitalize on fluctuations in prices. It requires diligence, discipline and research as traders attempt to maximize their profit potential by capturing fleeting market opportunities. Day traders often limit their activities to certain time frames, such as specific exchange hours when markets are open, news releases or other events occurring at predetermined intervals.
Although this type of trading can produce higher returns than traditional investing strategies in the short-term, it carries greater risk and its profits are more difficult to capitalize upon. Those who have succeeded have gained experienced knowledge from constantly monitoring the markets and being able to interpret financial data quickly. This process has distinct benefits for those with the time, resources and aptitude for this type of investing:
- Can Take Advantage of Volatility: Day trading allows traders to take advantage of smaller movements in stock prices over shorter investment periods than traditional strategies that focus on long-term outlooks.
- Higher Levels of Control: While taking on a high risk may appear daunting, day traders generally possess a higher degree of control over their investments compared to those attempting only long term strategies; they can adjust their position size quickly or even place stops or limits if needed.
- Tax Benefits: Although every trader's situation is unique with regard to taxes, capital gains taxes may be reduced depending on how short a period you hold investments because you likely won't meet minimum holding standards and be liable for taxes–in some cases earning huge profits in just minutes!
- Efficiency: By using high frequency trading software designed with algorithms designed by human experts and monitored by computers, portfolio managers can generate more trade ideas based on their parameters faster than ever before. This performance can pose an edge over competitors who lack access or experience with these tools.
Time Frames
Time frames are an important factor when it comes to day trading. Different time frames can produce different results, so it’s important to understand them and how they can be used to better inform your trading decisions.
This section will discuss different time frames and how you can use them to optimize your day trading strategies.
Intraday time frames
Intraday time frames are used when day trading since there is less potential for a major market move to happen within a short period of time. Intraday trading is centered around short-term price action, and as such, intraday time frames span from as short as 1 minute to as long as 4 hours. The most commonly used intraday time frames are 1 minute, 5 minutes and 15 minutes.
- 1 Minute – This is the most active intraday time frame and provides the most data points to analyze. This is preferred by traders who expect quick moves in the market and don’t want to wait longer than that to see how their trades develop.
- 5 Minutes – This intraday chart allows traders to catch more movements within a certain period of time without having too much data on the chart that can lead to confusion or misleading information.
- 15 Minutes – The 15-minute chart typically generates fewer trade signals than its shorter counterparts, but it does provide more stability when making decisions compared to shorter charts with more frequent signals that may be unreliable or inaccurate during high volatility periods in the markets.
Intra-day traders should be aware of taking into account external factors such as news announcements and economic activity when deciding on their settings for intraday time frames before entering a trade. Using higher intraday time frames can provide additional filter for confirming trend directions so overall trading accuracy can improve over shorter intra-day settings like 1 minute or 5 minutes in certain market conditions where trends are dominating moves instead of regular breakouts in especially volatile environments.
Tick charts
.1 Tick charts are among the shortest time frames used for day trading and offer traders the opportunity to make a large number of trades in a short period of time. A .1 Tick chart measures every individual transaction on stocks or futures markets, as they occur at the millisecond level, accounting for price changes (ticks) up to 1/10th of one tick.
This allows traders to react quickly to market fluctuations and rapidly make profits or losses depending on their chosen trading strategy.
Trading with the .1 Tick chart can be very lucrative, but it is also very risky and should only be attempted by experienced traders with extensive knowledge of technical indicators. This type of charting is often used for scalping strategies as it allows for quick entry and efficient exit strategies which are designed to take advantage of small price movements. It is important for traders to observe proper money management protocols when trading this way, as losses can be much larger than expected given the high level of leverage when buying and selling at these tiny price increments.
1-minute charts
The .2 1-minute chart is a popular day trading time frame among active traders. This type of chart is used to help day traders determine how stocks, currencies, and commodities are moving over particular intervals of time. While the .2 1-minute chart can give an insight into the behavior of prices and reveals trends, it should not be used for long-term forecasts because its view of the market movements can be too short. For day traders, using this time frame helps them stay in tune with their strategies.
This type of chart can be used to capture intraday movements by looking at five periods (every 12 minutes) or twenty periods (every hour). Traders use price activity in these charts to discover trends and analyze potential trading opportunities on a minute-by-minute basis. Because they have a very short term focus, they are not suitable for use with long term strategies such as swing trades or counter trades. The data available on this type of chart often allows traders to easily enter or exit positions at desirable points because they have an efficient way to match changes in prices with buying opportunities or shorting possibilities.
The .2 1-minute chart is an effective tool for those who actively engage in intraday trading and practice technical analysis. By considering factors such as resistance levels, support levels and indicators like moving averages, momentum indices or MACD oscillators, traders can actively monitor price action over small intervals of time and take advantage of highly liquid markets for quick gains or avoid potentially costly losses that could arise from illiquid markets when using longer timeframe charts like daily bars.
5-minute charts
The .3 5-minute chart is an intraday charting technique used by day traders. Traders use this chart to analyze the price movements of an asset over a very short time frame. This approach is effective when analyzing penny stocks, because these stocks tend to have high levels of volatility and quickly react to news that can affect their price.
For any given trading day, the .3 5-minute charts will show the open, high, low, close, and volume for each 5 minute block within the trading session. As indicated by its name, the time frame represented in this type of chart consists of three candles appearing every five minutes. This gives traders an overview of how much price action has occurred during this short period and provides a good indication on whether it may be wise to enter or exit a position based on analysis from the data presented from these charts.
To adequately analyze price action using .3 5-minute charts successfully it is important for traders to:
- Identify key levels within their particular asset being traded.
- Identify key times for conducting trades in order to achieve maximum return on investment (ROI).
This type of analysis will allow traders to accurately spot entry and exit points at ideal times that meet their individual trading strategies.
15-minute charts
Four-fifteen minute charts are among the most popular types of day trading time frames used. This is because the 15-minute chart provides excellent coverage of near-term price action, allowing traders to make important decisions quickly and easily.
Four-fifteen minute charts look at a particularly specific slice of the market, corresponding roughly to one hour of trading per day. These charting techniques involve closely monitoring a set number of data points in order to determine support and resistance levels, as well as developing various predictive models based on these indicators.
Generally speaking, traders who employ four-fifteen minute charts will look at price points from 4:00 pm EST to 8:15 pm EST each day. On some days, special market events can result in a shift to 8:30pm or even 9:00pm EST on the afternoon of that event’s close. Traders might also use these charts for strategies involving shorter time frames, such as scalping or engaging in intraday trades lasting just an hour or two each day.
For those looking for more precise technical analysis results than a basic 15-minute chart can provide, some traders may opt for more granular time frames such as
- three-,
- five-,
- seven-,
- ten-,
- twelve-,
- and fifteen-second intervals
. Though these approaches are typically employed mainly by very experienced traders familiar with the particular intricacies involved in highly precise forecasting scenarios, they can be equally useful when trading off of smaller increments found within larger four-fifteen minute charts.
Swing trading time frames
Swing trading time frames are used as a medium-term trading strategy that involves holding a stock or other securities for several days or weeks. This type of investing is more common among those looking to profit from intermediate market movements and those who prefer to place fewer trades over time. Swing traders will typically study charts with larger time frames, such as weekly and monthly charts, to identify trends.
Generally, swing trading can be done in three different time frames:
- Short term – This style of swing trading involves holding stocks for two to five days. The short term swing trader looks for price reversals by studying intraday price movements.
- Medium term – With medium term swing trading, a trader will hold stocks from one week to two months. The goal is to take advantage of minor retracements and benefit from when the stock regains its previous levels or gains momentum again within the predetermined timelines.
- Longer term – Longer term swing trading involves holding stocks for one month up to a year in order to potentially benefit from major market changes that can cause significant price movements. This strategy involves looking at key chart patterns such as trendlines and support/resistance levels which provide signals that can be used to enter or exit positions at opportune times.
30-minute charts
30-minute charts provide an intermediate time frame available to day traders. A 30-minute chart is beneficial for identifying trends and making trade decisions more quickly than using larger time frames. This can be particularly beneficial to a beginning trader as it allows them to get comfortable with trading faster and more efficiently.
The 30-minute chart also offers more data points than a 1-minute chart, which can reduce the noise in smaller ch