Day trading is the practice of making money in the market by buying and selling assets like stocks, commodities, and currencies during the same day.
Unlike investing, day traders have an extremely short-term horizon, with many focusing on a one-minute tick chart.
In this article, we will focus on one of the most commonly-asked questions in the market: which is the best timeframe for day trading?
Why timeframes matter
Before we answer the question on the best time frames to use, it is important to understand why these timeframes matter. Trading platforms like TradingView, MetaTrader, PPro8 and Robinhood, provide charts with different timeframes.
The most popular of these charts are candlesticks, which are good because they provide information on Open, High, Low, and Closing.
In a daily chart, each candlestick represents a day while in an hourly one, each candle is an hour. Therefore, it is not ideal for a scalper to use a daily chart. It is also not ideal when a day trader uses a weekly or monthly chart in the market.
In the chart below, we have a daily chart showing that the Apple shares are in a bullish trend. And on the right side, the five-minute chart shows that the stock is moving sideways.
Therefore, knowing the timeframe of the chart you want to use is an important thing in the market. For example, you can open a bullish trade based on the daily chart when, in reality, the asset is retreating in the short-term chart.
Day trading vs scalping
Day trading is a broad strategy that involves buying and selling assets within a day. The main principle is that all trades should be closed by the end of the trading day. Therefore, some traders initiate a few trades in the morning and close them within the day.
Scalping, on the other hand, is a unique form of day trading where people open tens or even hundreds of trades per day. The goal is to exit these trades with a tiny profit. For example, if you open 100 trades and exit with a $5 profit each, your profit for the day will be $500.
Therefore, day traders and scalpers use different time frames because they have different goals in the market. Scalpers want to exit a trade in the next minute while long-term day traders want to exit theirs in a few hours.
What is multi-timeframe analysis?
Multi-timeframe analysis is one of the most important concepts in day trading. It involves doing an in-depth analysis of an asset based on numerous chart timeframes. For example, you can start this analysis in the daily chart then move to the hourly, and then to the 30-minute chart.
Multi-timeframe analysis is an important concept because it lets you have a good understanding about the overall trend of the asset. For example, in the chart above, we see that the Apple 100 index is in a wider bullish trend despite the sharp decline on the 5-minute chart.
One of the top rules in multi-timeframe analysis is known as the rule of three. This rule simply means that a trader should always look at three chart timeframes before executing a trade.
For example, if you focus on using the five-minute chart, you should start your analysis by looking at the daily chart followed by the 30-minute chart.
As you do this, ensure that you identify the important support and resistance levels. Also, in every chart, add your popular technical indicators like Bollinger Bands and moving averages.
The rule of three is an important concept not only for day traders. It is widely used across all trading strategies like swing trading and even investing.
The best day trading timeframe
So, which is the best timeframe for day trading? The most popular timeframes for day traders are:
It is highly unlikely to find a day trader who uses longer timeframes like hourly, daily, and weekly.
Timeframes for scalpers
In most periods, scalpers use charts that range from 1 minute to 5 minutes. The 1-minute chart is more reactive and can help you implement trades for quick profits.
There are several benefits of using a one-minute chart. The benefit is that it allows for quick trades based on short-term movements. It also lets you capture more trades within a trading session.
On the other hand, the cons are that it is always difficult to identify trends on the one-minute chart. Also, it is relatively difficult to manage your risks in the market.
The five-minute chart is also important for scalping since its timeframes are also short. Its benefits are that it is ideal for identifying trends, support and resistance levels, and it is better to manage risks effectively.
Timeframes for day traders
Day traders mostly use several timeframes, including 15-minute, 30-minute, and hourly charts. The four-hour chart is not common among day traders. Instead, it is popular among swing traders.
The benefit of using the 15-minute chart in day trading is that it shows a longer-term view of the price movement. It is an easier strategy to manage risk while it is a good thing to identify trends.
Therefore, for scalpers, we recommend that you use extremely short timeframes like 1-minute, 5-minute, and 10-minute. For regular day traders, the best time frames are 5-minute, 15-minute, and 30-minute charts.
Example of multi-timeframe analysis
In the one-minute chart, we see that Microsoft shares have been in a strong bearish trend. It has moved below the VWAP and the important resistance level at $329. It has also formed a falling wedge pattern, pointing to a bullish reversal when the wedge nears the confluence level.
In the 15-minute chart, we see that the Microsoft stock price has also dropped below the VWAP indicator. The stock is nearing the important support level at $326. Therefore, in this case, a trader can place a bearish trade, with the take-profit being at $326.18.