Traders help traders! On this page, we would like to share our thoughts about trading with you, as well as discuss a few commonly asked questions from our visitors and customers. If you have any comments, or any (nice and positive) thoughts that you would like to share, please email them to us. We will be happy to post them on this page.
- What is the BEST time frame for day trading?
Many have asked this question, "what is the best time frame for day trading?" Before we answer that, let's examine the pros and cons of a higher time frame and a lower time frame.
A lower (faster) time frame will give you more trading opportunities. Your risk (initial stop) will be smaller since the range of each bar is relatively small. You will not feel bored because the setups will occur quickly one after another. The risk is, of course, with more signals, you might be over trading. The chart might be more "noisy", and you might be getting a few false moves along the way. Because the chart moves faster, you are also forced to make quick decisions and won't have much time to think before pulling the trigger.
A higher (slower) time frame offers less trading setups, along with less false signals. The range of each bar will be relatively larger, so is your risk (initial stop). When the market is relatively quiet, you may not be able to find an optimal entry signal, which is not necessarily a bad thing, but you do need to have the discipline to sit on your hands when this occurs. Because it takes more time to form a bar, it grants you more time to make trading decisions.
What time frame should you be trading with? I really can't tell you that. The most important thing is to find a time frame that fits YOUR trading style and personality. Just like some who can't sleep at night if he has an open position in the market, others think getting in and out of the market every 5 seconds is ridiculous. So the only "criteria" I can suggest is to find what you are "comfortable" with. It is important that you feel comfortable with the time frame of your choice, so you can easily flow into the "zone" and breathe with the market. You have to find a chart that moves at a "speed" that you can handle, and an initial risk that you can tolerate. It's the balance of the two you are seeking.
There are many 133-tick charts of the S&P500 emini Futures (ES) posted on this website. That's the lower time frame chart we mainly take signals from. But we do have several workspaces saved for the same market, ranging from 35-tick (especially for very slow market condition, or when trading overnight session), to 987-tick charts (to find the overall trend, to see what the market has been doing at a glance, to find out where we are "here and now" in relation to a trend). 233-tick chart is a good confirmation, while 510-tick chart is a good "anchor chart". These are our setups. You are welcome to do what we do. But if you are not comfortable with this setting, by all means find your own. It's like, I am sure there are very successful traders, who trade off a daily chart and use a weekly chart as an anchor, but since I don't feel comfortable with the risk I will be taking, the time it takes for a trade to mature, the greater uncertainty I will be tolerating, I simply won't trade it this way.
However, I will say this: "Time" is artificial. It does not mean much in trading unless you have a "predictive" system that can project approximate time when the market might be reversing. Even that, it still does not mean much when it comes to chart the market. Tick charts provide more detailed information on the market's movements. It often gives you more "rounded" tops and bottoms as well. When the market moves faster, you will have more bars. When the market is slow, you get less bars. Time is irrelavant here.
One example I like to use is this: Say the market is in a down trend on a 5-minute chart. At the close of a bar, you find yourself looking at a "hammer" candle, with the open price very close to the close price, and a down wick that's 5 points long. You check other indicators and conclude that this is a sign of reversal. You enter a long position at the open of the next bar. In this case, your stop, ideally, would be 5+ points. The same scenario on a tick chart, within that same 5 minutes, I might be getting 20, 30, 50, or even 100 bars, depending on what tick count I use, and I will get a clear picture that the market is moving down, finding the bottom, and reversing. I could enter that long position near the low of the wick. This means my initial risk will be smaller, and my profit will be greater. What's in your stop is now my gain.
The advantage of having a time based chart is that it forms more traditional candlesticks and patterns: hammer, doji, shooting stars, engulfing, etc. It is a good confirmation, but probably not a very good chart to base it on for entering the market in a timely manner.
The best way, of course, is to combine these two worlds. Find an entry signal on the lower time frame chart, then manage your position together with the higher time frame chart to locate the optimal timing to enter and exit the market. If I am traveling to LA from Chicago, the lower time frame chart is like a local map, which leads me to get out of the city and find the highway (entry). The next higher time frame is like a regional map, it tells me what interstate I will be connecting to, where I can find places to rest and where I should pay tolls (scaling in/out, money management). The highest time frame is like a national map, it gives me the general direction, telling me I should be heading west instead of east, how far I have been traveling, and how far it is from my destination (direction of the trend, where I am "here and now" in relation to the "big picture"). Once I am approaching my destination, I switch to a local map again, to find the best exit to get out of the highway and enter the city (exit).
The chart below illustrates this idea. On the right hand side, we have a 133-tick chart. At 11:13, we entered a short on the weakening momentum on the Squeeze, with OSOB peaking and the buying pressure on Buy Sell Pressure easing. Notice that at the same time, there was no valid signal on the 510-tick chart yet. The PaintBar and the short term Trend Bar then turned red on the 133-tick chart and the price proceeded to break below the moving averages and the iTunnel. Now we look at the 510-tick chart to manage our position. The first rally back to the EMAs and retest this level is the scariest. Luckily for us, it held. While we had blue paint bars and cyan FMA on the 133-tick chart, there was no sign of reversal on the 510-tick chart. The market then bounced off the EMAs on both charts and continued to go down. We can move our stop to 880 at this point. The market retested the EMAs once again at 11:28, almost touched it but not really: a sign of weakness. The short position still looked good on the 510-tick chart. We continue to hold this position. Now, why did we exit this position where we got out? After 3 "waves" down (or 5, depending on how you look at it), we saw a divergence on the Squeeze. Sure, we had another divergence (or two) at 11:23 as well, the difference is, this time, the Squeeze on the 510-tick chart had a slight higher low when the price made a new low, we anticipated that there will be a divergence on the 510-tick chart as well. The OSOB also showed oversold condition on both charts, and the selling pressure peaked on the 510T, with buying pressure coming in on the 133-tick chart.
Using dual time frames, we are able to hold the position longer when a trend occurs for a greater gain, and avoid over trading.
Hope this helps.
