What time frame to use when day trading is an important choice, but there isn’t one definitive answer. The right time frame will vary by person, the strategy they use, and how they like to spend their trading time (relaxed versus more intense). Here are the benefits and drawbacks of each day trading time frame so you can decide which one is right for you.
Pros and Cons of Various Day Trading Time Frames
Charts are typically broken down into several time frames, including 1 minute, 5-minute, 10-minute, 15-minute, and everything in between and beyond. I’ll go through each one of these time frames, discuss their pros and cons and what types of trading styles match up with each time frame.
Read through each one, as it is a comparison to the others.
Before we begin, here is a chart that shows the difference between a 1, 5, and 15-minute chart. They all show 11 hours of price data on the same day, but there is a significant difference in detail.
One is not better than another. But one may be more favorable to you because it provides more trading opportunities (potentially), or has a cleaner look. Also, it is possible to combine time frames, utilizing the advantages of each, but also inheriting some of the negatives. We’ll discuss using multiple time frames a little later on.
1-Minute Chart Time Frame
A 1-minute time frame may work well for someone who likes seeing detail in the price movements and potentially getting in and out for short-term trades that only last a few minutes.
If you want to trade on a 1-minute chart, build and test the strategy on a 1-minute chart.
Trading the one-minute requires nearly constant attention while trading, since bars/candles are generated every minute and trade signals can occur often (depending on the strategy).
Because price bars occur frequently, 1-minute chart traders typically have the opportunity to take more trades per day than larger time frames. With a winning system, more trades means more profit and faster compounding of the account. With the potential for more activity, a trader who doesn’t have a winning strategy can lose their capital rapidly.
It is possible to make several trades within a two-hour window. Nice if you don’t want to spend too many hours in front of your screen.
With trades based on smaller candles (than the higher time frames) stop losses and profit targets tend to be smaller than those used by higher time frame traders. This doesn’t have to be the case, though. A trader could use a small stop loss on the 1-minute chart and aim for large reward:risk trades. Waiting for larger profits may mean less trades throughout the day.
Because of the potential for small stop losses, position sizes can be very large.
Forex position sizing may reach 5, 10, or even 20x leverage…while still keeping risk on the trade to less than 1% of the account balance. Many forex brokers offer 30x to 50x leverage (or more in countries).
Position sizing for day trading stocks is capped at 4x leverage. This means much of the capital in the account, including the maximum leverage, can quite easily be used even when risking only 1% or 0.5% of the account on a trade (don’t need to risk that much, can risk less). One day trading position may use most of the available capital in the account, leaving little for other trading activities, such as swing trades. You can always choose to allocate a specific amount to day trade, and leave the rest of the capital for other trades.
Main takeaway: the 1-minute chart is for people who want to maximize their trading time with more trades and typically large position sizes with small stop losses and profit targets (but targets can be expanded if desired).
5-Minute Chart Time Frame
A 5-minute chart may work well for someone who focuses on bigger intraday trends and doesn’t need to see the open-high-low-close price every minute, but would rather get summary data over 5-minute periods.
If you want to trade on a 5-minute chart, build and test the strategy on a 5-minute chart.
Trading the five-minute requires focus, but less constant attention than the 1-minute chart. Candles are forming every five minutes, so there is more time between data points. If a trader waits for candle closes before acting, this means no action is taken for at least 5 minute intervals, and often longer.
5-minute chart traders tend to trade less than 1-minute chart traders because there are fewer data points (bars/candles) to act on. One or two trades may develop in a two-hour trading window, possibly more, but less than on the 1-minute.
Stop losses and profit targets tend to be a larger than on the 1-minute chart. This isn’t good or bad, but it does typically mean fewer trades per day.
Positions sizes are smaller than those on a 1-minute chart because candles are bigger on the 5-minute chart which means likely a greater distance between the choosen entry and exit.
Because position sizes are a bit smaller than the 1-minute chart, traders may be able to have multiple positions at the same time. Again, you can always allocate a specific amount to each day trade to assure there is enough capital for all the positions you wish to take.
Main takeaway: the 5-minute chart is for people who want to focus on larger intra-day movements, recieving fewer data points, with moderate positions sizes (smaller than 1-minute, larger than higher time frames).
The chart examples, which show example trades on the same day, but on different time frames, are not meant to say one is better than the other. They just highlight some of the differences (screen time, number of trades, size of stop losses and profits).
10- or 15-Minute Chart Time Frame
A 10- or 15-minute chart time frame is for someone who wants to see the major trends and movements throughout the trading day, not each little gyration (5-minute, and to a greater extent the 1-minute).
If you want to trade on a 15-minute chart, build and test the strategy on a 15-minute chart.
Trading on a 10 or 15 minute chart requires less constant focus because bars/candles are occurring over a longer period. If you wait for candles to close (don’t have to) then there is at least a 10 or 15 minute period between possible actions.
Traders on this time frame may only be taking one or two trades a day. If only trading during a two-hour or less window, many days may have no trade signals. Trading this time frame may require more time in front of the screen since it takes longer to get into and out of trades.
Stop losses and profit targets tend to be a larger than on the 5-minute chart. This isn’t good or bad, but it does typically mean fewer trades per day.
Positions sizes are smaller than those on a 5-minute chart because candles are bigger on the 10 or 15-minute chart which likely means a greater stop loss distance.
Because of fewer trades and a smaller position size, it is easier to have multiple positions.
Main takeaway: the 10 or 15-minute chart is for people who want to focus on the large price movements throughout the day. They don’t mind waiting longer for trades to open and close. They prefer cleaner movement and are likely after only one or two trades over multiple hours of trading.
Summary Comparison for the Best Day Trading Time Frame
Multi-Time Frame Analysis
Some traders only trade on one time frame, while others multiple time frames to produce trading opportunities.
Single time frame means you see a trade on the 1-minute chart (or whatever time frame) and you take that trade.
Multiple time frame trading means you look at a longer-term chart and use it as a filter for trades on the lower time frame. In this case, a trader may check the 5-minute or 10-minute for the overall trend direction, and then look for opportunities to enter in that trend direction on the 1-minute chart, for example. Or they may use the 30 minute chart for overall direction and then use the 5-minute or 10-minute chart to enter, as another example.
This sounds really good. And it can be. But it also has drawbacks in that trend changes are typically evident on lower time frames before the higher time frames. Therefore, filtering based on higher time frames may not always provide timely information, and trading opportunities may be missed.
There is no perfect combination or answer. A winning system can be built on any time frame, or any combination of time frames. But understanding the pros and cons will hopefully help you decide which is best for YOU.
Day Trading Chart Time Frame Alternatives – Tick Charts and Renko
Time frames are often discussed as if they are the only charting option. They are not. There are chart types based on things other than time.
Tick charts are based on a fixed number of transactions. A bar completes once there have been a certain number of transactions. This means during busy times bars may form quickly, but during quiet times it may take many minutes or even hours for a bar to form.
Renko charts are bricks that form once the price has moved a certain amount. They keep forming as the price moves in the same direction and by the required amount. If the price reverses the equivalent of two brick sizes, the bricks change color and start moving in the other direction. The bricks are not based on time but rather price movement.
These are just a couple examples of the alternative chart types that are out there.
What Chart Time Frames I Use
For forex day trading I use the 1-minute chart, only.
For stock day trading I use the 1-minute chart, only.
For swing trading stocks I use the daily chart, only.
For swing trading currencies I will look for patterns on the 4-hour and hourly charts, and then if I find one I like, I will drop down to a five-minute chart to find my entry and really maximize my reward:risk (stop loss based on 5-minute chart and target based on 4-hour or hourly chart, whichever one was used). I also use renko charts for another strategy.
Cory Mitchell, CMT
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Disclaimer: Nothing in this article is personal investment advice, or advice to buy or sell anything. Trading is risky and can result in substantial losses, even more than deposited if using leverage.