Yesterday, I mentioned that in evaluating the potential trade in QSII, I looked at the 60-minute, daily, and 15-minute time frames to help make my buy decision. For every trade, I believe it’s important to not just look at a few charts, but 5 charts of the same stock which include:
- 1 or 2-minute candlestick chart
- 5-minute candlestick chart
- 15-minute candlestick chart
- 60-minute candlestick chart
- Daily candlestick chart
I find doing this so beneficial, I devote a single monitor for it.
When you watch multiple time frames,, you’re getting the big picture of the stock or equity you’re trading online. It’s similar to buying a car. Before you drive off, you kick the tires, check the seating, estimate the gas mileage, and make sure it’s the color you want. So why just look at a daily chart, or a daily chart and 5-minute chart? A few benefits of monitoring a larger range of times include:
- Having more opportunities for trading patterns to emerge
- Easier to establish trends (ex. the daily chart may be neutral, so that uptrend you spotted on the 5-minute chart may stall easier)
- Longer time frames can be used to set stops (less noise or volatility)
- Shorter time frames can be used to manage stops near resistance areas
- Stops and targets are easier to determine
During those whippy markets, finding a stock that’s trending can be difficult. Instead of entering on a 5-minute buy signal, and risk getting stopped out quickly, the 15-minute chart could be used. Or, let’s say you see a high probability pattern emerge and, decide to enter with a tight R. You can, by utilizing the 1-minute, or 5 minute charts. It really opens up your available trading setups.
Online stock trading is difficult enough. Using more than one or two charts to watch a singe stock adds to that discipline we all use in trading.