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.
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As a small investor, very useful information. It’s something I can use in the future.
My uncle and aunt do day trading. they talk about reading the candles and all that. Thanks for the how to. My How To is up also.
What moving averages do you use in each time frame?
Thanks
Hi Buck,
I use the simple 20, 50, and 200 ma’s for each time frame.
I often trade in the direction of the 20, and 50 ma’s. There’s much better odds trading with the trend.
You’ll see the 200 ma on a 5-minute chart often act as support or resistance. Works well for setting targets.
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