One of the biggest mistakes we make as a trader is the time frame of chart that we choose. We often like to claim one time frame as our own. “I only trade on a 5 minute chart, i don’t pay attention to anything else.”
Now when you are just starting to trade, i do recommend that you find a specific chart time frame that is suitable for you trading style. Reason being too many new traders are often all over the place with their chart time frame. One day its the 1 minute time frame, 3 days later its the 15 minute time frame.
Today i’m going to talk about the benefits of the Short Term Chart vs Long Term Chart as well as the downsides of each of them. My definition of short and long term chart may differ from others.
Short Term Chart (30 Second – 30 minute – Time Frame)
These time frames are probably the most popular stock charts for Day Traders. Day traders use these charts because they are more detailed in showing the most current action on a tick by tick basis. The 1 – 5 minute charts are the best example of that.
Every minute or 5 minutes there is a new candlestick as well as new volume information that comes in which is beneficial for traders who are looking for a quick scalp or quick buy and sell.
The Downside to the shorter term charts, that i have experienced my self, is that relying strictly on a time frame that is too small will more often than not, shake you out of your position.
You are witnessing so many small ticks and movements that make you feel like the stock will tank, and then 5 seconds later make you feel as if the stock will skyrocket.
Long Term Chart ( Hourly – Weekly)
These time frames are more popular for swing traders as well as long term investors.They don’t need to pay attention to a 1 minute chart if they intend to be in the stock for 2 months.
Using the longer term chart helps guide the trader in seeing where the stock could potentially fall in the longer, distance future. Nothing about a 5 minute chart is going to tell you what that stock could do 2 months from now.
A longer term chart can also quickly show the trader how much range potential there is in a quick amount of time.
The only Downside I can see for the longer term chart is that it doesn’t show you the any detailed movement that is happening right this moment, but like I explained, most people using longer term charts are not in the stock for a short amount of time.
I’m not biased of any chart myself as I trade different time frames all the time. I believe the real solution for any trader, whether it be day trading, swing trading or long term investing is to have 2-3 charts of the same stock showing different time frames.
For example, If I want to day trade “AMD”, then I would personally have the
- 1 Minute Chart
- 3 or 5 Minute Chart
- 15 Minute Chart
This gives me both, the details i need to trade it right now while still giving me a broader picture of the larger trend, at least for the day.
For A Swing Trading or Long Term Investing ….
- Hourly Chart
- Daily Chart
- Weekly Chart
This gives me priority to a longer term picture with the daily and weekly chart, but still giving me some intraday details about the stock with the hourly candle.
So what ever type of trader you are, consider throwing away the idea that only 1 time frame is better for you, and consider adding some more time frames.
Not too much to the point where you are distracted, but more than one so that you can have a multiple opinions about the stock.
It will also give you more confidence to take the trade if you see that 3 of your charts are all indicated the same move. Good luck :).