The best time frame for day trading is a question that is overlooked by many traders. It defines how you trade and the methods you use to trade. Have a successful trading method in one time frame may not translate to another time frame easily. It would be as if a trader who only works on the 1 minute charts switching to a daily outlook and expecting the same results.
Why choose one set of time frames to trade?
The real answer is that there is no best time frame for day trading. The most important aspect of choosing a time frame for day trading is that you stick with a single set. Swapping between 3 or 5 different time frame sets will not give you good trading results. You may even have a successful trading method, in hand, but swapping time frames is ruining your trading results.
How to choose your own best time frame for day trading?
Some traders don’t even use time frame as a trading metric. They use Tick Charts, Range Charts, or even Renko Charts to analyze the market. Since we are talking here about classic time frame analysis, we will still to the standard 1 minute through daily charts. Once you have decided to trade solely with time based charts, it breaks down into 4 key factors to choose your time frames.
The market that you trade:
Trading Forex is completley different than trading bitcoin or trading penny stocks in that they have different volume of trading. A market that has a huge volume of trades allows you to dive deeper down into the 5 minute and even 1 minute charts. This is because the spreads are narrowed by the volume of buy and sell orders in the market. A market that does not have this kind of liquidity becomes incredibly hard to trade on short term time frames.
The noise in the market:
Short time frame traders have to deal with increased “noise” in the market. This noise is caused by traders on higher level time frames who are making buy and sell orders that overshadow traders on short term markets. The fact is that a daily trader who is buying or selling does not care about what levels of resistance and support a 1 minute chart trader is seeing.
The time that you have to trade:
It seems counter intuitive, but the longer the time frame you trade, the less time you need to pay attention to the market. If you can devote hours every day to the market, trading the 5 minute or 15 minute charts is well within your reach. For most people, sitting at their desk, as non professional traders, is not a option. They devote a couple of hours per day to their trading. This limits them to take longer term hold positions that do not require snap decisions throughout the day.
Commissions you pay to trade:
Overlooked by many traders, commissions are a key part to your success or downfall as a trader. A trader who makes 10 or more trades a day while trading on the lower time frames is out of pocket commissions on every transaction. Where as a trader who makes 1 to 2 trades per day is already ahead of the previous trader. When trading on a short time frame or preforming many trades, the commission structure you have with your broker can add up to 1000’s of dollars. All of these commissions take you away from your profitable objective as a trader.
Some quick Math:
Trader A wants to make 10 trades per day.
His commission structure is 2.50 per side per trade for 5$ total.
He is paying 50$ per day just to make his transactions whether he wins or loses.
Bruce Banks