Comparing Different Profitable Trading Systems – Timeframes to use when day trading Advantages and disadvantages of different day trading chart timeframes

Apr 11, 2023 Posted by Cory Mitchell, CMT Day Trading Stock Information, Forex Day Trading Lessons 18 Comments

Comparing Different Profitable Trading Systems

Comparing Different Profitable Trading Systems

Which timeframe to use for day trading is an important choice, but there is no single definitive answer. The right time frame depends on the person, the strategy you use, and how you want to spend your trading time (relaxed or more intense). Here are the pros and cons of each timeframe for daily trading, so decide which one is right for you.

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Charts are usually divided into several timeframes, including 1 minute, 5 minutes, 10 minutes, 15 minutes, and everything in between. We will look at each of these timeframes and discuss their strengths and weaknesses, as well as what type of trading style fits each timeframe.

Before we start, here is a chart showing the difference between 1 minute, 5 minute and 15 minute timeframes. They all show 11 hours of price data for the same day, but there are significant differences in detail.

Neither is better than the other. However, one or the other may have an advantage because it (potentially) offers more trading opportunities or a cleaner look. You can also combine timeframes. The use of multiple timeframes will be discussed later.

The 1-minute timeframe may be suitable for those who like to see the details of price movements and enter and exit short-term trades for only a few minutes.

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If you want to trade on the 1 minute chart, build and test your strategy on the 1 minute chart.

Since bars/candlesticks are generated every minute and (depending on your strategy) trading signals can occur frequently, 1 minute trading requires you to pay close attention while trading.

Because price bars occur frequently, a trader on a 1-minute chart usually has more opportunities for him to make more trades per day than on longer timeframes. With a winning system, more trades mean more profit, which means your account will compound faster. Traders without a winning strategy can lose money quickly as more activity can take place.

Comparing Different Profitable Trading Systems

I use 1 minute charts to day trade EURUSD for about 1-2 hours per day. Here are the strategies and tactics I use:

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Multiple trades can be made within 2 hours. Perfect if you don’t want to spend hours in front of a screen.

When trading based on small candlesticks (rather than longer timeframes), stop loss and profit targets tend to be smaller than those used by longer timeframe traders. However, it doesn’t have to be. A trader can use a small stop loss on his 1 minute chart to target big reward and risk trades. Waiting for a bigger profit can result in fewer trades throughout the day.

Sizing forex positions may require 10x, 20x or even 50x leverage while keeping the trading risk to less than 1% of the account balance. Many forex brokers offer leverage of 30x to 50x (or more in some countries).

Position sizing for day trading stocks is limited to 4x leverage. This means that even if you only risk 1% or 0.5% of your account in trading, you can very easily use much of your account’s capital, including maximum leverage (you don’t have to risk that much. can be reduced) ). Daily trading positions use most of the available funds in your account and may leave very little for other trading activities such as swing trading. You can always choose to allocate a certain amount to day trades and leave the rest of your funds for other trades.

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Main takeaway: 1 minute charts are for those who want to maximize trading time with more trades and typically with large position sizes with small stop loss and profit targets (although targets are not necessary can be expanded accordingly).

The 5-minute chart is suitable for those who want to focus on the big trends during the day and check the opening, high, low and closing price every minute, rather he wants to get a 5-minute overview data.

If you want to trade on the 5 minute chart, build and test your strategy on the 5 minute chart.

Comparing Different Profitable Trading Systems

5-minute trading requires concentration, but not as much sustained attention as a 1-minute chart. Candlesticks form every 5 minutes, so there is more time between data points. If a trader waits for the candlestick to close before acting, this means that he will not take action for at least five minutes, possibly longer.

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Traders on 5-minute charts tend to trade shorter time periods than those on 1-minute charts because they have fewer data points (bars/candlesticks) to act on. In a 2 hour trading window 1 or he could have 2 trades and more trades could be less than his 1 minute trading window.

Stop Loss and Profit Targets tend to be larger than 1 minute charts. This is neither good nor bad, but usually means he trades less per day.

Due to the larger candlesticks on the 5-minute chart, his position size is smaller than on his 1-minute chart. This means that the distance between the selected entry and exit is likely to be large.

Traders may be able to have multiple positions at the same time as the position size is a bit smaller than the 1 minute chart. Again, you can always allocate a specific amount per day trade to ensure you have enough funds for all your desired positions.

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Key takeaways: 5 minute charts are for people with moderate position sizes (less than 1 minute, larger than longer timeframes) who receive fewer data points and want to focus on big movements during the day.

The example chart shows examples of trades on different timeframes of the same day, but it does not mean that one is better than the other. These only highlight some of the differences (screen time, number of trades, size of stop loss and profit).

The 10 or 15 minute chart timeframe is for those who want to see the major trends and movements throughout the trading day rather than small fluctuations (5 minutes, often 1 minute).

Comparing Different Profitable Trading Systems

If you want to trade on the 15 minute chart, build and test your strategy on the 15 minute chart.

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When trading on 10 or 15 minute charts, the bars/candlesticks occur over a longer period of time and therefore require less concentration. If you wait for the candle to close (you don’t have to), there will be a period of at least 10 to he 15 minutes between your next actions.

A trader on this timeframe may only make one trade or he may make two trades in a day. If you only trade in windows of 2 hours or less, you may have many days with no trading signals. Trading on this timeframe may require more time in front of the screen as it takes longer to open and close the trade.

Stop Loss and Profit Targets tend to be larger than 5 minute charts. This is neither good nor bad, but usually means fewer trades per day.

A 10- or 15-minute chart has larger candlesticks, which probably means a larger stop-loss distance, so the position size is smaller than a 5-minute chart.

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Key takeaway: 10-minute or 15-minute charts are for those who want to keep an eye on big price movements throughout the day. They don’t mind waiting long for a trade to open and close. They prefer a cleaner move and are likely to end up with only one or two trades for him in a few hours.

Because 1-minute candlesticks form the fastest, 1-minute charts usually see more trades. The pace is also the fastest, as a new candle is formed every minute, providing new information.

With a very small stop loss, the position size is the largest on the 1 minute chart, allowing you to risk 1% of your account per trade using your total capital and leverage. This means that capital outflows are also large. As mentioned earlier, if you risk a certain percentage of your account, you can spend all your money on one small stop loss trade.

Comparing Different Profitable Trading Systems

The constant appearance of new candles every minute means that our mental focus is highest on minute charts and lower on longer timeframes when new candles/information don’t come in as much. .

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Day trading on the 1-minute chart allows for a small stop loss, so the starting capital is minimal. A longer timeframe requires a larger stop loss. This means that even if you place a bigger Stop Loss trade, you still need a bigger account balance to bring a small loss to your overall account.

Some traders only trade on one timeframe, while others use multiple timeframes to generate trading opportunities.

If you trade on a single timeframe, if you see a trade on that timeframe, take that trade. No need to check other timeframes for confirmation.

Trading on multiple timeframes means looking at the long-term chart and using it as a filter for trading on the lower timeframes. In this case, the trader can see the overall trend direction on his 5-minute or 10-minute chart, and for example he can look for opportunities to enter in that trend direction on the 1-minute chart. Or he may use the 30 minute chart to determine the overall direction and then he may enter using the 5 minute or 10 minute chart.

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