What Time Is It?
I am at Online Trading Academy Toronto this week enjoying some spectacular weather. Thanks to Ron and Ted for making me feel right at home (although they can't take credit for the California-like weather). Today a student asked a question I usually hear while teaching the Professional Trader class. "What timeframe charts should I look at for intraday trading?" There is no easy answer for this as every student and trader is different and has their own risk tolerances and trading capital. One of the main things we work on in class is assisting students in defining the trading style that suits them best. The shorter the timeframe, the shorter the trades will be. This is due to seeing more "market noise." Market noise is the short movements of price. When you go to a larger timeframe, you see less of the short moves and more of the larger trend.
Traders have a choice to make. If they choose to trade on short moves on the smaller timeframe, they will need to take larger position size to profit from the smaller moves. This larger position size increases the risk involved with the trade. On a small timeframe chart like a one or three minute chart, the support and resistance levels will be closer together thus shortening the profit targets.
You should never trade with larger share size than you are comfortable with. When you increase share size, you increase the profits but also your losses! A major problem with traders is that they tend to focus on the P & L portion of their platform instead of the charts especially when trading larger share size. Your P & L won't warn you when the stock is turning against you! Focus on the charts and Level 2; that's where you'll find the warning signs.
To profit with smaller share size, a trader must increase their holding time. Using a five, eight, thirteen or fifteen minute chart will allow a trader to identify larger profit targets.
You should experiment with several different chart timeframes to see which allows you to trade within your comfort zone and allows you to see definable, tradable trends. The advantage of doing this in the Online Trading Academy Professional Trader class is that you can experiment with our capital instead of your capital and under the supervision of a professional trader.
Once you find the timeframe that best suits you, you should stay with it. Don't be tempted to jump to a shorter timeframe while you are trading to "see more detail." The only thing this will accomplish is either scaring you out of a good trade or force you into a bad trade early. Stay focused on the buy and sell signals on your chosen timeframe. The only other timeframes you should ever look at would be larger ones.
By looking at larger timeframes while planning trades, you get a sense of perspective and are less likely to be surprised by the market. Far too often I have seen traders who have taken bad positions thinking they were in the trend, only to find out it was the end of it. By analyzing multiple timeframes, you are better prepared for the possible future of any security you may be trading. I will be teaching one of my favorite courses, the Broad Market Analysis, this weekend in our Irvine office. This course focuses on multiple timeframe and lateral analysis to anticipate turning points in the market. It makes you a better trader when you have proper perspective on the markets and are aware of where the dangers lie. I feel this is a necessary class for all students, short-term traders, swing traders, and even investors. No one likes to lose money, so why not learn to protect it properly. Check with your local center to see when it is being offered. Trust me you won't be disappointed.
Until next time, may all your trades be green and your losses small!
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As a former stockbroker, brokerage trader, and hedge fund trader, Brandon brings various market views and insight to his classes. A wealth of knowledge, he has held NASD securities series 7 and 63 licenses. An OTA graduate himself in 1998, Brandon has been trading his own account since. Brandon taught for OTA in 1999 to 2001 before becoming a Realtor and Mortgage broker holding licenses in 15 states. Returning to the OTA family late 2005, he now balances trading, teaching and a real estate career.