Best Timeframe For Day Trading

Day traders can place trades that last minutes, hours, or even multiple days. Different trading timeframes have distinct styles, advantages, and disadvantages, so every trader needs to decide what timeframe works best for them. In this article, we’ll take a closer look at common timeframes for day trading and explain how they work.

What is Day Trading?

Day trading involves opening and closing trades in short time periods – usually within a single market day but occasionally over multiple days.

Day traders are primarily focused on trading around price action to generate a profit and use technical analysis to find trading opportunities. Unlike investors, traders are not concerned with a company’s fundamental performance or long-term prospects. 

What Does “Timeframe” Refer to in Trading?

The word “timeframe” in trading refers to the holding period for a trade. That is, a trade’s timeframe is roughly the time from when it’s opened to when it’s closed. Day trading timeframes usually range from a few minutes to a few hours, but they can be as long as several days.

What is the Best Timeframe for Day Trading?

There is no single best timeframe for day trading that every trader should use. Rather, the best timeframe for day trading depends on your trading strategy and style.

Some of the things to consider when choosing a timeframe for day trading include your appetite for risk, the size of your account, how much time you want to spend trading each day, and how much money you want to make per trade. If you have a lower risk tolerance, you might prefer short positions that don’t require much capital. If you don’t have time to watch the market all day, you might prefer a longer trading timeframe that allows you to check in every few hours.

Whatever timeframe you choose, make sure that it plays to your strengths as a trader.

Common Timeframes in Trading

There are several common trading styles that operate over different timeframes.

Scalping

Scalping is a style of trading that aims to capitalize on short, high-probability price movements. Scalping trades usually only last a few minutes and are rarely longer than an hour. Trades generally involve taking large positions since the percentage gain for a winning trade is usually very small (often less than 1%). Scalping requires a high level of attention, and traders can place up to dozens of individual trades per day. 

The benefit to scalping is that the trades are high probability, and the risk of any single trade is relatively small. The downside is that the profits from each trade may be small, and it takes a lot of work to make a significant cumulative profit at the end of each trading day. So, scalping is typically best for traders who don’t mind dedicating hours per day to watching the market and prefer low-risk, low-return trades.

Objective: Capitalize on small but high-probability price movements

Timeframe: Minutes

Capital requirements: High

Market involvement: High

Return per trade: Low

Momentum Trading

Momentum trading is a style of day trading that seeks to profit from short-term volatility, ideally when the price of a stock is trending strongly up or down. Momentum trades can be as short as a few minutes or as long as a few hours, but they’re generally closed before the end of the trading day. Finding momentum stocks before momentum fades requires paying close attention to the market, but the payoff from a successful trade can be several percent or more.

Momentum trading maximizes potential upside while trying to minimize risk by trading with a strong trend. However, trading around high volatility can be risky, and momentum trading does require you to be very involved in the market. Traders can succeed at momentum trading with as little as $3,000-$5,000, but you’ll need at least $25,000 in your brokerage account to avoid running afoul of the pattern day trader rule. 

Objective: Capitalize on volatility and short-term trends

Timeframe: Minutes to hours

Capital requirements: Medium

Market involvement: High

Return per trade: Medium

Swing Trading

Swing trading is a trading strategy that targets stocks experiencing volatility over longer timeframes, especially around breakouts above a technical resistance level. Swing trades usually take several days to weeks to fully play out, making this a potentially more suitable trading strategy for traders who can only monitor the market for a short time each day. Swing traders usually use stop and limit orders to automatically manage their trades to some extent.

The returns from a successful swing trade can be high, but the potential downside, if a trade goes against you, can also be relatively high. In addition, while swing traders don’t need to watch the market all day, they do need to do a significant amount of research and planning to identify suitable trades.

Objective: Capitalize on multi-day volatility and technical breakouts

Timeframe: Days to weeks

Capital requirements: Low to medium

Market involvement: Low

Return per trade: High

Conclusion: Time Frames For Day Trading

Day traders can choose from multiple timeframes when building a trading strategy and deciding how they want to trade. Traders who prefer short, low-risk trades and have the ability to monitor the market throughout each day may want to try scalping. Traders who prefer slightly longer trades with more risk and more potential reward may want to try momentum trading. Traders who prefer multi-day trades with high potential payoffs and relatively low involvement in the market each day may want to try swing trading.