By Chris Vermeulen, The Gold and Oil GuyNEW YORK ( TheStreet) -- A couple months ago, I started providing more of my intraday charts in hopes to educate traders on current market conditions, so they could feel like they are "in the zone" for trading. It's crucial to understand the intraday moves and volume levels, if you want to be a consistently profitable trader. It doesn't matter whether you are daytrading or swing trading, you must be following daily and intraday charts. I have been getting a few subscribers asking me why I jump around to different time frames so much. It's a great question. Some days I'm using the 60-minute charts, another day the 2-hour chart and another the daily chart. I plan to answer this question here.
Characteristics of Multiple Time FramesLength of Trades: The longer the time frame you are trading, the longer the trade will last on average. For example, if you are swing trading using the daily chart, most trades will last 2-20 days. If you are trading the 60-minute chart, a trade may only last a few hours. Knowing this allows you to be more or less active, depending on the market conditions, or the amount of time you are available to trade. Risk Levels/Draw Downs: The longer the time frame, the more potential risk/draw down you will have. For example, when trading the daily chart, you may set your protective stop below the previous day's low. Depending on the investment, that could be $1-$50 per share or contract. Now compare this to someone trading the 5-minute intraday chart, playing volume breakouts to generate quick gains. This person's risk/draw down may only be 5 cents to 50 cents per share or contract. That is the main reason short-term intraday traders play with larger amounts of money. Simply because their risk is so much lower, they can put more on the line for quick profits. On the flip side, swing traders should be trading much smaller positions to compensate for the increased risk. Individual Personalities: Every trader sees the market in a completely different way because each of our brains process chart patterns and time frames differently. This is exactly what creates the market, everyone buy and selling at different times creating liquidity and random chart movements.
The hardest part about trading, in my opinion, is figuring out what type of trading personality you have? It took me a few years to actually figure this out, but now I know exactly what type of trading strategies I'm good at and which time frames I prefer trading. I like swing trading because it does not require a lot of time to follow the market, and trades last several days and sometimes weeks. But I also like to take advantage of the market when volatility rises and the market becomes choppy, because this is when intraday trading becomes most profitable, in my opinion. Personally, I do not want to trade every day, because it's a ton of work and stressful. Rather, I prefer to sit back and cherry pick, only taking positions when I see a perfect setup. This way my win/loss ratio is very high, and I do not need to worry about finding trades every day or week. When I am trading the intraday charts, my focus is to find setups on the 60-minute, two-hour, four-hour and eight-hour charts. The reason behind this is that these longer intraday time frames provide very accurate trades and each trade lasts a few hours and sometimes a few days. Trading shorter time frames like the 5 minute chart is torture, because you end up trading all day every day, and to be honest, that's a lot of work and not fun at all. So here are some charts showing how different time frames reveal different patterns, insight and setups:
S&P 500 Mini Futures: DailyLooking at the past seven or eight days, we don't really see anything exciting to trade as far, as chart patterns go. So we sit and wait for something to unfold in a few days, if we are lucky.
S&P 500 Mini Futures: Two-Hour IntradayWhat do you see? WOW a big fat head & shoulders pattern, which indicates we should see lower prices.