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Notes From The Editor

Zeroing In: Fine-Tuning with Smaller Chart Intervals

For anyone who used to partake in daytrading, the switch to swing trading can be downright liberating. Gone is the tick-by-tick observing of the market. Gone is the stress that comes with watching seven charts at once, trying to discern what will happen within the next five minutes. Gone is the fist-clenching and the sleepless nights.

Still, there are some lessons to be had from the world of intense short-term trading. Swing traders rely almost exclusively on daily charts - with the occasional look at a weekly - to guide the way. The daily is the interval that's most closely-watched by the major market participants, from the biggest Wall Street giant to the smallest retail trader. Simply put, there's no better way to gauge a stock's technical health and performance. But drill down to smaller timeframes, and you'll see a very different picture.

30, 15, and even 5-minute charts can all reveal helpful details about what a stock or index is doing. For example, a steep uptrend on the daily chart might reveal itself as an ascending channel on the 15- minute chart. A swing trader looking to fine-tune their bullish entry point could wait for a pullback to the bottom of the channel.

5-minute charts can appear chaotic, but they provide a great window into what price action is doing over one session. Flipping between intra-day charts of the Dow, S&P 500, and Nasdaq can help you spot which of the Big Three indices is lagging or leading. And combined with a volume reading, you can use 5-minute charts to gauge the conviction behind the short-term moves of stocks.

Moving averages can also show interesting correlations - particularly the 50 and 200 Mas. Similarly, closely-watched indicators like the MACD and stochastics that we're so familiar with on the daily chart can reveal shorter-term momentum changes. Traders who like to use common chart patterns (head-and-shoulders, cup-and-handle, etc), also run across similar formations on the minute charts.

Smaller timeframes aren't for everyone, and swing trading can be profitable without every looking at those intervals. But if you have the time to do some extra analysis, don't hesitate to take a closer look by drilling down - you just might uncover some hidden clues about the next price shift!

Here's to profits,

Kent Barton
Senior Analyst

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