When you are an active trader, the number one element to success is consistently trading good setups. A critical component of a good setup is reading a chart to see if it meets the criteria for taking a trade. These charts can tell you if a stock is at a support zone or resistance zone, what the history of its price action is, and many other variables that you can configure to suit your style.
The best traders in the industry don’t force trades; they let the day trading charts tell them that the setup is good and then they pounce. If you are looking to hone your skills in chart reading for long-term financial gains, then you have come to the right place. Read on as we map out the best way to utilize these crucial tools.
How to Read Day Trading Charts
Often, newer traders will ask questions like “what chart is best for day trading?” or something to that effect. While this is an enormously broad question, the answer is always going to be that it depends on market conditions, what type of trade you are looking to take, and whether or not you have confidence in the setup.
A trading chart can seem confusing and straightforward all at the same time; there is the x-axis for time and the y-axis for the price, but even within these variables there are plenty of ways to interpret the action. To begin with, the intervals at which you read a chart are going to largely dictate how you perceive a setup. For day or swing trades, some of the most common time settings include:
- Daily Time Frame: This is a zoomed-out view of a stock that can show you where it can range both short and long-term. In general, you can use the overall shape of a daily chart to establish a broader trend for the stock over a long period of time, but it is critical to zoom in to some shorter time frames to see how strong the trend actually is in real-time.
- Hourly Time Frame: This is a common reading for swing traders or setup-based day traders. Reading where candles begin and end during a regular trading session every hour can paint a picture of a larger move. Be careful when reading hourly as the stock trading day starts at 9:30 am, Eastern meaning the beginning and end candles only track 30 minutes.
- 15 Minute Time Frame: The most popular setting for quick day trades or scalps, this is ideal for trading a great frequency of stocks within one day. This makes it so you can capture the essence of short-term moves within new highs, lows, and trends within a short time frame. Like all time frames, the 15 minute has its pros and cons – you can get ahead of moves based on price action and volume but also run the risk of getting faked out if you are not good at reading charts and price action.
Along with the chart and price action, many people like to use indicators to augment their setups. These indicators are not guarantees of anything, but they are used to show what certain stocks have done historically at similar points in a reading such as RSI, increased volume, or moving averages.
These can be useful for educated traders, but also add noise to a chart that might otherwise tell a good enough story using price action and support/resistance zones alone. Additionally, you will learn that not all stocks and charts respect certain indicators the same way, so make sure to not take them for granted.
At StockAbility™, we use price as our primary indicator. Technical indicators lag behind price and often give false signals. The very best traders make the majority of their decisions on pure price action alone.
How Many Trades Do Day Traders Make Each Day?
This is another common question that beginning active traders ask, and the answer is surprisingly simple: as many perfect setups present themselves within your managed capital and within the rules you have set out in your plan.
This is to say that disciplined traders never force trades, and instead use charts from stocks they have been observing. When a security enters a support or resistance zone to indicate that a day trader should purchase or sell, they stick to that plan.
Additionally, a good day trader will respect their money management rules so as not to overextend themselves. While we like to believe that our knowledge and chart reading abilities is sufficient to mitigate our risk, the stock market always has some volatility and tricks up its sleeves to make life difficult. This is very easy to overcome if you are sticking to using no more than 1% of your account capital on each trade.
Once you have a feel for the type of trader you want to be, you will be able to establish your own rules and manage your capital like a business. As always, we recommend getting professional training, consulting mentors with decades of trading experience, and starting slowly to see what works best for you. There will always be another opportunity in the stock market, but the window for success is contingent on your willingness to put the work in and learn about charts and winning setups.
Get your Trading Education with StockAbility™
At StockAbility™, we have helped ambitious beginning traders convert that energy into developing a skill for life using our webinars, online courses, and coaching staff. We work to create material that is a cut above generic online educational resources. After all, the stock market is a competitive arena, so if you are using the same free information as every other beginner, you will be stuck in that pool.
Instead of wading through the early stages of your trading career, register for a free webinar today. Learning to trade is a skill, and honing it will lead you to a fulfilling life of managing your investments for financial freedom. So sign up today and consider this your breakout zone in the chart of trading life.