Last Updated on 11 September, 2023 by Samuelsson
As a new trader, swing trading is the trading form that will get you started in a quick and relatively easy way compared to other trading forms. However, to be able to successfully trade the markets, it’s essential to know which timeframe to work with.
Generally, the best timeframe for swing trading is daily bars. And while it’s possible to swing trade in other timeframes, the daily timeframe holds some quite big advantages that make it a good choice for almost any trader.
In this article, we’ll explain why we think you should go with the daily timeframe, and what benefits you’ll get from not choosing minute bars for your swing trading
Why The Daily Timeframe is the Best Timeframe for Swing Trading
Being the perhaps most common bar setting, the daily timeframe might not be the most exciting choice you can make, at least according to some. However, we would argue that it’s the smartest choice you can make as a beginning trader.
Here follow our reasons for why we think this is the case:
- It’s more significant and reliable than other timeframes
- A trading strategy for daily bars is MUCH easier to execute
- It’s harder to curvefit
- You can find a lot of good trading strategies for this timeframe!
So, let’s go a little deeper into each of the reasons above!
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1. The Daily Timeframe is More Significant and Reliable
When we analyze the markets, we may pull up a chart with whatever setting we want. We have access to the 5, 10, or 343-minute resolution without having to do more than change a small setting in our charting program.
Still, there are timeframes that are used more often than others, and the daily timeframe is among those that are used the most. This holds true not only for retail traders but also for the big players like mutual funds and other entities whose actions have a significant impact on the market.
All in all, this leads to that most attention is on the daily prices of the market, and with that being the case, there are many people who stand ready to take action and enter when they spot a buying opportunity.
Put this in contrast to minute bars, which are not watched by nearly as many market players, and subsequently won’t have the same reliability or significance!
As a result, you often find that trading concepts like mean reversion and trend following work quite well on daily bars!
2. A Trading Strategy for Daily Bars is MUCH Easier to Execute
As a swing trader, you’re holding on to your positions overnight, and really don’t want to be glued to the computer screen all day. And since a trading strategy will enter on the open or close of a bar in a majority of cases, this means that you’ll need to make use of a timeframe that’s pretty long, not to have to monitor the close and open of each 5-minute bar, just to give an example.
Now, daily bars are perfect for this, not only because they close and open once a day, but also since those who decide to enter on the open of each bar have the whole night to place their orders. This means that your trading schedule is highly flexible. You just have to find some time between the close and open of each trading day to execute your signals, to be able to swing trade. This makes having a full-time job on the side something that can be accomplished much easier.
The swing trading that we do ourselves and teach in our swing trading course, takes no more than 15 minutes each day, and can be executed whenever the market is closed!
3. It’s Harder to Curve Fit
If you yet haven’t heard about curve fitting, it’s not an exaggeration to say that it’s one of the main reasons why traders fail.
In short, it means that you use a trading model that’s fit to past market data, rather than true market behavior. That’s a huge difference, since nearly all market data is random, and can’t be used to make any predictions about coming price moves.
When we design trading strategies, we want to base our decisions on that part of the market data that isn’t random to stand a chance in the markets. And since the randomness of markets increases the lower timeframes you use, it’s best to stay with daily bars to increase the chances that what you see indeed is true market behavior that’s worth acting on!
4. You Can Find a Lot of Good Trading Strategies!
Since the daily timeframe is more significant than the lower timeframes, it’s much better for building trading strategies. Not only can you be more certain that the things you find actually will hold up in live trading. It will also be much easier to find strategies and edges that show promise and have an average trade size that’s enough to cover trading costs, such as slippage and commissions.
For trading strategies that rely on minute data, a low average trade could be a real issue, where much of the things you find simply are too weak for there to be anything left once slippage and commissions have been accounted for!
Using Even Longer Timeframes?
Having established that daily bars are great for swing trading, you might wonder if there is any point in using even higher timeframes, like weekly, or monthly bars.
You certainly could make good use of long timeframes like these to get a better sense of the overall trend direction, or even impose some additional filters like that the previous week should close higher or lower.
However, you really can accomplish this with daily bars as well, which may render the weekly timeframe a bit superfluous.
In addition, when going with higher timeframes, there is a risk that you’re starting to analyze the market with a longer outlook, which will require you to be in positions for much longer to reap the profits. And while this may not be a disadvantage strictly speaking, it might not resonate with your goals as a swing trader.
In other words, you may use longer timeframes, but most likely won’t need them. Daily bars offer much valuable information, and at least at the beginning, there is no need to look at other timeframes to start swing trading.
The Best Charts for Swing Trading
Now that you know which timeframe that’s best for swing trading, we just wanted to touch briefly on a pertinent topic, namely that of which charts you should use.
Nowadays there are many good services available that lets you plot trading indicators, and other technical analysis tools that may be of help to you as a trader. Some examples of such services are those provided by investing.com and tradingview.
However, we would recommend that you turn your attention to some of the more sophisticated charting platforms out there. These include Amibroker, TradeStation, Multicharts and the like. With these platforms, you’ll be able to backtest and test your own ideas to see how they fare on historical data. This is a crucial skill to have as a trader if you want to achieve long term success!
For those who are interested in learning more about how they could go about to backtest their trading strategies, we recommend our complete guide to backtesting.
Don’t miss: Can Swing Trading Make You Rich?
The daily timeframe is the best timeframe for swing trading, and in this article, we’ve presented a lot of points to support this claim.
However, if we were to pick the top 2 reasons why you should use daily bars to trade, those would be that it takes much less time, and that there are so many great trading strategies. In fact, if you get your hands on a profitable and validated swing trading strategy, you could be up and running in no time! This is exactly what we offer with our swing trading course, where you’ll get trading strategies that we’ve traded successfully for a long time.
However, if you’re up for the task to construct a trading strategy yourself, you could do that as well. Our guide on how to build your own trading strategy is the perfect resource for those just getting started!
Related Reading: How Long Should You Hold A Swing Trade?