At FirstRate Data, they often encounter investors looking to trade over shorter periods (under a week) and trying to understand how to interpret intraday data.
What is Intraday Data?
Most stock investors will be familiar with end-of-day data which provides the daily high, low, close and volume for a stock on a given day.
Intraday data provides this information in ‘bars’ at a given time-interval during the day
For example, for the Dow Jones Industrial Index – DJI Intraday, the below are the first 1-minute bars for Jan 2, 2020 :
{timestamp, open, high, low, close, volume}
2020-01-02 09:30:00,28639.0,28666.6,28638.9,28666.5,748305
2020-01-02 09:31:00,28666.3,28670.9,28655.6,28656.6,999749
Note that there is also a second type of intraday data – tick data, which is every trade (ie ‘tick’) recorded in sequence.
Tick data can be very powerful in short-term price forecasting.
However, the size, cost, and complexity of using it will typically restrict its use to professionals and institutions such as hedge funds.
The first question most investors have is what interval should be used since bars of 1-second up to 1-hour are usually available.
The general rule is that the intraday bar should be 10 – 20 bars for the investor’s expected holding period.
For example, if the investor is looking to hold a stock for, on average, 3 days then 1-hour bars would be appropriate since 18 1-hour bars would be generated during a 3-day period.
By contrast, an investor looking to only hold a stock for 2 hours would probably elect to use 5-minute bars which would have 24 bars available for the 2 hours expected holding period.
How to Use and Analyse Intraday Data
Although both daily and intraday data have open, high, low, close data points there are important differences between the two timeframes.
For daily data, the most important data point is the close (as this is the final price that market participants agree on and will hold overnight).
For intraday data, the open and close do not carry the same level of importance as the bar’s high and low price, are the most important data points.
Broadly there are two methods of analyzing intraday data – quantitative and chart-based.
Both methods are looking for the same patterns and trends but a chart-based approach is the most accessible for beginners.
There are several types of charts which display intraday data, the one they normally favor is the candlestick for the depth of information it displays and ease of visually identifying trading patterns.
Below is an example of a candle for a 1-minute bar for Apple’s stock on Jan 2, 2020:
The peak of the candle is the bar high, with the top of the candle ‘body’ being close, the bottom of the body being open and the lowest point being low.
Candles have a unique property, in that the color of the body conveys information.
In an unfilled candle as above, the bar is an uptick where the close is above the open and the candle is unfilled if the bar was a downtick the open and close would be reversed and the candle would be filled.
This at first appears confusing, but it becomes clear when looking at a candle chart over an intraday period as below:
The first thing that can obviously be noted in the above candle chart of Apple’s stock price on Jan 4 is the large number of unfilled (or white) candles.
These outnumber the filled (black) by approximately 5-1 (note this does not always occur during an upward price move where 2-1 or even 1.5-1 ratios are common).
This is an extremely bullish signal reflecting investor’s strong demand for the stock and was indeed the basis for a rally in the stock for the next three days that took the share price up 6%.
The other bullish signal in this chart is the number of candles where the high is very close to the close.
This indicates that even within the bar period that the price is constantly moving up and ends the bar close to the high.
Intraday charting with candles can provide a wealth of information and insights as to a stock’s future price movements, we will examine move insights in the next article.
This is a guest post from FirstRate Data. FirstRate Data is a leading provider of high-resolution intraday stock market, crypto and fx data. They source data direct from major exchanges and test all datasets for consistency and completeness.
