What Type of Trading Time Frame Is Best For You
The phrase "trading time frame" refers to the length of time that you generally plan to hold trades. Will you trade short-term, long-term or somewhere in between? Also, what is your definition of short-term, long-term, etc.? This is a critical decision as each individual has a different temperament for risk. It is essential to trade in a manner that fits your own personality. If you have trouble holding on to a trade for more than a few days it makes little sense to use a long-term trading approach. The aforementioned market maker (buying at the bid and selling at the ask) may often hold a trade for as little as 10 seconds (buying 20 Soybean contracts at 510 and 10 seconds later selling 20 contracts at 510 1/4 yields a $250 profit). There are off-floor traders who trade in and out using anywhere from 1-minute to 5-minute bar charts. They are often day traders who are always flat by the end of the day. On the other end of the spectrum, there are traders who might use fundamental information or monthly bar charts to trade. These traders focus their attention entirely on long term trends. And in between there are trend-followers, counter-trend traders, traders using Gann, Elliot Wave, volatility breakouts, moving averages, etc., etc.
Day traders will tell you that day trading is the best way to trade and will give you very good reasons why they believe this is so. Trend-followers will tell you that trend-following is the only way to go, and so on and so forth. The bottom line is simply this: No matter what anyone tells you, there is no one best way to trade. You must identify the approach that is best suited for you personally. If you can't follow the markets all day, then it is unrealistic to expect to be a successful day trader. Let me give you a real-life example.
A pediatrician decided to day trade the S&P 500. At first, he would run back to his office between appointments and check the quote screen and perhaps make a trade, before rushing to his next appointment. As the losses began to mount he would start saying "excuse me for a minute" during appointments to go check the quotes. Eventually he started running late to appointments or would leave appointments and not come back for 5 to 10 minutes while he tried to trade his way back to profitability. Would it surprise you to learn that he lost money, stopped day trading the S&P and had to do a lot of apologizing to retain a good portion of his clientele? Probably not. In retrospect this was clearly a recipe for disaster. In this case, the lure of easy money - the idea that he would "trade in and out" a few times a day and pick up some extra cash - was so enticing to this individual that he made the mistake of not acknowledging to himself that his schedule was simply not suitable for day trading.
The purpose of this example is not to denigrate day trading (nor day-trading pediatricians). The real point is this: if you took a very successful day trader and forced him to trade only once a month using fundamental information he would no longer be a successful trader. Likewise if you took a successful long-term trend-follower and forced him to trade 15 times a day he too would be like a fish out of water and he would no longer be a successful trader. When starting out, making a well thought out decision regarding the trading time frame is critical. Also, if you have traded for awhile with little or no success it may be time to look at altering your trading approach to use a shorter or longer time frame. The bottom line is that there is no inherent advantage to trading more often or less often. The question to be answered is simply to determine which approach works best for you.
To get a feel for the differences in a possible trading time frame, examine Figures 1-1, 1-2 and 1-3. Each figure displays the price action of T-Bond futures over a three and a half month period. The only difference is that each depicts the trading action using a different trading system, one long-term, one intermediate-term and one short-term.
Figure 1-1 - Long-Term Trading Method
T-Bonds (Long-Term Logic) - The long-term system made 2 trades
Figure 1-2 - Intermediate-Term Trading Method
T-Bonds (Medium-Term Logic) - The intermediate-term system made 9 trades
Figure 1-3 - Short-Term Trading Method
T-Bonds (Short-Term Logic) - The short-term system made 24 trades
On the graphs, an up arrow indicates buying, a down arrow indicates selling, and small diamonds indicate stop-loss stops. Trading the same market, the long-term system made 2 trades, the intermediate-term system made 9 trades and the short-term system made 24 trades.
Categories in Trading Mistakes
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Failure to control Risk
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Lack of Discipline
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