Time Frames

I tend to think of the market in four time frames. The longest time frame I think in is secular, which is a multi year time frame. I believe we are in a secular bear market which means we are likely in a wide trading range or worse. Please note that the market can go up by 20% from here and we would still be in a large trading range. This time frame has little effect on my trading except that I err on the side of caution with my long trades and don't try to catch every last dollar. This also leads me to be more patient in buying.

The second time frame I think in is the intermediate term which is generally a six week period but can be anywhere from four weeks to a few months.  I believe that an intermediate term rise that started in early July and lasted five weeks ended last week and we have just begun an intermediate term decline. Because I believe we are in an intermediate term decline that has just begun I am even more careful than usual in going long.

The third time frame I think in is the short term, which is generally about two weeks. If the market were to decline through this week and and was followed by post expiration weakness than we would be maximum oversold in the short term . That would set us up a nice risk/reward trade for a very playable multi-day rally, still likely within an intermediate term decline. This short term time frame combined with the intermediate term has the largest effect on my trading.

The fourth time frame is a "very short term" time frame, or day to day. For instance even if the market becomes maximum oversold by next week as I laid out above it is very unlikely that we will go straight down and we will probably see a relief rally at some point this week. We did go straight down into the early July low but that decline was fairly uncommon. My current very short term view is that if we have a down day today we should rally tomorrow. This is the time frame I trade least on and keep those trades small.

1 comment:

Anonymous said...

Thank you for this post and it helps me to understand the larger picture of varies levels of time frame.