Trading Timeframe Selection

| Posted: 06-07-2008 | Comments: 0 | Views: 12 | Rating: (86)

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Well, I've had a frustrating week. No opportunity to trade until Friday, and no opportunity to work on my website and newsletter service. NOT HAPPY!!!

But then, that happens to us all from time to time. Life has a habit of failing to consult with us, prior to messing with our plans.

What happened? Well, before I was trading I used to work as a pilot, with a specialty in aviation safety. I've maintained a link to that industry, and still do some work on a part-time basis. Usually it's not a big deal at all, and I can fit it in around my life. Sometimes though, a bit of a crisis happens (safety's like that!) and I've got to travel away, and well... my plans just don't matter anymore.

Yeah, I know. I've got no-one to blame but myself. After all, I choose to do this. And this probably has no relevance to your life. So let me get to the point - how does this story relate to the title of this article - 'Trading Timeframe Selection'.

Ok, those of you who have been around my website for a while know that day-trading is my thing. I like the short timeframes. Anything more than 5 minutes is way too long for me. Why is that? Well, several reasons really:

1. More action.
2. Tighter stops (I hate large losses).
3. Psychologically, I'm a bit of a control freak - I like to monitor a trade from start to finish.
4. I can sit in cash when I'm not trading, so it's no problem if I get called away and can't trade for a day or two.

Really, it's all psychology!

I used to trade daily charts several years ago, and really hated the 'surprise' each day when I woke up to see what the US market had done to my position overnight. Now, when I'm trading, I can manage the trade closely. And when I'm not trading, I'm out of the markets. Simple!

Day-trading is just a perfect fit for my psychology. And it just happens to fit my lifestyle as well, because if I have to go away quickly I'm not leaving open trades in the markets.

For some crazy reason, about six weeks ago, I decided that I should look into trading daily charts again because that would give me more time to work on the trading education website & newsletter. I decided to trade options on equities, which would allow me to place defined-risk trades and profit from theta decay. Great plan! So I set about simulation trading for a couple of months, just to be sure it would work for me. Well, everything went fine until this week.

Suddenly, I couldn't monitor my trades. I'm left in the market with an overall delta positive portfolio, and no access to a computer to adjust the trades, and the Dow drops 358 points. Not a big deal really, as it's simulation. The position had been in profit, and is only sitting on a slight loss now, so with three more weeks till expiry there's still a great chance to work my way out of trouble. Of course, had it been live I would have phoned my broker and closed out all positions.

But here's the real lesson for me:

1. Daily charts do not match my lifestyle,
2. Daily charts do not match my psychology, and
3. Daily charts do not match my risk tolerance.

I wasn't comfortable holding positions overnight when I couldn't monitor them. And the whole 'speed' (or lack of speed) of the game frustrated me. Could I get used to it? Absolutely! But why bother when I've already found my niche. I'm a day-trader. Why try to change?

So, what's your perfect timeframe?

The only way to find out is to try the different alternatives. These days you can get a demo or simulation platform for almost every market, and timeframe. So there's no excuse for not trying the different timeframes to find the one that fits your psychology like a glove.

Try the short timeframes for a couple of weeks. Try the intermediate timeframes for a month or so, say the 1 or 4 hour charts. Try the daily charts for a couple of months. While you're at it, try the weekly charts.

What you're first attracted to is not necessarily the right fit for your psychology or lifestyle. When I first got into trading I traded the weekly charts on stocks. This changed quickly to daily charts. And then over several years it progressively got shorter and shorter. Maybe day-trading would not have suited me back then, but the thing is, I never even thought to try anything else. Had I done so, I might have saved myself years of 'daily chart' pain.

So what are you waiting for? Test your timeframes, and find the right one for you - the timeframe that matches both your lifestyle and your trading psychology.

Happy trading,

Lance Beggs

© Copyright 2008. Lance Beggs. All Rights Reserved.

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