Today we will focus on choosing the right time-frames for trading strategies. We will see which trading terms are better and compare their advantages and disadvantages. We will focus mainly on psychology, risk, and time.
The first and most important aspect when choosing a trading timeframe is your own personality, your activities and your availability. Some people are very busy and can’t sit at the computer for hours. Some other people find it mentally unbearable to hold a position overnight because that would make them lose sleep. Therefore, it is first and foremost necessary to exclude unfeasible timeframes. For example, discard first those for which you do not have the time or technical equipment. Also disregard those that would make you uncomfortable or that need more assets that those you have available. Defining precise timeframes is very difficult, but we divide them by the length of time on which they hold a position.
- Investing: this is an effort to estimate long-term trends, mainly through technical as well as fundamental analyses. While these analyses are essential part of investing, they are useful in trading as well. When investing, you hold a position for weeks, months, or even years. The investor is not interested in minor corrections and must, therefore, choose a position that can withstand them. The problem in developing a trading strategy for investors is insufficient data. Therefore this strategy should be robust and should work in other markets.
- Trading: here we hold currency for less than a week, usually days, hours, or even seconds. For clarity, we divide them further:
As the name suggests, it is an investment strategy that focuses on short term movements that happen within one day. This strategy is suitable for traders who want to trade actively. These traders need to have time every day and constantly follow market news that could influence the marketable instrument. They also need to possess high-level technical skills in order to be successful.
Since day traders carry out more trades than most others, this strategy requires their full focus and strong nerves. If you decide on this type of investment, it is suitable to choose instruments with higher volatility. This means that these assets should have frequent fluctuations during the day. You should also select a broker who provides leverage trading. With a volatile asset and good leverage, even a 1% movement in the value of an instrument can provide you with high profits.
One of the main advantages of this type of profit is the possibility of high returns, which means that even a small investment can grow very quickly. The actual appreciation for successful day trader regularly hits dozens of percentage points per month. The highest attention should also be paid to the selection of a broker. Because of the number of individual transactions, it is crucial that the trade fees are as low as possible and that there are no outages of the system because you could lose out on big movements. You can find out more information on these markets here: https://www.tradingview.com.
With this strategy, traders hold positions after market closing and until the next opening. Positions here can be held for more than one day. These traders have to take into account intra-day market manipulation. If markets go against their strategy between the closing of one day and the opening of the next, they may have big losses and nothing they can do about them. Therefore, this type of trading may be (and in most cases is) more mentally demanding than the previous.
This strategy consists in holding positions for several days or even some weeks. The main advantage of this is that it is less time-consuming. These traders make transactions one day when the market closes and then have plenty of time for other activities while their positions are held. This is why this timeframe is frequently chosen by part-time traders or even students.
Another advantage is that it lets traders avoid handling and discharging stop-losses during the day. Therefore, it is crucial to ascertain the average volatility of a given market and not to try to push the stop-loss below that volatility. This is because we can become victims of manipulation and consistently experience stop loss just before the market turns.
This is, in my opinion, one of the most demanding types of trading strategies, and I would not recommend it to a beginner. Trades are performed in a matter of minutes or even seconds looking to profit from very small gains. While other traders look to maximize profits in winning positions, scalpers sacrifice big profits to get multiple small positive transactions. These strategy needs quick fulfillment times and the absolute attention and concentration of the trader. There is also a need for a very structured exit strategy to avoid losses.
The swing strategy is probably the best option for most of our readers who are probably beginner traders. It requires less active time than other strategies letting them understand the market better and giving them plenty of time to plan ahead. The lower number of individual trades (and therefore fees) that this strategy involves is also a positive aspect for beginners. Also, the reduced mental stress of this perspective might help you focus on learning how markets work, making this an excellent form of training to prepare for more advanced and demanding forms of trading.