Trading requires time in a couple of ways. The first is the time dedicated to developing a trading system. This can be thought of as a one-off thing, but in reality it is more an on-going process. Once a system is in place, time is required in terms of monitoring the markets for signals, executing transactions, and managing positions. How much time all these different elements require depends on the trading system. The trading system, in turn, needs to take in to account the amount of time the trader has available. This article discusses the considerations which go in to helping one determine their best trading timeframe.
The first question to be answered is how much time each day/week/month (whichever is most appropriate) can you dedicate to the various requirements of trading and managing a trading system? Different trading styles require different time focus. As a rule, the shorter-term the trading, the more specifically dedicated time required. A day trader, for example, runs positions which are opened and closed during the same session. This normally means a lot of time spent watching the market for entry and exit signals. An intermediate or longer-term trader who holds trades for weeks or more does not have to dedicate the same amount of time to watching the markets. He or she can usually get away with only spot checking from time to time. Of course there is a whole array of possibilities in between. Knowing where you fall in the spectrum of possibilities is an important part of developing your Plan.
At this point it is also important to consider distractions. There is a major difference between having 6 hours per day of uninterrupted time to watch the markets and having 6 hours of time during which you will be making and receiving phone calls, having meetings, and otherwise not being able to focus on the markets and make trades when required. In the former case one could day trade. In the latter, however, day trading would probably be a disaster as the trader would most likely miss important trading situations on a frequent basis. This sort of thing needs to be taken in to account.
The basic decision one has to make is in what timeframe the trader can reasonably expect to operate on a consistent basis. The individual must be able to do all the data gathering, research, market analysis, trade execution and monitoring, portfolio management, and any other functions required of her or his trading system. That means a trading timeframe has to be selected which allows the trader to handle all of these duties on a consistent basis without the kinds of disruptions which can cause poor system input from the user, and therefore poor system performance.
By the way, nothing says a trader cannot operate in multiple timeframes. The point of this assessment is really to determine the shortest timeframe realistically workable for the trader. He or she would then certainly be able to trade in ones longer-term than that base point. For example, just because one has the ability to day trade does not mean he or she cannot operate in a longer-term trade horizon.
One other thing to consider, especially where it relates to short-term activity such as day trading, is time of day. It is all fine and good if a trader has 8 hours of uninterrupted free time available during which to trade. What if that time is between 6:00pm and 2:00am Eastern, though? None of the primary US markets is open then, so the day trading options are a little thin for a US-based trader. (Forex might be an option).
It is also worth stating, as a final comment, that sometimes trading is not a good idea. We all go through spells in our lives when we are distracted by any number of things. This can be through illness, injury, family or relationship issues, or work-related stress. These tend to be temporary in nature, but nevertheless are a factor in our trading. If you cannot focus on trading the way you need to—and by that we mean following your plan—then no timeframe is going to be the right one. It's perfectly fine to take time off and not trade.
John Forman is author of
The Essentials of Trading, and a near 20 year veteran of trading and analyzing the markets. For a free e-book on getting started in trading,
click here.
