Know Your Time Horizon

What do I think about $AMZN? Like in the next 10 minutes? Over the next 6 months? As part of a retirement plan?

What's the timeframe?

Which stock should you buy right now? I have no idea!

I don't know anything about you.

In addition to time horizon, I don't know your risk tolerance or your overall objectives. Those need to be identified as well, in addition to timeframe.

These 3 questions all need to be answered before making the first trade or investment. Without it, you can't make a plan. And if you don't have a plan, well.....

"A goal without a plan is just a wish"

So what's my time horizon? I'm looking out weeks and months. I don't care what happened today, and I certainly don't care what happens next year.

Weeks and months. That's my sweet spot.

BUT, and here's the key. Investors of all time horizons come to us for our data and analysis, because we first start with the larger timeframes. We start with 20-30yr charts going back as far as we can, sometimes even longer. THEN we break things down to shorter timeframes, but within the context of larger macro trends.

Simple math will tell you that trading in the direction of the primary trends increases the probabilities of success. In addition, recognizing the primary trends is essential to identify when you're trading against it, which is fine, but knowing that helps with risk management and position sizing.

We call this a Multiple timeframe approach. My friend Brian Shannon even wrote a book about it: Technical Analysis using multiple timeframes. His strategy is a bit more short-term than mine, but the principles can be applied across all time horizons.

The rule of thumb is to always go one degree higher to get structural perspective. In other words, since I'm personally using daily charts for tactical opportunities, I want to analyze weekly charts to get the bigger picture.

If you're a day-trader, let's say, and you look at 10-minute timeframes, then the daily charts would likely give you that structural perspective.

For longer-term investors using weekly charts, perhaps the monthly's, one degree higher, can help you identify those larger trends.

It's the multiple timeframe analysis that I think is really valuable, which is something Technicians have that others don't.

A lot of confusion among market participants really just comes down to time horizon. We all have different objectives, risk tolerance and time horizons. And that's okay. We also have different income streams and expenses, and we're all different ages.

Why should the objectives and time horizon for a 25 year old be the same for a 65 year old? They're probably not. Or maybe in some cases they are. And that's the point.

There is no right or wrong time horizon. It's really up to you.

Some people love watching every single tick on the computer screen every single day, all day. And that's great. Other people don't have the time, or patience, or interest in something like that. And that's okay too!

We all have different personalities, goals and lifestyles.

Do what works for you.

There are no wrong ways to be profitable. If you're making money, if you're happy, if you're sleeping well at night, then perfect! You're good to go.

Keep striving, for sure. Continue to work on it and refine your process, always. But if those 3 are checked off: Profitable, Happy and Sleeping well, then you're way ahead of the pack. Way ahead!

And one more thing, sometimes the market doesn't care about your time horizon. Sometimes, the market stops you out within days, or even minutes, of entering a trade you thought you would be in for 6 months. That happens.

Sometimes, in higher volatility environments your targets are hit in days or weeks, instead of 6-12 months like you had planned. That happens too.

So the market can force its timeframe upon you. That's just a function of volatility, which is normal.

That's where position sizing comes in, which we discuss here further.

Like breathing in Yoga, all of this helps bring you back to center.

In markets, when lost in a sea of volatility and deafening noise, these 3 questions will always bring you back:

What are my objectives? Why am I even here?

What is my time horizon? How long will I be here?

What is my risk tolerance? How much am I willing to lose?

Answer them.

Tape it to your wall or computer.

Tattoo it on your forehead if you have to.

But for sake of your sanity (and your returns), I encourage you to answer these 3 questions for yourself.

And most importantly, stick to them.

That's how I see it.

What about you? What do you think about all this?

JC