CMU: The criticality of timeframe in trading

By Jani Ziedins | Free CMU

Mar 25

Cracked.Market University

As crazy as the last few weeks have been, far and away the most critical factor determining our success is timeframe. One person is buying with both arms while another is shorting like mad. Who’s right and who’s wrong? As strange as it sounds, they could both be right and make a ton of money from their seemingly contradictory trades. The secret sauce is timeframe.

I bring this up because in these short, after-hours posts, I often neglect to stress timeframe when talking about positions. While it is often obvious given the context, for new readers, I want to make sure everyone understands how important this distinction really is.

Two days ago I wrote a post about the safety of buying these levels and yesterday I told readers the opposite thing when I said this strength was shortable. The difference between these two posts is the first covered long-term investing while the second exploited the market’s daily gyrations.

Despite how it sounds like I’m talking out of both sides of my mouth, I still believe both of these cases are as true today as when I wrote them. Anyone buying these discounts and holding for 12+ moths will see some really healthy profits. When prices finally reclaim 3k, whether a person bought at 2,300 or 2,400 will be fairly insignificant. The most important thing is they were busy buying discounts when everyone else was desperately selling them.

On the other hand, if a person wants to lock-in short-term profits next week, I would definitely suggest shorting today’s strength. This market is stuck in a choppy basing phase and one day’s gains become the next day’s losses. While today’s stimulus headlines were great and worthy of a 10%+ pop from Monday’s lows, now that we are at much higher levels, chances are good the next move is lower.

As strange as it sounds, I truly believe a person should be both buying and shorting this market. The distinction comes down to whether they are doing it with their long-term investments or in their short-term trading account. (You use both strategies, right?)

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Tags: S&P 500 Nasdaq $SPY $SPX $QQQ $IWM


About the Author

Jani Ziedins (pronounced Ya-nee) is a full-time investor and financial analyst that has successfully traded stocks and options for nearly three decades. He has an undergraduate engineering degree from the Colorado School of Mines and two graduate business degrees from the University of Colorado Denver. His prior professional experience includes engineering at Fortune 500 companies, small business consulting, and managing investment real estate. He is now fortunate enough to trade full-time from home, affording him the luxury of spending extra time with his wife and two children.