Fora

I’m going to steal some of James Dalton’s ideas on time frames, mostly because his seem to fit nicely, and from anecdotal experience, it seems to hold true. Five time frames exist, grey areas obviously exist, but I find it’s a good starting point when dissecting the charts. Scalper, Day Trader, Short-Term Traders, Intermediate Traders, and Long-term Traders are the five main divisions.

Scalper

The scalper lives by the minute hand, continually buying and selling in order to take advantage of fleeting discrepancies in order flow. Scalpers may make as many as several hundred trades a day, comprising thousands of contracts. Scalpers rely on intuition. They buy and sell from all timeframes, and their ability to respond to the immediate needs of the marketplace provides essential liquidity. This timeframe is utterly detached from longer-term economic trends, for obvious reasons. For these guys, its all about reading order flow.

Day Trader

The day trader enters the market with no position and goes home the same way. Day traders process news announcements, reflect on technical analysis, and read order flow in order to make trading decisions. They also have to deal with the other timeframes buying and selling, margins calls, major economic news, even seemingly harmless speeches by Fed insiders (hello Greenspan effect!). Anyone who believes the markets are rational should spend a day trying to digest and react to the landslide on conflicting data day traders must wade through to make a decision.

Short-Term Trader

Short-term traders often hold trades longer than a day, but usually not longer than three to five days (a trading week). Short-term traders usually have to be much more aware of economic trends, and monitoring important junctions that exist, such as trend lines, new highs and lows, etc. They’re always on the look out for break outs, either to fade (which means to bet against the movement continuing), or get on board the momentum.

Intermediate Trader (or investor?)

The difference between intermediate traders and short-term traders is simply they operate on a longer term view. Rather then thinking of a set timeframe, Intermediate Traders (often referred to colloquially as “swing traders”) are usually more focused on the time the market spending bracketing, rather then an actual set time piece of a month or 3 months. They usually attempt to buy at the bottom of a bracketing market, hoping to sell at the top, or vice versa. They may also, like the other timeframes, pile aboard powerful break outs or short when the market tanks. Swing traders usually process a lot more fundamental information then both Short-Term and Day Traders, because the sheer amount of different technical ideas can make it difficult to judge which is important in the context.

Long-Term Investor

Long-term investors are far more attatched to the securities they own. They have a stronger tendency to buy securities and put them away for some time, with holding periods from months up to several years. When they are active, they deal with very large positions that are very visible to all participants in the market. Shorter term participants that wish to stay solvent understand to either get on board or move out of the way when the long-term investors decide to take a position.

Note that when you see a major, powerful move in the markets or a stock, its almost always all the timeframes moving in unison. Like the food chain, the longer timeframe is the dominate force over the smaller one, taking on an alpha like role. Short-term traders, no matter how stubborn, will always get run over by the long-term investors, through the sheer weight of the contracts/stock quantity they use when entering the market..."

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