As traders we analyze price action, but we tend to forget how important time is to our overall trading success. This article will discuss some perspectives of time which can be used to trade successfully.
The saying “patience is a virtue” is very true in regards to trading. Time is closely related to patience, and patience is essential to successful trading. Patience is required for entries, exits, length of time in a trade, and for allowing trading opportunities to unfold.
The time frame a trader chooses is also important. This will reflect the personality of the trader. Traders who need a lot of action will usually trade lower time frames. Those who trade less, usually move up the time scale. In general, the lower the time frame, the more trading; the higher the time frame, the less trading.
Traders can use multiple time frames to set-up a trade. Trade setups that involve two, or even three, time frames can be useful. I prefer two time frames because I think it keeps things simpler and a little less complicated. Better trading decisions can be made by analyzing the market with multiple time frame perspectives.
Time frames also contain a mix of information and noise. The lower the time frame, the more noise that exists in the data. Trying to separate the noise from the actual information, or the signals that the market is sending, is another key to trading successfully. My own opinion is that it is easier to analyze the market on higher time frames, because there is less noise in market prices. Once I have a directional understanding from a higher time frame perspective, I use a lower time frame for my actual entries and exits.
Time is also useful to consider as a stop. I use both a price and a time stop. Most traders use a price stop, but I wonder how many actually use a time stop? If a trade does not work out within a certain amount of time, I get out of it--no questions asked. Why? Because as traders we need to minimize risks. When we are in a trade we are exposed to market risk. The less time we spend in the trade, the less risk we are taking.
In addition, winning trades generally work out right away and within a certain period of time. In general, the longer a trade takes to reach its objective, the less the chance of a winner. This is my general opinion; others may disagree. My suggestion to you is to analyze your winning and losing trades. Time stamp your entries and exits and go back and look at how much time you were in your winning trades compared to the amount of time in the losers? You may be surprised by what you discover.
Time and hope are also closely related. Many traders when they are in a losing trade begin to “hope.” By analyzing your trading statistics you may notice how much hope you had as your loss was growing. Get rid of the ego and hope, and get out of the trade if it is not working out within a certain amount of time. It is as simple as that if you want to have a chance at trading successfully.
The last concept I would like to discuss is the frequency of trades within negative time periods. All system traders rely on their trading strategies and trading models. All system traders also have drawdown periods. Traders who trade frequently, though, can incur many losses in a very short amount of time; especially if they are trading during market conditions that are unfavorable to their style or strategy of trading.
I too have drawdowns. These can last a long time and are painful. But I also avoid many losses that can occur when the market is not favoring my style of trading by trading infrequently and letting time pass. Markets are ever-changing and have cyclical qualities. As I allow time to pass, I know the market’s condition will change, and once again become more favorable to my bottom line.
I hope this article helped you better understand how time is closely related to trading successfully and if you have any questions please feel free to contact me.