Technical Trading Primer: What's Your Trading Timeframe?
BALTIMORE (Stockpickr) -- If your prototypical vision of a "trader" consists of someone hunkered over a half-dozen screens, frantically mashing buttons on a multicolored keyboard, you may be disappointed. The truth is that plenty of traders spend their days in careful, calm analysis of the markets, rather than executing trades. It all comes down to timeframe.
Timeframes are a crucial element that traders focus on -- so much so that traders are often classified by the times they focus on. As you might expect, while their occupations may be the same, what those traders actually spend their days doing can be extremely different.
With terms such as "swing trader" and "scalper" being thrown around by Main Street investors, it's clear that understanding your "trader type" is more important than ever. Let's take a look at the three main trader timeframes -- and the implications of following any one of them.
Related: 3 Technical Setups for the WeekTo many people, timeframe seems like an afterthought to trading. After all, the trading strategy itself should come first, right? In fact, trading strategy and timeframe are so interconnected that the duration of a trade has become the de facto method of differentiating between different trading styles. At its simplest, the market is made up of three kinds of traders: day traders, swing traders, and position traders. Nearly all traders -- be they professional, institutional, or amateur -- can be grouped into one of those categories. Their timeframes can be broken down like this: Day Trader: Holds trades between a few minutes and a few hours; portfolio is all cash by the market's close. Swing Trader: Holds trades for at least a single day but no more than a month or so. Position Trader: Holds trades for longer than a month. Obviously these are rough guidelines -- day traders may occasionally hold overnight, and position traders may occasionally hold for weeks. But the intricacies of each trader type are more significant than the dictionary definition. Meet the Day Trader In many ways, day traders have become the popular image of a "trader" that I mentioned earlier. Because both buying and selling in a position take place within a single trading day, this type of trading requires the most attention and the most speed.
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