“The answer to the question, What’s the trend? is the question What’s your timeframe?” –Richard Weissman
One of the biggest misunderstandings among traders is the time frame on which they trade. A day trader can believe a stock is going down and be bearish on the intra-day chart, while a longterm stock picker is buying to hold for six months (or longer) through a few earnings announcements. Trend followers are making money buying and selling off the 200 day moving average, while swing traders are buying dips and making money.
Here are some basic types of traders and timeframes.
Swing Traders
The swing trader wants to buy low and sell high, and this is the trading method many are comfortable using. Swing traders buy and hold their positions over multiple days or weeks. This works best in markets that have defined price ranges. The key to swing trading is buying support and then selling into resistance in an up-trending market. However, they may also go short into resistance.
Day Traders
Day traders buy and sell on the same day, and close out all positions when the market closes. They do not carry any positions over into the next day. Day traders attempt to profit on the price moves that happen in one day, using intra-day charts to capture intra-day trends.
Trend Following
The key to trend following is having trades positioned on the right side of the market, primarily buying or selling trends on the longterm timeframes of weeks, months, or longer. Trend followers use longterm moving averages like the 50 day and 200 day to stay on the right side of the trend for as long as possible.
Position Traders
A position trader builds longterm positions in markets. Many who follow this method make entries and exits once a week, using weekly charts, and only trade weekly or monthly.
Stock Traders
A stock trader can hold a stock for months, and even years when it is moving upwards. While stocks can be traded in all timeframes, someone that only trades stocks is usually trading them for the longterm move, based on the future potential of the company. Most stock traders are stock pickers and look for the companies that they believe will provide the earnings to drive the stock price higher and higher after each earnings announcement.
Money can be made trading on any timeframe by following a disciplined trading system while successfully managing risk.
