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Key Strategy Considerations - Timeframe

Key Strategy Considerations: Timeframe

Timeframe refers to the general duration of a given trade from the time the trade is opened to the time the trade is closed. The timeframe a trader selects is dependent on their overall trading strategy, motivations, and time commitment. If a component of your strategy is to earn income on dividend paying stocks, that strategy will lead you to trade over a timeframe measured in weeks and months.

If your strategy is to capitalize on very small variations in price of very liquid stocks, that will dictate a timeframe measured in minutes and hours. The expected holding period may be different for different positions. Be flexible and be prepared to adjust.  A position may get to your upside target quicker than you expect. Make certain that whatever your timeframe, you actively manage the risk of the position.

The time frames below are representative; there is not a universally recognized definition of each timeframe in the categories below.

  1. Single-session traders:  minutes to hours
  2. Swing traders:  more than one day to several weeks
  3. Position traders:  several weeks and longer

Single-session traders

Single-session traders enter and exit their trades within the same trading session. They are looking to capitalize on stock price variations that occur over the trading day. Single-session traders tend to use technical analysis techniques and look for stocks that are very liquid (providing ability to quickly open and close positions) and volatile (offering higher price variation over a period of time). Single-session trading results in increased trading volume and trading commissions. Seasoned single-session traders generally have higher trade values which compensate for the small price changes they are targeting as well as the more frequent trading commissions realized.

Note. There may be additional capital requirements for traders entering and exiting multiple trades within a several-day window in a margin account. For additional information on what this may mean for you, please consult your broker.  

Swing traders

Swing traders are looking to capitalize on changes in a security’s price over a relatively short period of time but longer than a single trading day. There is no exact timeframe that makes someone a swing trader but, generally, a swing trader’s timeframe is from a few days up to several weeks. Swing traders primarily use technical analysis to identify trades and entry and exit points. But, because their timeframe is a bit longer than a single day, swing traders may also rely on news, company announcements, and fundamental analysis as they may provide opportunities that could play out in this timeframe. Trading costs for swing traders tend to be less than those realized by single-session traders. 

Position traders

Position traders are looking to capitalize on a stock’s broader price trend. They assume positions for weeks or months, allowing time for substantive moves in the market that may benefit their trade. Because substantive moves can result from changes in a firm’s outlook, position traders are more likely to use fundamental analysis techniques in some form. Daily pricing variations are viewed as “noise” and a bigger picture view is maintained. Lower trade volume results in reduced trading costs. 

Conclusion

Your trade timeframe is dependent on your trading strategy. Single-session traders are very active and are looking to gain from small price variations over very short periods of time. Swing traders are targeting trades that can be completed in the few days to few weeks timeframe.  Position traders seek larger gains and recognize that the timeframe to realize these is longer.  Most active traders use technical analysis to some degree, with single-session traders using it almost exclusively. 

While most traders do migrate to a particular timeframe, you don’t have to. Some traders will live in one timeframe for all their trading and others may have one timeframe for one part of their trading and a different timeframe for another part. The essential part is to make conscious choices that support your long term financial objectives, as well as fit your lifestyle.

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The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.

Schwab does not recommend the use of technical analysis as a sole means of investment research.

Schwab does not promote a day trading strategy.

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