There are three broad timeframes in which traders tend to operate. The boundaries between these are by no means fixed, and some of the strategies we will cover can be used in many timeframes.
• The shortest time frame is ‘intra-day’, also known as ‘day-trading’ because positions are both opened and closed within a single day and are never held overnight. Day-traders will hold a position for anything from a few seconds in the case of a scalper to the whole session in the case of someone who has bought into a breakout at the open and has no reason to exit before the close. Because they always go home ‘flat’, the main advantage that day-traders often remark upon is how well they are able to sleep at night!
• Short to medium term trading is usually referred to as ‘swing-trading’ because it usually aims to take advantage of moves in the market as it swings from highs to lows. Many other techniques are also employed by swing traders however, such as breakout systems similar to those used by day-traders but executed from longer timeframe charts and held over several days. Swing traders believe that the large, profitable movements in a market only take place over longer timeframes, and often even doubt the ability of the day-trader to make money. It is not uncommon to hear a swing trader claim that they cannot sleep easy at night unless they have a position open!
• Finally, a very considerable proportion of market participants (including most public speculators and most financial institutions such as hedge funds) prefer to buy and hold a security over a long period of time. This is especially true of stocks and shares, which is obviously also relevant to the value of the indices, and government bonds. To a lesser extent it is also true of commodities, usually with the intention of hedging against exposure to risk in a company’s commercial operations. Trading in these timeframes is also known as ‘position trading’.
In the illustration above the thicker lines represent trades taken by a swing-trader, while the thinner lines represent those taken by a day-trader. Can you see how the two fit together? The swing trader holds a position for a sustained up or down leg in the market, ignoring the fluctuations and retracements that occur throughout the course of this, while the day-trader takes advantage of numerous smaller moves within this. The position-trader, meanwhile, is long for the entire duration shown on the image, and will perhaps remain so for another two years. The swing-trader’s entries are to the position trader’s what the day-trader’s are to the swing trader’s.