Think of trading time frames like navigating a ship on the open sea. Without navigational tools, control mechanisms (mostly self-control) or respect for risk, there is little chance of survival. Just as weather conditions can change at any time, so can trading conditions. If you are alert, you can make proper adjustments, save your skin and make money in the process.
Why are trading time frames so important right now?
Having a handle on trading time frames is critical right now due to elevated volatility. Market players do not like uncertainty and will refrain from taking any long-term risk. There are many dark clouds hovering these days that could trigger an explosive outcome, which is why the VIX has been over 20% for weeks.
One of the biggest concerns is the possibility that we’re entering or already in a bear market. Bear markets are nothing to be feared, but during the last nine years, any discussion of a bear market was considered taboo. We came close to bear markets on a few occasions since the financial crisis, but the Fed was always there to save the day; call it the “Fed put”. When Ben Bernanke and Janet Yellen were Fed Chairs, any pickup in volatility was quickly doused by dovish rhetoric and/or the threat of more bond buying.
Sellers would literally dare the Fed into doing something, and like Pavlov’s dog, they would take to the bait and soothe investors. Today, that safety cushion does not exist. The Fed is hawkish and has been for three years now. The markets don’t really like it, but suffice it to say that investors and traders were still attracted to risk assets – until very recently.
How to manage your time frames
Because the trend is lower-to-sideways action, keep your trading time frames tighter. If you tend to keep trades on for consecutive days or weeks, you will be whipsawed endlessly. The gaps up and down will shake your core. I am not a good day trader, but in a market like this, I trade smaller and within very short time frames.
One day, it’ll be time to use longer trading time frames. For now, accept small wins, take small losses and keep moving along. Do not dwell on your losses! You’ll be much better off mentally and therefore ready to fire on cylinders when the environment changes to something more friendly. It will. It always does.