Each morning, active investors prepare for the day ahead by
eyeing futures, screening stocks, checking out their favorite
websites, and monitoring their Twitter streams. But throughout the
morning routine and trading session, most traders are actually
focused on something more important... something many are often
subconsciously unaware of: their daily confrontation with arguably
the two most important aspects of investing -- time and price
analysis. And the sooner traders and investors learn to embrace and
respect the harmony of time and price, the better their investment
choices and performance will be.
Getting time and price right or wrong can be the difference between
a single and a home run. Or put in simple terms, a gain or a loss
(or a large loss, if undisciplined). And therein lies the key to
understanding time and price: discipline.
If you want to day trade or swing trade a stock on technical
analysis, don't become a long-term fundamental investor as the
trade gets away from you. In fact, don't let the trade get away
from you. You already set your time frame, so now you need to set
your price targets and stop losses. Time and price. Stop losses
save us when we don't get the price right within our given time
On the same hand, we also have to realize that two investors can
play the same security in opposite directions under different time
frames. And this is important to understand when reading through
your Twitter feed or latest analysis on a given security.
This is also good for social traders to note: When sharing stock
picks/trades, try to be clear about your time horizon. It doesn't
need to be as precise as two hours or two days, simply stating very
short term or short term helps. In the end, we are all accountable
for our own actions, but differentiating between short and longer
term time frames helps. Visual aides (e.g. charts or tables) are
appreciated and helpful as well.
So, just for practice, let's look at a few examples of time and
price opportunity analysis, taking into account different risk
profiles as well. Note that these examples are simple in nature and
are solely meant for the purpose of demonstrating two points: 1)
that "time" not only matters on your long or short entries, but
also on your time frame for exiting and 2) that different time
frames dictate how an investor or trader determines price point
) is a stock that has been over-traded by many. Whether a 15-minute
or 2-week time frame, many have found success trading Apple. This
is in contrast to intermediate to longer-term trend investors who
may choose to stay away, or simply short.
) offers a more extreme case of time and price opportunity
analysis. This example is similar to AAPL but with higher
volatility and a deeper drop. More specifically, looking at the
fall of 2010, ACI formed an RSI divergence that may have been
compelling for shorter-term traders with a broad risk profile.
However, when considering the macro downtrend and deteriorating
fundamentals, quality longer-term trend investors wouldn't be
A final example of differing time and price analysis can be found
) recent uptrend. Where short-term traders may look to go long (or
even short at certain points), a longer-term trend trader would
simply "buy the dip" indiscriminately.
Editor's Note: Andrew Nyquist is an independent investor based
in the Minneapolis area. This article originally appeared on his
investing and economics site,