Time Travel Day Trading – Shortening Your Trading Horizon

Few traders consider the impact of trading horizon on the amount of elapsed time it’ll take them to get to profit.

A time travel machine would be very useful in day trading. Especially if we could peek ahead at tomorrow’s markets.  Of course, that’s not possible. What’s also not possible is becoming a long-term trader in a short amount of time.  Yet that’s exactly what a lot of traders are trying to do.

Long term investors have the longest trading horizon. If you are holding positions for a year or so, then it makes sense that you can’t “get profitable” in a couple of weeks. You’d not have closed a position in that time. In fact, it’d be fair to say you’d need years of experience to get to a position where you were consistently profitable because that’s how long it would take for you to experience closing enough trades to know what works and what doesn’t.

Day traders have the shortest trading horizon but it’s here where many new traders fail to consider the nuances of different styles of day trading. Many traders choose a style of day trading without considering what would be a realistic duration to get to profit. For example, it’s popular now to encourage traders to do “homework” before a trading session. This usually involves looking at some combination of historical charts, volume profiles, market profiles and then creating ‘scenarios’ of where the market may go and how to trade it.

This sounds very organized, very efficient, very well thought out. It’s also going to keep you from being consistently profitable for 12 months…

Huh?

Trading Horizon 2

 

The problem with the ‘homework’ approach is that it puts you on a higher trading horizon. Your performance as a trader is directly linked to your ability to do good homework. To come up with tradable scenarios each day.

Every day, you just get one chance to do homework. One chance to review how you did and one chance to get feedback from the market on your homework skills. There is after all only one day per day. This is compounded by the fact that to get good at this sort of analysis, you need to experience different market conditions. You’ll need to experience summer time and winter time markets. You’ll need to experience the extremes of ranges, the middle of ranges, trending markets too. A year contains somewhere around 240 trading days. That’s not a huge amount of practice.

Choosing a ‘homework’ based approach has effectively stretched your trading horizon. The fact that most traders want to buy the low of the day and sell the high of the day effectively stretches the trading horizon too. It sounds like the right thing to do, it sounds disciplined – and it is. But it’s a long road and a long time not making any money.

Shorten The Trading Horizon

So, what’s the alternative? Proprietary trading firms take interns that have never traded before and turn them into traders in as little as 3 months. Their approach is to start on the smallest trading horizon possible, which means scalping. Now, I do understand that new traders want to be making 100 tick trades on Crude and 40 tick trades on the S&P500 right from the start. That’s just not realistic. If it was, prop firms would start their interns doing it. The benefits of scalping for a new trader are:

  • Many trade scenarios per day as opposed to 1 or 2 ‘homework’ based scenarios.
  • Experience of many more trades in any given period of time.
  • More time in trade, more experience managing trades, more experience becoming mentally attuned to being in and cutting trades. In a year you could realistically make many thousands of trades versus a few hundred as a longer term day trader.

In other words, scalping gives you more experience trading over the same period of time. If your trading technique gives you 50 signals a day, then you’ll gain more trading experience than a technique that gives you 1 or 2 signals per day.

trading horizon learning curve

Prop traders start off short term but at the same time they hone their longer term analysis skills. You can still do your homework but only as part of a longer term skills building process. Scalpers could be long one minute and short the next, so homework isn’t going to help, it’s all about trading the “right here, right now”. Assessing the state of the market and going with it.

It makes sense that prop firms push interns towards a shorter term trading horizon but most retail traders avoid it. Partly they don’t know any better, partly they are trying to swing for the fences instead of chipping away at the market taking small but consistent profits.

After all, getting to profit should be the first goal of any trader. That isn’t the end goal though, it’s just one milestone in the trading journey.

For more on common sense approached to trading, short term trading and our free “Order Flow Foundation” course with 10 hours of video content…

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Jigsaw Trading
After suffering a 30% drawdown at the hands of “independent financial advisors”, Peter started trading in the early 2000’s, figuring there was no point in paying people to lose money for him. By 2005, Peter was day trading NASDAQ stocks and later discovered the value order flow. He struggled with the way order flow data was presented so designed tools that organized Order Flow information more rationally and Jigsaw Trading was born. Those tools are now the #1 ranked software on Investimonials.com.
Today Peter spends his time trading and helping other traders through the Jigsaw community, articles and free one on one sessions.
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Jigsaw Trading

After suffering a 30% drawdown at the hands of “independent financial advisors”, Peter started trading in the early 2000’s, figuring there was no point in paying people to lose money for him. By 2005, Peter was day trading NASDAQ stocks and later discovered the value order flow. He struggled with the way order flow data was presented so designed tools that organized Order Flow information more rationally and Jigsaw Trading was born. Those tools are now the #1 ranked software on Investimonials.com. Today Peter spends his time trading and helping other traders through the Jigsaw community, articles and free one on one sessions.

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