by Hal Masover, President of Crown Futures Corporation, editor of The Crown Value Investment Letter and well-known author

I was listening to a friend talk about how he trades. "People have different definitions of long term, short term and intermediate term. For me, short term is when I get on the phone with my broker and get in and out of a trade before I hang up. Intermediate term is when I get into a trade, hang up and then call right back and get out. A long term trade might be when I get into a trade, get off the phone, go to the john, come back, call the broker and get out."

In my book, Value Investing In Commodity Futures (John Wiley & Sons, NYC), I describe trades that can last, in some cases, years. Clearly, my friend and I have very different definitions of long term and short term.

Very likely, you have a definition that fits somewhere between our two. But, do you always maintain the same time frame definitions, or do you revise them with different trading methods? How do you find the right time frame for you? Is there a right time frame for you?

One man who charges for his trading courses told me, "You can't trade off a 30-minute chart." But, I have, and often I trade off 45-minute charts and daily charts. My partner, Stuart Valentine, frequently trades off 1-minute charts. I have discussed trading with others who use 3-, 7-, 21-, 78- and 60-minute charts. Still others use weekly, monthly and even quarterly charts.
Here are a few guidelines that I have found for time frames that may be of use.

Multiples

It is my experience that you should always think in multiples when thinking of time frames. Whatever the time frame I suggest, if you trade in the direction of the next higher time frame, you will stand a better chance of being rewarded. Figure #1 shows a daily chart of the CBOT Treasury Bond Futures contract. The chart clearly shows an uptrend. Figure #2 shows the 40-minute chart with a 14-bar stochastic. Using a simple method of buying when the stochastics go from below 30% to above 30% and selling when they drop below 70% from above 70%, you can, with a quick eyeball, see that buys have been more rewarding than sells.

It is true that, at turning points, bucking the higher time frame will get you in the new move early, but there are more trades that can be made buying corrections in an uptrend or selling rallies in a downtrend. You only get one trend top and one trend bottom. You get many corrections. Sticking to the direction of the higher time frame will keep you out of trouble more often than not.

How long a bar?

I am a futures trader. Unlike stocks, which all open at 9:30 a.m. ET and close at 4:00 p.m. ET, futures markets have many different opening and closing times. Cocoa hours are 8:00 a.m. to 11:50 a.m. ET. Soybeans are 10:30 a.m. to 2:15 p.m. ET and so on. I am both a technical and a fundamental analyst. When wearing my technician cap, I like to use technical studies to augment my chart analysis. When you use stochastics, the RSI and so forth, I believe they work better if all the bars in your study are for the same length of time. A problem arises when you use set time frames, such as 60 minutes on a market like cocoa or soybeans. Your last bar of the day is shorter than the rest and can thereby throw your studies off. We're talking money here, folks. If I am using an indicator that measures overbought and oversold based on where the close fell relative to the high and low of a bar, the size of the bar is integral to the result. Because price ranges tend to increase with the length of time, a bar with too little time can throw my studies off and give me a false reading on a market.

The solution to this problem is relatively simple. Divide the length of time in the market into equal time units. For example, the Chicago grain markets are open from 9:30 a.m. to 1:15 p.m. CT. That three-hour-and-forty-five-minute period divides very nicely into 45-minute units. Of course, 15- and 5-minute bars will work fine. But, when moving to a higher time frame, I always use 45-minute bars in these markets.

If you are a futures trader, you can work the numbers for the market you are trading. For all traders, though, the question posed by this article remains: What is the right time frame for you?

Answering this question can be critical to your success. One of my first clients back in the 1980s was a newsletter writer with a large national circulation. He used to drop by my office to watch the quote screen. As he stood there, he would start shaking from nerves. He would shake so badly that the coins and keys in his pockets would start jingling. I'm just guessing, but I would think that trading from 1-minute bar charts would drive that individual crazy. On the other hand, some people thrive on action. A 45-minute bar would bore them to distraction (and maybe tears).

Beyond these simple clues are more serious considerations and more serious methods for determining the answers. What we are really trying to determine is what time frame is most profitable for you as a trader. We can discuss personality traits all day, but the ultimate measure of whether you are trading in the right time frame or not is your trading profits or losses.

The best way I have found to determine the best time frame is to keep a careful record of my trades, including as much detail as possible. For this purpose, clearly recording the times frames used on each trade would be critical.

Do not depend on your memory. Memory is faulty. Just think about the last time you had a discussion with your spouse about who said what, when and where. You both are absolutely sure your version of events is the correct one. Based on my observation of the functioning of memory in a trading context, my guess is that your and your spouse's versions of events are both wrong. Your memories have molded themselves into a course of events that justifies you or is most pleasing to you. It is not necessarily what actually happened. Time and again in my capacity as a broker, I have had clients tell me what they thought happened when they gave me an order. Sometimes, they are right and sometimes not, but memory is not nearly as reliable as a tape recording.

No, I am not suggesting video recording your trading process. For one thing, it would take too much time to review all those video tapes. What I am suggesting is carefully recording the data. That data can then be quantified in various ways.

Depend on your journal, not your memory. Once a month make a profit and loss statement for each time frame you have attempted to trade in. In this simple but tedious fashion, you should be able to get a perfect focus on the right time frame for your trades and the right time frame for your higher time frames.