Sunday, May 24, 2009

Trading in Multiple Time Frames


One of the things I try to do in my trading is to function on multiple time horizons. As a trader with a minuscule portfolio, I feel (rightly or wrongly) that I'm at a major disadvantage when compared to bigger, more connected trading firms when it comes to short-term trading. Goldman Sachs can move the market. I cannot.



So what I try to do is to trade on multiple time horizons. I constantly move in and out of short and long positions in leveraged ETFs, underlying etfs and options. I frequently employ a counter-trend strategy, that anticipates market reactions based on the distance a given underlying ETF might be from a given trend line. If IWM is 30% below its X-day WDMA, I would likely go long. Similarly, if it's well above its WDMA, I'll tend to short. The vehicle I use depends on time horizon and distance from the trend line.

This strategy has worked pretty well, and I've averaged about 30% annualized returns since I started with it. My worst months recent memory were October 2008 (not alone on that one) and this April. But March was great for me, and last November was spectacular as well.

But I also employ some straight-up turtle-like trend following techniques as well to counterbalance the effects of my anti-trend positions.

One might ask, if you think you know where the market is going, why not always put your resources there? Because I never know for certain where the market will go, and I think it's essential to have some aspects of your portfolio that keep you from drowning if you're wrong.