Best Time Frame for Swing Trading

In this article, I have explained the best time frame for swing traders to predict the accurate move.

Swing traders put their underlying assets on trade and wait for days to weeks just to make the best profits as and when the opportunity prevails.

You can make the best analysis of the ongoing trade patterns, uptrends, downtrends, and sideways swings by studying a timeframe. It is possible when you implement the time frame. What is a daily time frame or day bars?

You can obtain the trading activity (stock fluctuation) on a chart that occurs in a day from the beginning to the end of the day’s trading session. The chart represents the bar/bars of the trading signal reflecting a day’s trade/day’s trades. Each bar is confined to the trading activity for the whole day.

What Is the Significance of the Bar?

Institutions of various sizes, small/big/large conduct technical analyses of their chosen stocks before opening/closing of the market trades to locate the precise positions and shift them to the newer positions when it is necessary.

When you make use of a time frame in swing trading you will draw needful info depending upon the factors like primary trend, technical analysis, and price variations (swings).

Multiple Timeframes Support Pegging Positions:

As per the scenario, you must make a combination of multiple timeframes to define your trade plan, put it into action (execute), and monitor the trades.

A minimum time frame is 60-minute and they are conducted during the trading hours from 09:30 am to 04:00 pm.

Depending upon the strategy, and the company’s preferences you are free to analyze the timeframe of daily bars, 1-minute bars, 4-minute bars, or 5-minute bars or even more.

Each time frame derives something specific. For instance, a 4-hour chart is utilised to refine the trading signals.

A 1-hour chart helps you in managing the trading activity.

You as a swing trader must use different kinds of technical indicators, for instance if you are dependent on shorter time frames then oscillators function better and for longer time frames you will be adapting the moving averages.

Best Time Frame for Swing Trading?

Time frames of different periods are utilized by traders and you too can experience various issues that act as indicators to peg the right positions on trades.

Weekly timeframe:

1. In a weekly timeframe, you can observe with full clarity the stock volatility.
2. These charts exhibit support and resistance levels, trading signals that represent the direction and strength of the trading trends.

Daily Timeframe:

1. The daily time frame charts do reflect the price swings within the primary trend.
2. Daily chart trends provide you with the entry and exit trades that can be precisely identified through breakouts, pullbacks, price action signals, and reversals.

4-Hour Timeframe:

1. The 4-hour timeframe represents a short-term trend that comprises slight price swings within the intermediate trend.
2. In addition, the candlestick patterns, momentum indicators, and volume analysis enable you to define entries and exit positions.
3. By utilizing the technical indicators, you can also identify the optimal timing and various price levels of the current trade.

1-Hour Timeframe:

1. The 1-hour timeframes help you when you are actually in day trading, as the stocks react to the news, events, and market sentiments.
2. You can precisely make stop-loss modifications to make better profits in the highly volatile stock markets and you can maintain risk-reward ratio to optimum levels.

Disadvantages of a Mutual Fund?

Here are the major disadvantages of investing in mutual funds in India. Mutual funds help you to earn a decent profit with an element of risk factor imbibed.

Mutual funds are run by mutual fund companies by investing your investments in various kinds of funds that differ in their properties. You can invest your money in equity funds where your investments are directly placed in stock market equities by selecting a diversified portfolio.

Thus, reducing the risk factor considerably in times of high market fluctuations. You can further make a balanced investment in the hybrid funds, and they are a combination of equity and debt.

An experienced fund manager can plan a fund at a fair price for you and also place it in a way that is convenient and good at controlling risk factors.

In addition, a craftful fund manager can engage your investments in advanced portfolio management, reinvestment, and dividends.

In short,

Mutual Funds are growing popular in India, and it is enabling fund managers to run professional management of investments drawn from various quarters.

Another important expenditure you shall incur is the financial costs which are unavoidable while conducting businesses, and salaries spent by fund houses for their fund managing professionals/staff.

Disadvantages of Mutual funds:

You will find high fees like operating fees, switchover fees, and entry & exit load fees.

The return on the investment is taxed and there is a possibility of improper trade execution.

Your fund may lose its credibility when the fund operating managers fall prey to management pressures.

You May Lose Money in Mutual Fund Operations:

You may not obtain your expected return on a mutual fund as the fund management levies fees that include entry load, exit load, transactional charges, & expense ratio and they can be listed as follows.

Entry Load:

Asset Management Company, AMC, levies the distribution cost for promoting the MF scheme on you.

Exit Load:

Asset Management Company, AMC, levies the exit load expenses when you want to exit the fund prematurely and it is usually 1 percent on the redemption value.

Transaction Charges:

It is the cost collected by the fund management as the transaction fee at the inception of the fund and the fee would be INR 100 to INR 150 for an investment of INR 10,000 and above.

And, for anything below INR 10,000, the transactional fee is not charged.

Expense Ratio:

It is the annual fee collected on your investment and is a percentage of the fund’s daily net assets.

The value of assets deducted from the net asset is adjusted against the marketing expenses, fund manager’s fees, distribution fees, and administration fees. 

What Should be your Mutual Fund Holding Period

Of course, you must hold your funds until it doesn’t attract an early redemption fee which is usually about 3 percent to 5 percent.

Furthermore, the minimum period to hold your funds to avoid a loss is at least one year. However, you can find an answer to your query with all-inclusive possibilities as mentioned below.

1. When you invest in a mutual fund, the fund manager keeps your money in equity/debt markets to reap good profits. In the process, the usual return is about 20 percent in a steadily rising stock market year on year.
2. Now coming to your query, you can hold a mutual fund depending on the return you anticipate on your investment. And, for the best returns, you must wait for a period of 6 to 8 years approximately on your investment.
3. Moreover, a good fund investment at the stock markets can yield an expected return of somewhere between 35% to 40%.
4. Circumstances may demand for an early withdrawal of funds then you can make either a partial or complete exit with a minimal loss.
5. Whenever you hold a fund for more than three years it becomes long-term funding and shall attract little exit load fees rather than making an early exit, in less than a year.
6. Therefore, from an investment point of view, you must be careful in selecting the nature of the portfolio, (sector-wise), an open-ended fund, or close-ended fund, and funds that support your taxating issues.
7. The entry fee, operating cost, and exit fee of a mutual fund vary depending upon the nature of the investment a fund manager makes.
8. As the performance of your invested equity fund is dependent on the stock markets, whenever your fund happens to perform low then you are advised to withdraw from the existing ones and place it into other benefiting funds.

Fund Withdrawals & the Penalty on the Withdrawn:

1. You can withdraw your investment in just 24 hours from the time of your investment provided the mutual fund units are allowed for its daily sale/repurchase. It is feasible because of its high liquidity in its asset class.
2. Your fund withdrawals are subject to a penalty when you are determined to make fund withdrawals within a year of its investment or make a withdrawal before attaining the age of 60 years.
3. In the above-stated circumstances, you will be asked to pay a penalty fee and in addition, certain investments shall even attract tax penalties based on the mutual investments in the shares.

Allocation of Mutual Funds in Class A, B, and C shares:

Class C shares are known to be ‘level-load’ and sometimes cost about 1 percent to purchase. They are expensive in annual maintenance as compared to Class A, or Class B shares.

Moreover, these mutual funds will charge you a fee of 1 percent when withdrawn in a year’s purchase.

Sometimes you may have to bear a burden of 3 percent to 5 percent on the investment value in Class A/Class B shares in the form of sales commission.

Companies that make huge investments keep the option of maintaining an investment in class A shares for at least one year. And, likewise, hold an investment in class B shares for six years. And, failing which, you are likely to lose from 3 percent to 5 percent against the early redemption fee.

Best Books for Options Trading

The following are the best books that Shape up ‘Option Traders’ as Better Performers.

A highly seasoned stock player does opt for option trading making a tremendous impact on exchanges.

The following lines give a gist of information on leading books written by options trading experts. They are Lawrence G. MaMillan and Sheldon Natenberg.

1. Options as a Strategic Investment Written by Lawrence G McMillan

Options as a Strategic Investment written by Lawrence G McMillan helps an investor to explore practical trading strategies. Through this book, investors can understand the methods to minimize risk and maximize profit potential. The book is a composite format of information covering over and above 1000 pages.

You Can Learn:

Options trading involves strategic techniques such as iron condor spreads, back spreads, dual calendar spreads wide, put ratio spreads, and synthetic straddles.

The book describes specific option strategies to be employed under specific circumstances in the stock markets.

The author provides a better insight into trading index options, trading options on futures, and measuring market volatility.

Investors traders holding non-equity options and listed options in stock markets can gain wealth by employing strategic opportunities for managing investments.

The book helps investors to follow the in-depth discussion that speaks about the list of volatility derivatives, futures, and options.

An investor will be required to implement broad-based index put options or volatility call options by not compromising on losing any portfolio. The practical examples do cite the protection techniques to minimize the losses.

An investor can update oneself through the current option symbology as explained with examples and tables in an effective manner. Further, the book defines the weekly options, portfolio margin, decimalization of prices, and the instances where the commission rates are lowered.

Note:

In the revised fifth edition, you can experience the business-tested tactics for making investments in new options and products available in the stock markets.

The information deals with the tax laws on the option trading profits or losses.

2. Option Volatility and Pricing by Sheldon Natenberg

The ‘Option Volatility and Pricing’ book is a must-read by option traders across the globe and its author Sheldon Natenberg provides an update on strategic trading developments. It discusses in detail the option products and newer evolving trading strategies.

Basically, options traders’ job is to find an edge and control the impending risk. The fundamental work involved in an option trader’s job is to realize and monetize the edge in stock markets.

Volatility ise a vital elemnt in deciding on option pricing and decay.

Option is a tool for leveraging the volatility ( fluctuations) in price moving in the upward and downward direction of the underlying asset such as equity, bonds, commodity markets, etc.

The author described the implied volatility relative to its percentile and mean reversion as a significant property of volatility.

In his book, he detailed the ‘Garch model’ that incorporates mean reversion and volatility extremes.

Natenburg explains the risk factors when trading options.

They are stock direction (delta), moment speed (gamma), volatility (vega), time decay (theta), interest rate, margin, dividend (rho), and in addition the multitude of trading strategies.