Adjusting Your Trading Horizon for Options Chart Analysis

By Joe Duarte

When conducting chart analysis and before focusing on one specific chart interval, consider your investment or trading horizon, also known as your timeframe. Think about your objective. What you want to view when evaluating your 401(k) investment is different than your focus for active trading.

Technical analysis places different emphasis on timeframes. Longer-term trends are considered stronger than shorter-term ones. To get the best view of trends, it’s extremely helpful to carefully and systematically evaluate charts that depict price action over multiple intervals of time. The typical chart default is a daily chart, but others exist as well.

When completing a market analysis to locate strong sectors, an ideal progression includes evaluating the following:

  • Long-term major trends using monthly charts on indexes and sectors

  • Intermediate-term major and minor trends using weekly charts on broad market indexes and sectors

  • Short-term minor trends using daily charts on sectors

By first recognizing major and intermediate trends, you’re less likely to get caught up in the emotion associated with shorter-term moves.

A horizontal support line can be drawn after price moves down to touch a price level twice. The line is confirmed when a third touch of that price level successfully holds and buying demand returns to the security, sending the price up.