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Identifying Time Horizons


Viewing markets from different time perspectives will enrich your ability to make sense of financial market environments.

These changing years
They add to your confusion
Oh and you need to hear
The time that told the truth

--Level 42

You think the price of International Business Machines (IBM) is going up while your friend thinks the price is headed lower. You may both wind up being right, depending on the time horizon of your thesis. Matching an investment idea with time horizon is vital to effective financial decision-making. Yet, this principle is frequently ignored.

Effective market participants are aware of the need to identify appropriate time horizon when assessing markets and initiating risk.

Bull Market? Bear Market? Or Both?

Chart courtesy of

The above chart displays daily price activity of American Express Co. (AXP) over a six month period. The price action appears bearish and mired in a defined downtrend.

Chart courtesy of

The picture looks different, however, if we elongate the time horizon. The above chart displays daily price action over a multi-year period that includes the four month downtrend observed in the earlier graph. Here, the picture is one of a nice defined uptrend. Although the near term picture appears bearish, a longer term perspective finds the bulls in control.

The implication? Depending on the time horizon you select, your market assessment may result in different conclusions. All the more reason to examine various time horizons when making sense of markets and to define a time frame for your financial decisions.

Cycles, Phases, Nuances, and Trends

Todd Harrison frequently notes that he considers different time horizons when assessing market environments (here, here, here). Todd classifies time horizons into four general categories: cycles, phases, trends, and nuances. These terms merely break up an otherwise infinite time horizon into groups that are useful in a financial market context.

Table 1: Comparison of Different Market Time Frames
Cycle Phase Trend Nuance
Typical Time Period Multiple years A few months to a couple of years A few days to a couple of months A few hours to a couple of days
Typical Market Participant Involved 'Buy-and-hold' investors Institutional gorillas (pension, mutual, large hedge funds) Mutual funds, hedge funds, asset alligators Hedge funds, day traders

Observe from Table 1 that a cycle represents the longest term horizon while a nuance represents a time period so short that it is often intraday. You can see that the composition of market participants differs with time as well. Longer term 'buy-and-hold' investors tend to focus on multi-year horizons, funds often concentrate on intermediate time frames, while some hedge funds and day traders concentrate on granular, tick-by-tick fluctuations of the tape.

Evidence suggests that timeframes selected by market participants differ widely--even among the experts (e.g., Schwager, 1989; Soros, 1987; Steinhardt, 2001).

Implications for Market Decision-Making

It's important that you understand the value of examining various time horizons when making sense of financial markets. As we've demonstrated above, markets can appear bullish or bearish depending on your assessment horizon.

Defining time horizon is critical when putting capital at risk. A clearly defined time horizon facilitates smarter decisions such as selecting proper position size and managing risk.

Viewing markets from different time perspectives will enrich your ability to make sense of financial market environments. Moreover, when putting capital at risk, clearly defining the time horizon of your trade will help you manage your positions accordingly.


Schwager, J.D. (1989). Market wizards. New York: Harper Collins.

Soros, G. (1987). The alchemy of finance: Reading the mind of the market. New York: Simon & Schuster.

Steinhardt, M. (2001). No bull: My life in and out of the markets. New York: Wiley.
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