Keeping Time Frame Perspective, Part I

Aside from the really long term indicators such as the Coppock Curve, I tend to keep my perspective, and my trades, in line with a two year timeline that involves calculating the results of all possible trade combinations within that time period. With that data, it is usually clear what the direction of the market is. When you see the historical results of trading with and against this two year trend, there is no doubt that trading with the trend will increase your chances of success dramatically, even along many different, shorter time frames.

It's common sense but it is easy to forget about the longer trend when putting on a short duration trade. Those short duration trades have a tendency to last much longer and turn into losing trades with more frequency when disregarding the longer trend.

I am putting together an example of this for a future post but in the meantime I came across this chart from the New York Times which shows a similar graphical representation on a much larger scale. The chart below shows annualized returns for the S&P 500 for every starting year and every ending year since 1920 — nearly 4,000 combinations.



The complete graph and article can be found here.

Looking at the diagonal edge, the pattern of two-decade long bull/bear cycles is represented by the large group of alternating green and red blotches covering the last 90 years.

Related post: What a Tell Can Tell.