Time Frames

Fundamentals of Market Investing by Adam J. McKee

Day traders, swing traders, and options traders by definition have short time horizons in which they hold investments (if you can even call them that in this context).  If markets are not a random walk, it is evident from the data that they take a very long time to figure out where they are going.

Even the most ardent supporters of random walks make concessions when investment timeless stretch into decades.  You can only use past performance as a very, very broad indicator of the future (if at all).  Even Professor Malkiel concedes that over a very long period, stocks will beat bonds and inflation, but with any period shorter than a decade, it is basically random and it’s all about the risk you can stomach.

It seems that when we move from day-to-day time and go to decade-to-decade time, the function of markets becomes clearer and clearer as if the market gods slice and dice the charts using Occam’s razor.  There is a regression line that describes what you can expect, and if you ignore things for long enough, the regression line will keep on moving toward the upper right-hand corner of the chart.  Stocks may make a parabolic run during boom times, and make precipitous falls during bad times.  Still, price averages are tied to the regression line and will eventually return to it as regression to the (upward moving) mean asserts itself.


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Last Updated: 6/25/2018

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