Ask Colin

Once one has identified appropriate shares on the monthly charts and the filters does one make decisions about position building and, if necessary, selling, on daily or weekly charts?

I am asked this question all the time. It rather mystifies me that so many people are troubled by it, because daily, weekly and monthly charts are all showing the same price action. The same peaks and troughs in a trend will be visible on all three.

 

The one aspect that we need to be careful about is timeframe. However, this is not really an issue of what chart you use, but the time period that you have on the screen. If you are looking at a trend that began in early 2003, and you are looking at a daily bar chart a year and a half later that shows only the last four months (Sept to Dec 2005), then you cannot see the whole trend in perspective and will be apt to acting on a shorter time frame than the one you are trying to capture. For this reason, I prefer to have a monthly, weekly and daily chart on my screen at the same time as described in my book The Aggressive Investor and apply the rule that if you cannot see the daily chart’s peaks and troughs as significant on the weekly chart, you may been looking at too short a time frame.

IMPORTANT: I changed my view on this to some extent by the time I wrote my later book Building Wealth in the Stock Market I now make all my key decisions from the weekly chart, which is my timeframe. This is to avoid jumping at short-term patterns on the daily chart.

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