The importance of respecting your time horizon

In theory, investors can be classified into categories: short term (or even very short term for speculators), medium term and long term. In practice, it is much less simple. We regularly see long-term investors sell early, or speculators keep titles longer than they should. Why do they change their minds along the way? What consequences can this choice have?

The change in time horizon for the short-term investor:

The one thing all investors have in common, regardless of their trading style, is that they will always wait (or at least try…) the right time to get into position. This means, a signal that fits their strategy, developed based on several criteria including, the time horizon.

Let's start with the short term investor, whose objectives are most often based on a few hours. This generally takes a position on a H1 chart, which will also be the chart on which he will have carried out his technical analysis. He spots a signal and he enters.

The change of time horizon appears most often when the trade goes bad. By reflex, our investor suddenly decides, to move its stop (if he has one), certain that the price will go back in the right direction. And then, it's a disaster...the price continues to fall and the short-term trade turns into a medium/long-term position, or rather into: " not sold, not lost, "Let's move the stop a little further and we desperately wait for it to go back up." Which can happen... or not. Not only is the money invested blocked for much longer than was initially planned for the short-term strategy, but also losses are increasing always a little more.

The change in time horizon for the medium/long term investor:

Another fairly common case: a long-term investor who decides to sell after a sharp rise in the share price. His strategy was based on dividends, but he decides that actually making a capital gain is not bad either. For the medium-term investor, it is a little different, even if the result remains the same: why wait several weeks, or months, when the price has just jumped upwards? He can, in this case, become a short term investor without even realizing it.

And several months later, both of them can be kicking themselves. The long-term investor will not collect the expected dividends, since he is no longer in possession of the securities. He will probably have bought others with his capital gain, but: he will have paid new fees and has no assurance that the new securities will perform as well as the old ones. And what will happen to the medium-term investor if the price continues to rise after his sale? Will he buy back, at a higher price, the securities he just got rid of a few days earlier?

A single watchword: discipline

Any strategy is based on factors defined in advance. Better not to change it along the way.

The best solution would be to have different wallets on which you have applied different strategies, especially regarding the time horizon, and to respect them to the letter. However, there may also be some rare exceptions. For example, if the direction of the position keeps moving in the right direction, a short-term investor may well wait for the end of the movement, even if it takes several days. It is suitable for everyone to adapt to the market.

But changing strategy on a position already committed is not often (never?) synonymous with profits…