Why Timing is Everything in the Market

Time has value, but how do we assess it?

In our personal relationships, it's the people that we give our time to, and that do the same for us, that we tend to hold onto in our lives. 

As individuals, the limited time that we have on this Earth is our opportunity to make a name for ourselves, achieve happiness to the extent that we are able to do so, and if we're fortunate enough, try to give back and see to it that the next generation is left a better world than what we came into.

And so it is no surprise then that in the stock market, timing is everything, and its value is truly appreciated when we respect its place in the planning and execution of successful trades.   

We've emphasized the fact that smart traders, as a general rule, define the time frame for a trade before they enter a position. When time is mentioned, it corresponds to both:

  • The expected time that a position will be held.
  • The time frame on the chart according to which a position thesis is made.

To illustrate why timing is so critical in trading, let's take a look at Zillow's stock over two time frames: the daily chart and the weekly chart.

Z: Daily Chart Analysis

Earlier in July, we first analyzed Zillow's stock chart, specifically looking at the daily perspective of the stock's price fluctuations.

We observed that the trending move higher that initially picked up steam in the middle of May was possibly reaching its limits, and that selling pressure may soon follow.

Subsequently, Z broke below $140 and went to as low as the $124 support area that we originally identified on the daily chart.

Z: Weekly Chart Analysis

The weekly chart for Zillow provides a broader time perspective for analysis purposes.

$Z : Zillow, Inc.

Zillow made headlines last week on a possible merger with Trulia, and the stock has since surged in value to nearly $160 a share. 

On the weekly chart, the stock's price fluctuations show a bull trend picking up steam in the beginning of 2014. From that point forward, +DMI has remained above -DMI, conveying the persistent strength of the bulls over the bears.

Notably, the ADX line has also been rising during this period, confirming the trending move coupled to the momentum in favor of the bulls and corresponding increase in the stock price.

Conclusion

In recognizing the prevailing bull trend from the weekly time frame, a trader observant of the daily price fluctuations in Zillow's stock would have seen the sell off from $140 as a potential buying opportunity.

Had the trader gone short and tried to profit from the sell off after the break of $140, they would have been wise to limit the duration of their short position, keeping in mind the established bull trend on the weekly chart.

None of us could have anticipated the merger rumors with Trulia that have since sent Zillow's stock soaring. But this presents additional opportunities to trade, and it will be interesting to see where the stock goes from here.