First and foremost, let us look at the trader’s perspective. It is possible that you may have initiated a long or short trade in a stock and there may be some macro developments that may have changed your original game plan. Let us say, you are short on Bank Nifty futures and the RBI is likely to announce a rate cut in its forthcoming credit policy. Even while you are not sure of the actual RBI intent, as a trader your first instinct should be to reduce the time frame of your holding and protect your capital. Time frame is always flexible but you must ensure that you have a proper risk return trade off whenever you change your position.

The second trigger to shorten your time frame in a trading position is when the volatility is likely to shift. If you are long or short on the futures and you expect the volatility to go up either due to global risk or due to F&O expiry, then it will have two implications. On the positive side, it could enhance your profits but on the negative side it could deepen your losses. As a smart trader your primary focus should be to manage the risk in your trade and not worry about the returns that you could earn. The rise in volatility is a clear sign of higher risk in your trade and that could impair your capital in the first place. It is necessary for you to first focus on reducing the time frame of your position.

There is also a situation when you can enhance your time frame of the trading position. For example, if you entered a long position with a 15 days perspective and the stock went up by 15% on the third day, what should do? Prudence may dictate you to book profits and exit the position. But since you have a buffer, you can take the risk of enhancing your holding period so that you can eventually get the full benefit of the price movement on the stock.

Let us now turn to the investment time frame! The first case is of an underlying shift in the industry dynamics. There are lot of examples. Telecom being disrupted by Jio, mobile phone manufacturers being disrupted by Chinese producers, hotels being disrupted by aggregators like OYO are all examples when you need to shorten the time frame of your investment position.

When it comes to your investment position, the valuations matter a lot. The euphoria in the market may have taken the market to 35 times earnings and your particular stock to 50 times earnings. Even though your company is still showing impressive growth and good margins, it is a basket case for you to shorten your time frame. You may not exit, but use shorter time frames to assess the profitability of your position.

Finally, you also need to assess your time frame for investments based on the yields on alternate investments channels. For example, when the yield on debt is just 7%, then you can afford to wait longer on equities. But if debt is offering you 12% then the entire opportunity cost of holding on to your long equity position changes. That is because you are losing 1% each month you persist holding on to your equity positions.