I consider timing, rather than a company's fundamentals (earnings, margins, debt, financial ratios, etc.), as the most important element in the investment decision making process. When investing in a great and fundamentally sound company, the wrong timing or entry point can still turn a good investment idea into a painful loss.
Many professional investors and traders will view the market and individual securities through three different time frames before deciding to put capital to work. Analyzing the market in these time frames can help avoid losses and maximize profits. The following methodology can be used to improve your investment decision making process, however it should be revised as need to reflect your personal investing and trading goals.
Start your market or security analysis by looking at price charts with a long-term time frame. Many investors and will use the monthly chart for this high level of analysis. The following long range view can help determine if the market as a whole is moving higher or is in correction (use an index for this type of review). It's best to invest when the market is moving higher in a solid trend. When the market is in correction it's wise to move to a cash heavy allocation until the positive trend continues. This is due to the fact that most stocks move in the same direction as the market, rearguards of individual fundamentals.
When viewing a broad market ETF in this time frame, I would consider the market in a major correction when price falls below the 20 period moving average.
After you have determined that the market as a whole is in an uptrend you can drill down into an intermediate time frame. I like to move from the monthly charts to a weekly chart for this level of trend analysis. In this view you will be able to determine if the stock is overbought, oversold or is close to it's mean based on technical indicators. This is also a good time frame for finding price levels that may serve as resistance or support. Regardless of the benefits of using a intermediate chart, I spend most of my time analyzing price action in short-term time frames.
The lowest level of time that I will analyze the price action of a security is at the daily level, this is my personal short-term time frame. More often that not, day and swing traders will start their long-term trend analysis at the daily charts or lower (hourly, etc.). However, like I said, we are looking for good entry points on our investments not trade set ups. I like to look at my daily charts with a 6 month time frame, as I've shown below.
The 6 month daily chart provides me with the last bit of information that I need to complete my personal investment decision making process. When analyzing the price action at this time frame, I look for positive price indicators such as price in relation to the 20 and 200 day moving averages. I also pay close attention to the Bollinger bands to gauge recent volatility and momentum.
Attempting to time the market perfectly is a fool's errand. Analyzing the market and individual securities in a variety of time frames can help you choose better entry points for your investments. Deciding to include time into your investment decision making process will dramatically improve your chances of making wise investments.