Navajo plying, also called chain plying, is a way of creating a 3-ply yarn. It is often used to preserve color in a space-dyed handspun, with the chains made to keep each color by itself. It's a nice way to ply a spindle or bobbin back onto itself, as you know the fiber amount will fit.
For a how-to on Navajo plying see this post: How can I preserve color in my space-dyed roving?
The loop size of your Navajo chain is a matter of personal comfort and preference. If it works for you, then it's the right way. I've seen Navajo plying done with large loops and with small loops, and I've done it both ways. When it's used to control color changes in plying space-dyed roving, the loops are made to the length needed, which can vary a fair bit depending on the loops between and distance between color changes.
Traditionally? I don't know. I did find this reference to Navajo plying on Anasazi spindles by Connie Delaney. They appear to do one loop, an arm's length, per spindle-twirl.
On a spindle, it may be easier to create several small (foot-long, say) chains and then start your spindle twirling. You can create a few more as it twirls, or simply let the chained length twist up, wind it on, make more chains, and repeat.
Navajo plying is a great way to do more than preserve color changes or 3-ply a bobbin or spindle back onto itself. Gwen Powell has a great writeup on additional uses of Navajo plying.
I've seen a terrific idea for a "Navajo 4-ply" to create a shifting tweed by having two singles and switching back and forth the Navajo chains between singles. But I can't find it anymore -- if you know where it is, please send me a pointer to it in the comments here, or contact me. Thanks!