ABOUT TIME — A serious trader plans the expected duration of every trade
A serious trader plans the expected duration of every trade.
let’s keep in mind that time flows at a different speed in the market than it does for us as individuals. The market, composed of huge masses of human beings, moves at a much slower speed. The patterns you recognize on your charts may have predictive value — but the turns they anticipate are likely to occur much later than you expect.
The relative slowness of crowds can bedevil even experienced traders. Time and again we find ourselves entering trades too early. Beginners are typically late. By the time they recognize a trend or a reversal, that move had been underway for so long that they miss most, if not all of it. Newbies tend to chase old trends, but the more experienced analysts and traders tend to run into an opposite problem. We recognize approaching reversals and emerging new trends from far away — and jump in too soon. We often buy before the market finishes tracing a bottom or sell short well before it completes a top. By getting in too early we can end up losing money in trends that are too slow to turn.
What should we do? First of all, you need to become aware that the market time is much slower than your own. Second, consider not putting on a trade when you notice an early reversal signal. A better signal may well emerge later, especially at market tops, which take longer to form than bottoms.
It pays not to be greedy and trade a smaller size. A smaller position is easier to hold while a reversal is taking its sweet time. Be sure to use multiple timeframes for market analysis: this is the essence of Triple Screen, the system we’ll review in a.
Autumn — The indicator is above the centerline but falling. This is the best season for establishing shorts.
Winter — The indicator drops below its centerline. Use weakness to take profits on short positions.
Spring — The indicator turns up from below its centerline. It is the best time to establish longs.
Summer — The indicator rises above its centerline. As the weather gets hot, use strength to take profits on long positions.
MACD-Histogram looks very smooth in this example, but be prepared for brief fluctuations, both above and below the centerline. Spring can be interrupted by a frost, there can be a warm spell in winter, etc.
Keep in mind that neighboring timeframes are linked by the factor of approxi-mately 5. If you start with a monthly chart and proceed to the weekly, you’ll notice that there are 4.5 weeks to a month. As you switch from a weekly to a daily chart, you know that there are 5 trading days to a week. Turning to intraday analysis, you may look at an hourly chart — and there are approximately 5–6 hours to a trading day. Day traders can proceed even further and look at 10-minute charts, followed by 2-minute charts. Each is related to its neighboring timeframes by approximately the factor of five.
The proper way to analyze any market is to review at least two neighboring timeframes. You must always start with the longer timeframe for a strategic view and then switch to the shorter timeframe for tactical timing. If you like using daily charts, you must first examine weekly charts, and if you want to day-trade using 10-minute charts, you first need to analyze hourly charts.
One of the best learning techniques involves returning to your closed-out tradestwo months later and replotting their charts.Trading signals that looked foggy when you saw them at the right edge of the screen become clear when you see them in the middle of your chart. Now, with the passage of time, you can easily see what worked and what mistakes you may have made. Creating these follow-up charts teaches you what to repeat and what to avoid in the future. Updating the charts of closed trades turns you into your own instructor.