The Evergreen Question
Thus, trading time frame has to be universal and not just what fits to trader xyz personality. So what’s your opinion on this?
The Evergreen Question
This is such a persistant topic and so important.
You have brought up a new slant on it so I hope
that it is not a problem to re-post this directly here
from a thread of my own. (Just to try and give Pharaoh
a run for the lengthy article award I added a new analogy).
A while ago I wrote something in which I pointed out the
first question you will always hear from a newbie.
"What Timeframe should I use?"
You should give them credit for spotting the unanswered question in
most educational materials for trading, no matter what the market.
No one will give a straight answer because it gets way too complicated.
The real truth of the matter is that there is no clear answer because
the question is wrong.
Most will already know the following basics, that timeframes are methods
of grouping data into containers for display. These bars or candles have
their features of open, high, low and closing values. Those are then used
for basing indicator settings.
OK so how does that relate to the 'question' being wrong?
Very simple... the candle is a man-made vessel for displaying arbitrary
amounts of data. This actually has nothing to do with markets.
The market does NOT recognize a 15 minute bar, or ANY other size.
There is NO rule, NO system, NO common denominator for the
relationship of the close of one bar to the low of another (or any other
combo), no matter what the size of container. Nothing that will hold up
anyways, even though you may occasionally be able to get 'things that "work"'.
New analogy:
Imagine a Grocer trying to do statistical analysis on
his database of transactions (ticks) by dividing the
data into some arbitrary chunks - how about 100?
Now will that help him sell more milk (predict a Bullish
Trend is about to start)?
So while collecting our data into bars is a convenience and even a
necessity, it leaves out an obvious feature of markets.
This feature and also the fibonacci relationships inherent in all tick data
have been lost in the translation of what the market "says". So what is
this "feature", so obvious, yet which we've been unable to see?
Very simple... SPEED CHANGES.
This stares us in the face every time we look at a chart and yet there is
no mention of it. A momentum indicator or any other similar device, or a
system which incorporates one into a 'method' will still suffer from the
weakness of not taking the speed changes into account first, and
instead, relying on the blind arbitrary candle to render the reading.
Allow me to demonstrate how simple and obvious this is.
The following chart has a 100 period Simple Moving Average on it,
a fairly slow setting, especially in volatile forex.
The area in the tan elipse has the MA wobbling through it, getting turned
easily. The area in the gray is quite obviously running at a different
SPEED! It's faster. What accounts for the speed change, what speed IS
it, and where or when or how is it determined?
In other words, "What SPEED should I use"?
The market set the speed for the faster area inside the tan area. This
was the setup for a 5000 pip run (it all couldn't fit in that pic and show
what I needed to demonstrate and the 100 SMA had nothing to do with the trade).
However the measurement of speed produces great results. This actually
gets done to prepare for exhaustion analysis, then pullback analysis,
then again after the trade is put on to check for slowing or growth which
indicates a continuing run. Even the terminology gets to be a problem
since the feature so obviously present has no language because it
previously had no recognition. Language aside, however there are
mechanical steps to locate the "tells".
Resulting signals come out of them such as this:
Not the red check but the trigger on that purple indicator.
Now I can imagine that when someone sees the pictures I have which
show these indicators catching the supertrend's reversal on the
retracement, they may think that this is ONE standard indicator like they
are used to using.
It is not. Each one is different and the market has told us which one to
use. It has also told us on which timeframe to use it.
The combination of settings and timeframe is "SPEED" of analysis.
So therefore the appearance may be that these are just some
cherrypicked location where the indicator has coincidentally wrapped
around favorably and the picture is snapped. But the reality is that these
are cherry picked by the market. The settings are handed to us.
What is the first question you hear from a newbie?
"What Timeframe should I use?"
Answer: If that is all you do is choose timeframe, it won't matter. The
results will be statistically similar to the results of traders as a group in
any market. It isn't pretty.
Cheers,
Cyclon
