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Time Trading
Sophisticated technical indicators evolve from simple data
inputs of price and time. While most traders understand how
price patterns reveal hidden opportunity, many fail to
comprehend how time impacts both tactics and results. Lacking a
skilled understanding of opportunity cost, they misinterpret
signals and waste valuable resources. Or, trapped in common
trend relativity errors, they prepare trades in one time frame
but execute them in another.
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Opportunity cost defines how the trader manipulates working
capital. For example, this important concept reveals why cutting
losses efficiently is so important for long term survival. By
its nature, taking any stock position dictates that those funds
will not be available for another trade. This becomes a critical
issue on account drawdowns when individual trades can dictate
success or failure for the aspirant.
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All trends in the markets are time frame specific. For example,
the existence of an uptrend in a daily chart says nothing about
the trend in the monthly or intraday chart. This highlights the
importance of correct time input in preparing technical
indicators or reading chart patterns. When improperly
time-tuned, technical analysis loses its effectiveness.
Alternatively, resonant time readings will evoke startling
accuracy with otherwise mediocre data input.
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Time Summation of indicators falls into three general
categories: .
- Moving averages of elements such as price or volume
- Relationships between the open, close, high and/or low of
individual bars
- Repeating cycles of price or volume behavior
Time Period of indicators falls into three general categories:
- Short Term
- Intermediate Term
- Long Term
Individual units of time are best viewed as relative periods, as
opposed to daily, weekly or monthly lengths. Since no two
technicians trade in exactly the same time frame, patterns and
indicators must serve a broad range of uses. Fortunately,
technical analysis studies a fractal market. Valid predictions
may be made with indicators developed from 5-min bars or monthly
ones in exactly the same manner. But don't be fooled: prediction
can only be made in the same time frame as the tools being used
to study it.
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| Trend Relativity: Trends
are dependent on the time frame in which you are viewing
them. While IBM shows a promising reversal taking place
on the intraday, the daily and weekly show a major
correction in progress. Notice how the weekly reveals an
excellent buy point at the top of the multiyear price
channel, a support level completely missed on the daily
chart. |
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