The Matter of Time in Trading

Chart patterns that offer trading opportunities form equally through all time frames. The setups remain valid in chart of every time frame, whether they appear on 5-minute or monthly bars.

Each time frame attracts a specialized group of traders that interacts with all other groups through the universal mechanics of greed and fear. This results in trend convergence, divergence through different time lengths. Successful traders improve performance when they adjust their chart view to match the chosen holding period.

Successful trade execution aligns positions through several time frames. By doing this, first choose a primary chart screen that its time frame reflects the holding period and matching strategy. Then study the chart one magnitude above that period to identify support, resistance and other landscape features that impact risk/reward ratio. Lastly, shift down to the chart one magnitude below the primary screen and identify entry points.

The trading system that uses three different time frames, defined by Alexander Elder in his book “Trading for a Living”, is called Triple Screen System.

Time frame analysis above and below the current setup chart will identify opportunity and risk in most cases. For example, when a promising setup appears on a 1-hour chart, a trader checks the daily chart for support and resistance but uses the 5-minute chart to time execution to the short-term flow of the market. This approach works through all time levels.

Amateur traders routinely fail at time management. Many never identify their intended holding period before they enter a trade. Others miss major support and resistance that appears on the next above magnitude chart. Some sit on nonperforming positions for weeks and tie up important capital while excellent opportunities pass by.

In all cases, time works as efficiently as price since all time frames display unique properties that enhance or damage the odds for profit.

Every opportunity arrives with a time shadow hanging over it. You have to focus attention on important feedback at the exact time that the information will likely impact that market. It may offer an execution window that closes in minutes or offer an exit that should be taken immediately when it arrives.

Successful traders must manage time as efficiently as price. Use both price and time triggers for stop loss management. Time should activate exits on nonperforming trades even when price stops have not been hit. Execute only when time bias improves the odds for profit.

, ,

No comments yet.

Leave a Reply