There are a zillion people chasing around indicators looking for the best signals and this and that... You can look at every price cyclic indicator in existence, and MACD and etc... Trade off RSI divergences, etc... And still lose. There is one little missing key which a lot of good traders understand instinctively, but can also be put in number! Time is the missing key. A lot of people see the same trade setups, and jump into the same divergences off of lows/highs, etc... But, they don't have a time stop. Each trade setup has an expiration date. If price isn't moving in your favor within a certain amount of time the odds are price will do the opposite of what the technical setup was. Think about it... A bunch of people see a long setup. They all start diving in... Then they sit around waiting for it to start rising... If it doesn't start rising, only a matter of time before they start getting scared. If I take a trade setup that is bad time rules generally get me out without a loss before it moves against me. To summarize everything... If price isn't rising off a divergence within the amount of time it should be rising, and in the amount it should be rising... Fear will build in the longs and price will likely drop again. Or vice versa. Some dizzying logic huh? If price isn't rising when it's supposed to be rising, and when it's supposed to be rising by, it's likely going to fall! Traders need continual emotional reinforcement via price movement in their favor to keep pushing in a direction. Attached is a chart of bernanke's recent speech after FOMC. Notice that each bottom and top is occurring in relatively the same same number of bars or ticks. Each move is taking about the exact same "relative" amount of time to bottom or top. I was talking to a banker who trades currency recently and was surprised he understood time rules perfectly and used them in his trading... Whatever timeframe I'm using... 25 bars/ticks/minutes is the most ill hold a trade for unless the trade is moving heavily in my favor. That is the far upper end though. You should start seeing a move go in your favor in around 10 candles from a good setup. If you let it go past 40 candles and it still isn't moving in your favor your a gambler... Not a trader! If your counter trending you honestly need to be in and out within fifteen candles... Tricky stuff! If I miss the long setup, I sometimes take the short setup... Only if the trend is really slow though. The bottom indicator I have here post-marks each exact high on the next downward cycle, and each exact low on the next upward cycle. The locations of the highs and lows generally keep occurring in the same relative location in time for upto hours at a time.
Some people here know time rules even thought they don't even think of them as that. When say the market is pulling back on the daily chart... Everyone knows that we only have around a couple weeks at most to correct usually before the bulls come back. If the market doesn't fall much by a week and a half the shorts start getting scared and the bulls start getting frisky.
I really hate these posts in ET where you claim superiority because of this secret you can't explain because it cannot be put into words. Arghhhhh
I just told you it. Trade setups have an expiration date. Figure out what that is for your system... Do backtesting! You should be able to increase your profits highly by using time stops to cut trades that are not running in your favor and only have actual stops as a backup for black swan events. I have done lots of automated backtesting through different situations in different conditions, but I still trade manually. A human is much more effective at rapidly adjusting strategy for changing market conditions than a computer. Just remember this... "It's not important what the high or low is going to be. Think instead of when the high or low should be." Don't think about price targets.
I use time stops too. When trades dicks around too much i'm out. I can always reenter. Rangetrader, please keep thos interesting charts coming!
I think this is a very valid concept, and I have to admit it is one I am not good at observing. I know my results would be a lot better if I did.
AAAintheBeltway it's kind of a tricky thing to measure because it varies depending upon the overall market fear level. There are a couple ways to put it down into exact rules though. Here are my current time rules on daily-4d. The stronger the trend/momentumn is, the less time the market takes to consolidate on dips. I base my time rules on the EXACT amount of time from the last lowest low in the down cycle and the last highest high in the up cycle. I'm personally very skeptical of this rally into may. Were entering the last gasp rally phase. Like early 2010, or march into summer 2011. Everyone knows it too... It's just a question of who the hell can time the perfect spot to get out before everyone jumps off a cliff... LoL! Everyone seems to have 1440 stuck in their head. Pretty much all parabolic rallies fail in a ugly fashion at some point. I stay away from parabolic moves in daytrading... Don't like em one bit. If there is a great trade setup I may buy some puts, but if there isn't... Who cares... Scalping futures long off dips in rallies with decent internals has given me the most consistent results of anything. I shifted the left chart back in time a bit so you could see what my charts said during this correction move late.
http://www.elitetrader.com/vb/showthread.php?s=&postid=3415204#post3415204 "Josh, I'm reposting my original post. Take special note of "it took some years to find a way to make it work". Here, I'm specifically referring to Rule 1. Rule 1 is not vague at all but actually trying to implement it will be a bitch. I tried all sorts of combinations starting with time based stops and price action stops. I ultimately settled on a "combination" in conjunction with intermarket analysis. I daytrade stocks so I'm heavily watching the s&p and if I don't like what I see I will try and get out at entry, small loss, or protect a breakeven status. Unfortunately, I can't get much more specific than that. I will say that there is no "correct" solution for rule 1. You just have to tinker around with different combinations of observations until you settle upon something that works for your setups. The gist of Rule 1 is to avoid having your initial stop get hit in the first place. In this case, don't wait for the market to go against you or vacillate. GET OUT because you are not being proven right. Mark Fisher talks about this as well when he says that you should be one of the few participants buying at a level. If price stays in an area long enough for the "crowd" to get the same price as you, then you're no better off than the crowd. To get an idea of what I'm talking about. A typical scenario for me will look like: breakeven, breakeven, small loss, average size winner, breakeven, breakeven, breakeven, breakeven, huge winner"