time and trading

Gordon Gekko · Oct 1, 2002

the following excerpts are taken from:
http://m1.mny.co.za/twta.nsf/Current/3B607B0F145548FCC2256BD6002C7D2D?OpenDocument

The really fascinating 2nd tool used by Larry is a proprietary analysis tool that tells him WHEN to place a trade. This tools focuses on TIME. Larry said that Time is the most important aspect of a chart. Too many traders focus on Price, instead of Time, and that is why they are not as successful as they might be. Larry had great confidence in his Time forecasts. It clearly told him when to go long and when to go short. Thus, he was not glued to the computer screen. In fact, he was very relaxed when he traded and not obsessed with watching the computer charts. We observed that Larry would know that the trade would be on until the Time for the next turn, and until that time arrived, he basically had nothing to do but wait. And indeed he would wait.

Thus, Larry is armed with 2 effective tools: one for Price and one for Time. When the market is trading at the juncture of these two tools, he would place a trade, which is a counter trade with the expectation that the market will reverse direction. Larry trades at a price that is one of the Fibonacci Levels of a prior major move. He always placed a reasonable stop at the time he made the trade. Then he would basically count on the probabilities to be in his favor, that the market would reverse direction and his trade would work out. If the trade did not work out, his loss would be small and manageable because of the stop loss. The trading he did the first day of our visit had 5 winners and 2 losers, for a gain for the day of over ten thousand dollars. Larry said a typical good day for his day trading would be up $20,000, and a really bad day would be to lose $50,000. Of course his expectation is to have good days 3 times a week.

This is the method I observed that Larry used for his day trading. He would watch for correlation in his Time forecast with market turns. Call it harmony. If the chart was showing good correlation, meaning actual turns are happening within 15 minutes of the forecast time for the turn and had the right direction going into the turn, then Larry would have confidence in the Time forecast and trade the chart. If the correlation was ?off?, the chart would be ignored. So, the market has to be in sync or harmony with his Time forecasts on his 2-minute bar charts.

Then, when the market was at the TIME for a trend change, Larry would use the Fibonacci Levels tool with the 5 sacred numbers to see which level should be used for the price for his trade. We observed for one S&P trade he made, the market was descending, but slightly above the 1.27 level. It was time for the market to change, so he called his broker (he abhors electronic trading), placed an order to buy S&P at the 1.27 level price, and placed a stop a few points lower. A few minutes later the S&P traded beyond his entry price by a few ticks, reversed, and then traded upward right on schedule exactly as expected. I was very impressed to watch the master at work to correctly call both the time of the turn, and the price for the turn. Then he basically turned his back to his computers and visited with us, quite relaxed about his trade. The Time for the next turn was 35 minutes away, and thus this trade did not need further concern until 35 minutes had passed. Possibly he would raise his stop to break even. He demonstrated the greatest of confidence in his trade, and in his tools for picking the Time and the Price of the trade.

His charts had his proprietary Time tool, and the Fibonacci Levels tool (typically just 1) that would be drawn when a price needed to be selected for the trade about to be made. If the market was at the 0.618 level, that is the price that would be used. He did not have any preconceived notion as to how much profit a trade needed to have when it was removed. He traded based on knowing the Time for the next turn, and took what ever Fibonacci Level price the market was nearest WHEN it was the time for a trend change. Sorry I keep harping on the issue of Time, but it definitely was the KEY to the method Larry uses for day-trading.
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incorporating time into trading has always interested me. i'm wondering if anyone here uses time in clever ways (besides quah)?

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time and trading

Gordon Gekko