I've been successfully pairs trading for a while but my natural inclination is for a faster style of intra-day trading. I've read as much as I can in both books and forums (particularly this one) and seem to think that a combination of threads by Anekdoten, Geez and NoDoji best suit my style. Its basically trend following with a strict 2:1 reward:risk stop system. I've been using it fairly successfully with the FTSE Future and I like the action I'm getting with 10 or so trades a day. However, as I'd like to quantify the system as much as I can and be a little more specific in catching in points, it got me thinking about how the concept of 'trend' is defined. It seems to me that 'trend' cannot be separated from timescale. In other words, I think there are numerous 'trends' all working at the same time and it very much depends on what your trading timescale as to what you're calling the current 'trend'. For instance, if I'm trading on 1 min charts the trend may appear to be down but if I were to look at the 30 min chart the trend may be up. So, my question really is this - do I decide what timescale I want to use and then totally ignore what's happening on other timescales, or do I abandon time as my x-axis altogether and use a tick chart instead ?
i do not think anyone can answer the question for you. it is your personal strategy and tastes. without revealing his strategy, the person can not justify his x-axis.
(A) You could do so, but it always pays to read the time frame above and below the one you are trading and take action if the chart is talking. (B) You could do so but knowing your frame of reference from multiple time frames will help extract more from the market and understanding of what is trending and where. (C) Again you could do so, but you will face the same issues How about this: (D) If it's working don't fix it. If you want to trade on a smaller time frame treat is as a fractal of what you are doing and change nothing but the time frame. Imagine you don't know the time frame has changed and use the same method. Then when you have adjusted to a smaller time frame you can try getting more exacting. Move step by step instead of jumping into the unknown.
Sure, I agree but I just wanted some input from those who are more experienced and mathematically oriented than I. I currently work in the 1 min timeframe and it seems to be working guaging the trend using my eye but with an overall 'feel' for what the underlying market may be saying. I like to quantify things but possibly in this case its better to work the way I am if its working. My most important change has been to keep strict attention to my 2:1 reward:risk situation . Sounds obvious but keeping to it is emotionally difficult so I'm looking for a better interface, like Button Trader, in order to place my trades.
A trend is when a married man and the wife (his) agree to do BOOM BOOM more than a single night in a row. PS: I am still claiming the world record for a married couple. 3 nights in a row. (old joke)
A simple definition of a trend is "higher high and higher low" (up) and "lower high and lower low" (down). Tick charts are highly co-related to time charts. Depending on the instrument you trade, for stocks you typically see 100, 200, 500 (shares) or so per tick even for order fills of 1000-2000. If you want to see something truly independent of time scale, use Renko charts or Range Bar charts (TradeStation offers it).
Okay, if you want to continue with your investigation you will have to be less mechanical about 2:1 and flow with the movement of the chart. Whatever moves your chart to the right tells you what kind of trend you are seeing. When time moves the chart it is Time Action (but most call it PA). If you are using Range then it is true PA as price moves your chart to the right. Using Tick or Volume means Volume Action moves you chart. On both Range and Volume Charts time is involved, but it is not linear time as you are looking at space time. Trends and Trend Lines will appear different on these charts than on linear Time Charts and can show leading moves that won't be picked up on Time Charts. There are always multiple trends operating in any chart. MESA attempts to identify if a dominant trend is present and what its length is or if there is too much noise/chop for a reliable trend to be confirmed. The simplest way to identify a change of trend or commencement of a trend is using trend lines and/or bar formation but there are many approaches. Gann for example used Time to qualify a price movement so a break of a trend line also required a time element to confirm the trend had changed. If you don't understand how bar formation shows trend change or trend lines confirm trend changes then that is your starting point. If you do understand that then I'd suggest you learn how time and space time can impact your trading by comparing these 4 charts. It's hard to answer a general question when I don't know how you see a trend or how inventive you are or what your personality is like. Perhaps a mechanical approach like having a 2:1 works best for you but I think the questions you are asking hint that you are ready to evolve your trading. Good question. Good luck