Resolving Timeframe Conflict

  • Posted by
  • on March 25th, 2011

“Live in the now, man!” Garth Algar

Writing helps me work through the endless supply of information and crystallize it into ideas more likely to remain etched in memory.  This is mostly for my benefit, but I enjoy the feedback and clarity that comes from those who take the time to read my ramblings.

In a market that has my long-term evidence overruled by short-term evidence, and vice versa, I’ve been thinking a lot about which information is most critical to my trading.  It’s easy to misuse a great piece of evidence by applying it to the wrong timeframe, so when conflicted I like to review my sources and make sure I’m applying everything to its proper timeframe.

One way I categorize that data, rather than the vague terms of short/intermediate/long term, is past/present/future.  For my approach, that breaks things down into the following:

1) Present- inventory, in the day timeframe.  Much of the day to day action is simply large players adjusting inventory.  I’ve kept my own stats forever, but am growing more reliant on Alphascanner as an objective filter of this cycle.  I also think the use of Market Profile in some form is another great way to visualize this.

2) Past- boundaries/potential, in the swing timeframe.  This is easy inside a range, simply use recent high and low levels and Fibonacci levels…Greg Harmon and ChessNwine provide awesome detail here.  I find it much tougher when trends kick in, but over this 2-12 day period mean reversion often dictates.  The hardest part isn’t visualizing a multi-day reversion; it’s sitting through intraday noise as price moves from one end of the channel to the other.  Gtotoy has been a master at expressing a target and patiently awaiting its arrival…finding those with expertise is a great way to hang with an idea.

3) Future- side of most likely tail event, in the longer timeframe.  My selection process is to hunt for huge volume events on one month highs or lows, and see how a stock responds to the event.  My bet is that a) a lengthy trend experiencing a high volume reversal gives me a chance to fade the old trend, OR b) a high volume break from a multi-month range gives me a chance to follow the new trend.  Again, I have my own scans but find the Persistence Lists put out by Daytrend to be particularly useful in helping my search for liquid movers.

I choose to study all three in hopes of making my days more like a yoga session than a cage match.  Of course, it rarely works that smoothly but I was bloodied enough as a young punk to decide that joining the winning side before the crowd does is a better way to survive than to stand in their way because they’re “wrong”.  Someone is wrong on every single transaction; a good chunk of the time, that someone will be me.

I expect to do the following in joining the early winners:

1) Give myself an identifiable “wrong” point

2) Allow the early hours of my entry to be supported by the actions of those yet to be converted

3) Position myself for the rare but potential fat tail by letting a fraction of my initial position work

Staying in the present has been the single most helpful trait in keeping me out of trouble.  Deteriorating breadth had me reluctant to hold positions beyond a day or so…an obvious opportunity cost and a slight bummer as things have continued to lift.  But staying in the present has kept me from executing bearish ideas despite the temptation from my longer-term evidence.  Inventory has acted like it’s consistently short every day for the past week, a clear sign that until doubt converts to “fear of missing out” I just cannot participate on the short side.  And of course, in those days, the longer-term evidence has grown less bearish; funny how eventually the evidence joins forces and one side takes control.

For now, my conflict remains.  The “future” is questionable but improving by the day as a high % of stocks not only made lows but surged from them.  The “past” has used up most of the energy one can expect over 6 days with stocks above their 10 day MA cycling from 11% to 90%; reward is limited compared to risk.  When it comes to where I will act, the “present” remains firmly in the accumulation camp but, as the most fluid of all, can change in a half-hour volume spike.  If I see higher prices rejected I will prepare to act in accordance with the other, more bearish timeframes…but not a second before.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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