A double meaning alluding to actually allocating the time to trade and then understanding the critical information regarding where you are in time when a trade is placed. This facet of time has many definitions.
1. The timeframe of the chart that was used and why?
2. How critical is the immediate price action directly after the trade is placed?
3. How long is the trade expected to last?
4. At what point in time is the trade within the trend or are we at the end of the trend?
5. How strong is the trend based on the time it has existed?
6. What is the risk/reward in relationship to time?
These are all important questions but in my experience of visiting thousands of traders over the years, they are questions that are rarely asked and for a large number they are never even considered. One of the first questions I ever ask a trader when we first meet is, what timeframe charts do you use? The answer is always a variation on the same theme. “Oh I use a 30 min, 60 min daily and weekly”. Not one person has ever said “I use the timeframe chart that is relative to my concepts of risk, volatility and range”.
For the great trader their success with this somewhat random method is proof enough of their inherent ability. For the not so great trader this is a recipe for disaster Therefore, obtaining a true measure of expectation in any one period of time is critical to improving the chances of success. When understanding variations of risk throughout the day, there are many potential problems. The extension of trading hours and the ever lengthening number of economic data events mean that traditional Technical Analysis methods that measure momentum on a continual basis are facing increasing challenges as markets go through periods of low ranges and a lack of direction, followed by bursts of activity and short term trends. Automated trading seems to have moved into the very low timeframe, high frequency of trades model to tackle this problem, but this is not an option for the human trader. In the same fashion that timeframes of charts are often fixed so are the variables within the momentum-based indicators that are used on charts. If a 10 period moving average is placed on 30 minute chart on Bunds and looked at 11am the average is likely to have flattened due to lack of activity. This would be the same case on the opening when it would have reflected the activity or lack of it, in the evening session of the day before. However, come 4pm and the average could display completely different behaviour based on the number of statistics produced that afternoon. Therefore it is very difficult to use momentum indicators in a predictive manner and we return to the inherent ability of the good trader to ride the waves of volatility.
If you accept the concepts of continual fluctuation in range and the occasional mutation of a market into a different environment then the answer must be to make that variable of the average continually adjustable based not only on the range of any particular bar, but also the time of day that that bar was created.
Shaun Downey Studies
The Shaun Downey Studies, available in CQG Integrated Client versions 7.8 and higher, provide traders unique insight of the market.