Unholy Grail to Success

[saliva]

Game Plan #3: Deconstructing Time

Of the three components that make up PMT (Price, Momentum and Time), time is perhaps the most esoteric element that eludes any meaningful understanding. Whereas price and momentum is bilinear, namely they move either up or down, time is largely unilinear or unidirectional. Time is not reversible. Once it moves, it's a goner. Under such a scenario, how may we quantify time?

In my myopic views, time cannot be seen in isolation, especially apart from momentum. Time and momentum are two faces of the same coin. You cannot possibly work with one without running into the other. For example, when ES runs up 10 points within the last 30 minutes, we could say that momentum behind such a move was strong. But suppose that this 10-point up move comes on the heels of a 15-point down move that took only 20 minutes. Now, the 30-minute move don't look all that strong after all. Hence, context plays a crucial role when it comes to time. Needless to say, price, momentum and time should all be seen as one.






[edit]
Important note: Allow me to be blunt. I don't like to bitch anymore than I have to but there's a good reason why this thread was written in a chronological order. If you're new to this thread, start from page 1 and don't skimp on details!

 

[6526503]

Poster said:

"We all know that everything revolves around prices. We also know that prices are driven by demand and supply. Hence, if we literally take this textbook definition to its logical conclusion, we can safely assume that prices stall and reverse when either the demand or the supply wanes."


Agreed, with one qualification: it's not so much supply and demand but *perceptions* of supply and demand that count in moving markets; and as we know, perceptions can be influenced by non-rational factors.

 

[MandelbrotSet]

Quote from saliva:

Game Plan #3: Deconstructing Time

Of the three components that make up PMT (Price, Momentum and Time), time is perhaps the most esoteric element that eludes any meaningful understanding. Whereas price and momentum is bilinear, namely they move either up or down, time is largely unilinear or unidirectional. Time is not reversible. Once it moves, it's a goner. Under such a scenario, how may we quantify time?

While you are correct in your statement that PMT are the qualities that makeup every trade, I disagree with the way you define the *Time* portion of the equation.

If:

Price is used to define Trend

Momentum is used to define the Strenth/(Weakness) of the Move

Time is used to define the Correct Moment to Enter the Trade

Put all three ingredients together and it is very difficult to fail at trading, but if you are missing any of these components which you've described here (and I've interepreted according to my experience) it will be very difficult to succeed.

Examples:

If you do not define the Trend correctly (using Price), it will be impossible to know which side of the trade to be on.

If you do not use the Momentum of the trade correctly, your profits will be small.

If you do not enter the trade at the correct Time, the trade will most likely be stopped-out before you come into profit.

 

[saliva]

Quote from 6526503:

Agreed, with one qualification: it's not so much supply and demand but *perceptions* of supply and demand that count in moving markets; and as we know, perceptions can be influenced by non-rational factors.

Well, I can only say that you're stating the obvious. Of course, supply and demand is driven by fear and greed. Whever said the market is efficient, let alone rational, is an idiot. But isn't that its very charm? That's what creates opportunity. Although I could write a whole damn book on the issues surrounding fear and greed, they belong more to trading psychology than to the subject matters of this thread. But thanks for sharing your thought nonetheless.

 

[saliva]

Quote from MandelbrotSet:

While you are correct in your statement that PMT are the qualities that makeup every trade, I disagree with the way you define the *Time* portion of the equation.

If:

Price is used to define Trend

Momentum is used to define the Strenth/(Weakness) of the Move

Time is used to define the Correct Moment to Enter the Trade

Put all three ingredients together and it is very difficult to fail at trading, but if you are missing any of these components which you've described here (and I've interepreted according to my experience) it will be very difficult to succeed.

First, I need to remind you that I specifically stated at the outset of this thread that TIME is defined as DURATION and not TIMING. You will find below what I wrote at that time. My definition of time doesn't apply to the TIME OF DAY, which seems to be a popular notion in this forum. The actual TIMING is judged when the entire PMT is considered.

Quote from saliva:

Time (aka Duration, Not Timing)

We often hear that time is of essence in the market. Correct entries and exits are of utmost importance to one's bottomline. However, there's another aspect of time no traders should overlook. Here, we're not so much concerned with timing but with the duration of a given trade.

According to Merriam-Webster dictionary, duration is defined as the time during which something exists or lasts. Applying the same definition to trading, we could redefine duration as "the time during which a trend exists or lasts." Hence, duration is a metric used to measure how long it took to establish a trend.

A trend can be divided into 3 stages: beginning, middle, and end. Each stage has its own unique characteristics. For instance, the beginning stage usually displays a price behavior that shows a retest of the low before reversing, whereas the middle stage often involves a pattern of one or two pullbacks and the end stage a classic "head fake" reversals.

Despite their particularities, duration plays an unequivocal role in all three stages. This is particularly true at points of reversal, namely stages 1 and 3. Let's consider stage 1 as an example. Here, we have declining prices beginning to show a sign of reversal. If it's successful, it will advance to stage 2. Suppose, then, the low was made at 965. It subsequently turns up to 975 within the next 10 minutes. However, it stalls and trades within a narrow range for the next 30 minutes. At this point, you must ask yourself what the hell is taking so long.

Remember this logic? If the stock ain't going up, then it must come down. This same premise applies to duration as well: If it's taking too damn long, it probably ain't working! Although there's no way of knowing exactly how long it should take to cross the threshold from stage 1 to stage 2, it should never take too long. The reason is simple. The longer it takes, the greater the threat of another reversal to the downside. Hence, all failed reversals turn out to be the continuation of the previous trend.

 

[saliva]

Quote from MandelbrotSet:

Examples:

If you do not define the Trend correctly (using Price), it will be impossible to know which side of the trade to be on.

If you do not use the Momentum of the trade correctly, your profits will be small.

If you do not enter the trade at the correct Time, the trade will most likely be stopped-out before you come into profit.

Now that I've clarified my own position, it appears that you have also misunderstood PMT. PRICE is not used to define a trend. On the contrary, it is strictly used to find potential pivot points, such as support/resistance or trendlines. Why is this so important? Because it is at these pivot points the market reversals will occur. However, in order to validate a reversal (or a breakout), you also need to gauge the strength of the move (eg. MOMENTUM). But momentum cannot be understood in lieu of DURATION. This is akin to measuring velocity. You first measure the distance an object has traveled from its original starting position, then you measure the time it took to get there. You then divide the former by the latter to calculate velocity. Doesn't this kinda remind you of PRICE SWING? And, yes, price swings are used to detect TREND. Well, that was my whole intention behind it all.

Quote from saliva:

TRAP - Price Swing

Price swing is perhaps the most unconventional part of TRAP, but it is nevertheless important because it ties directly with momentum and time that are two core components of PMT. In many aspects, price swing might look similar to the minor movements described in the literature of the Dow Theory or the waves as outlined in the Elliott Wave circle. However, that's about where their resemblance ends. Here's the diagram illustrating the intricacies of the Elliott Wave.

<img src="http://www.elitetrader.com/vb/attachment.php?s=&postid=2189795" height="600" width="800">
Click to enlarge

Now, consider this chart of ES with the price swings circled. As you can see, it does bear some resemblance to the Elliott wave. But here, unlike Elliott wave principle that uses individual wavelets to gauge the trend, we're using the entire price swing to detect momentum, which will in turn help us to forecast the trend.

<img src="http://www.elitetrader.com/vb/attachment.php?s=&postid=2189716" height="600" width="800">
Click to enlarge

However, it doesn't end here. Each price swing will be condensed into a candlestick formation and interpreted using the PMT method.

<img src="http://www.elitetrader.com/vb/attachment.php?s=&postid=2189793" height="600" width="800">
Click to enlarge

<img src="http://www.elitetrader.com/vb/attachment.php?s=&postid=2189800" height="600" width="800">
Click to enlarge

 

[saliva]

Quote from MandelbrotSet:

Time is used to define the Correct Moment to Enter the Trade

If you do not enter the trade at the correct Time, the trade will most likely be stopped-out before you come into profit.

On second thought, your definition of time isn't all that different from mine since what you define as "the correct moment to enter" is what I simply call a reversal (aka MARKET TIMING). When would be the most opportune time to enter or exit if not at the very moment when the trend is about to reverse? But by no means can this be achieved with time alone.

 

[saliva]

Quote from saliva:

PRICE is not used to define a trend. On the contrary, it is strictly used to find potential pivot points, such as support/resistance or trendlines. Why is this so important? Because it is at these pivot points the market reversals will occur. However, in order to validate a reversal (or a breakout), you also need to gauge the strength of the move (eg. MOMENTUM). But momentum cannot be understood in lieu of DURATION. This is akin to measuring velocity. You first measure the distance an object has traveled from its original starting position, then you measure the time it took to get there. You then divide the former by the latter to calculate velocity. Doesn't this kinda remind you of PRICE SWING? And, yes, price swings are used to detect TREND. Well, that was my whole intention behind it all.

I hope the following illustration will make it easier to comprehend. PRICE, in terms of S/R and TL, is the actual hurdle that must be cleared by the runner. However, the runner's success or failure will hinge on various factors leading up to the actual jump, such as speed (MOMENTUM) and distance (DURATION).

[edit]
Important note: Allow me to be blunt. I don't like to bitch anymore than I have to but there's a good reason why this thread was written in a chronological order. If you're new to this thread, start from page 1 and don't skimp on details!

 

[swapanda]

As a beginner starting out in spot forex, I must commend saliva on a fine thread for sharing, something I haven't been able to find too easily on ET. While it may not be a ground breaking revelation, the concepts here may not be apparent to most and even as I applied what basic TA I knew to the charts, I find myself paper trading somewhat similarly before chancing on this thread.

Now for my question to saliva, at which point would your entry/stop be for the first short order? With no reference to your "retro" or "macro", the momentum to the dotted UTL of the channel certainly seems strong (correct me if I'm wrong) and there were 3 candle highs sticking to it. Personally, I may have entered on the close of the first bearish candle or even the break of its low which in this case would have been a little late in my opinion given the length of that particular candle and the distance to closest support.


I'm certainly looking forward to whatever else you have to share. For the moment at least, I'm looking to improve my trend lines and interpretation of momentum/velocity.

 

[investwthme]

Saliva is it not feasible to say that if price moves up slowly rather than fast, that price should be held stronger to the upside?