| Posted in THE GATEWAY TO SHORT-TERM TRADING | Posted on
Trends validate only for the time frame in which they occur. A trend in one time frame does not predict price change in the next lower time frame until the shorter period intersects key levels of the larger impulse. Pattern Cycles in time frames larger and smaller than the current trend are independent and display unique attributes of the trend-range axis. This interrelationship continues all the way from 1-minute through yearly chart analysis. Swing traders must always operate within this 3D trend relativity. The most profitable positions will align to support-resistance on the chart above the trade and display low-risk entry points on the chart below. But trend relativity considerations do not end there. Price evolves through bull and bear conflicts in all time frames. When ongoing trends don’t fit neatly into specific charting periods, trade preparation may become subjective and dangerous. Hard work yields promising setups that align to the swing trader’s holding period. But these opportunities must fit into a larger market structure for the positions to succeed. With trends in motion less than 20% of the time through all markets, odds do not favor a confluence of favorable trading conditions through three time frames. The perfect opportunity rarely exists. An exciting breakout on one chart may face massive resistance on the longer-term view just above a planned entry level. Or a shorter-term chart may display so much volatility that any entry becomes a dangerous enterprise. Few executions align perfectly with the charting landscape. Successful trading requires a careful analysis of conflicting information and entry when favorable odds rise to an acceptable level. When faced with a good setup in one time frame but marginal conditions for those surrounding it, use all available skills to evaluate the overall risk. If reward:risk moves into a tolerable range, consider execution even if all factors do not favor success. That’s the nature of the trading game. Support-resistance priority parallels chart length. Use this hierarchy to locate high-probability entry levels and avoid low-reward trades. For example, major highs and lows on the daily chart carry greater importance than those on the 5-minute chart. As the shorter bars drift down toward the lows of the longer view, strong support exists for a significant bounce. These 3D mechanics also suggest that resistance in the time frame shorter than the position can safely be ignored when other conditions support the entry. Profit opportunity aligns to specific time frames. But many participants never clearly define their targeted holding period and trap themselves in a destructive strategy flaw. They see their trades in one time frame but execute them in another. This trend relativity error often forces a new position just as the short-term swing turns sharply against the entry. Neophytes fall into this trap with great frequency. They feel pride when they see an impending move on their favorite chart and recklessly jump on board. The action-reaction cycle then kicks in and shakes them out as price tests support before heading higher. Trend relativity errors rob profits on good entries as well. No one wants to leave money on the table. So marginal players may freeze as soon as a new position moves in their favor. But inaccurate price targets can measure one trend while the initial entry springs off another. Natural wave motion then whipsaws the flawed position sharply and sends the trade into a substantial loss well before reaching a reward target. Visual information seeks to reduce noise and increase signal as it travels from the eye to the brain. The rational mind sees large trends but may conveniently filter out the many obstacles along the way. Or the marginal participant manipulates the chosen holding period and curve fits the opportunity to match the current plan. Most players should never change their holding period without detailed preplanning. Specific time frames require unique skills that each swing trader must master with experience. This noble effort should not begin trying to rescue a loser from bad decision-making. Compensate for this mental bias through precise trade management. Begin with a sharp focus on the next direct move within a predetermined time frame. Prepare a written trading plan that states how long the position will be held and stick with it. Establish a profit target for each promising setup and then reevaluate the landscape that price must cross to get there. Consider the pure time element of the trade. Decide how many bars must pass before a trade will be abandoned, regardless of gain or loss.
FIGURE :
Three different time frame charts paint very different pictures of the same price action. Atmel breaks through
major horizontal support and pulls back to test resistance on the daily view. But that important test hides from the
60-minute chart where price draws a tight symmetrical triangle. Meanwhile the day trader only sees a breakout
and bull flag on the 5-minute screen. Finding opportunities in one time frame but trading them in another leads to
costly trend relativity errors.
