• Sun. Nov 3rd, 2024

Unlocking Trading Success: The Importance of Time Scale

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When do you have edge?

  1. When you do business there is no crowd (as in a crowd).
  2. This takes advantage of inefficient cost.

Okay, but isn’t the business profitable? Yes and no. But sometimes a discounted or premium exchange rate can be reasonable due to the following conditions:

  • Changes in fundamental data (such as interest rate increases)
  • Due to regional holidays (such as Lunar New Year), merchants are absent
  • Traders are struggling to keep up as they await the release of key data such as the Consumer Price Index

If something is too expensive or too cheap relative to its fair value, it won’t last long. Because traders will quickly make useless things to make a profit. But here’s the thing: The biggest inefficiencies happen in the shortest amount of time. Or in other words, trading in the shortest time frame is to your best advantage.

Look at “Market Wizards” (famously published in the book of the same name). The best traders are not half as good. So what about these traders? This is a bit different when it comes to the time and benefits of doing good. Let’s summarize for you:

How much ‘heat’?

Heat refers to your position trading at a worse price than your entry.

The diagram has two axis time and heat. The “taller” the box, the greater heat a trade takes. The “wider” the box, the longer the trade takes heat.

fxsoriginal

Do you like to be stressed in business? No, of course not. So: If the price is not fair for a moment, then trading at the unfair price means you will not be stressed for more than a minute. You know that if you enter at an unfair price, the market will do it right away and the price will not continue to be fair and unfair.

To illustrate using recent trades, the yellow boxes show you how much heat the trade took for how long the trade took heat.

Example 1

Example 2

Ask yourself: What would it do for you if you took as little heat for as little time when you trade?

  • Would your losses no longer exceed your gains?
  • Would you trade consistently?
  • Would you feel confident?
  • Would you feel a greater sense of well-being knowing you’ve moved on from trading that’s painful?

Can you see how much the short-term costs will benefit you when doing business (cash flow)? Since the risk is low, the reward relative to the risk is important.

The good news is that you will be wrong half the time. It could be a matter of timing or bad judgment on your part. But the market is quickly becoming a truly unprofitable market. So if that’s not the case, you know you’ve made a mistake. No more than a paper cut.

OK, sounds great; there’s nothing wrong with it. The ability to change. The quality and quantity of guidance can allow you to do it again. And there’s less time to spend years on yourself.