Time & Price
We all understand trading price. I understand trading time very well in the context of options. (Theta etc) I have a concept of trading time combined with price (whether that concept is the same as Gann's I have no idea, I think not)
Where I am like a mule at a new gate is the concept of trading time exclusively (leaving aside options) on a linear instrument like straight stocks or futures as per Duc's post.
How do you trade time and not price?
Hello Wayne,
“How do you trade time and not price?” – Great question, and one of the first ones I asked when I started looking at this area.
The answer is actually quite involved and yet simple at the same time oddly enough. Margaret is spot on with this observation:
Wayne, I think the problem is that there’s no easy way to answer your question fully without re-writing the text books. Similar complexity to someone asking “what’s an option; what’s volatility, etc?” !! You give the dictionary answer – only to get more questions – in the end it’s easier to refer to text books, web sites, etc.
Given that most people accept that trying to answer such questions in a few lines in depth is not realistic, I will try to outline the core elements here as a starting point.
In simple terms it’s like trading an option with a rule to exit before 30 days to expiry. You know you have to exit on “time”. Imagine that there is a good “time” to enter an option, and a good time to “exit” an option irrespective of the price (think of an arbitrage situation that is time based). It’s kind of like that, but the core is pattern, time and price, in that order. But as you can imagine there is a lot to this…
To do this requires an understanding of several basic building blocks – pattern is at the core, especially the type of trend, determining when a trend is beginning, continuing and terminating is the key. The corollary of this is an understanding of counter trends. McLaren divides time cycles into two categories – cycles that run through all markets at all times, and localised cycles that have a limited life span for a specific sector, index/stock/commodity.
The idea is that if you can recognise these cycles and how they express themselves within the pattern of trend for the underlying, that this can allow you to enter and exit purely on time points, or a combination of time and price, or form a part of a perspective which results in an enhanced edge when trading or investing.
… I often hear this "time is more important than price" quoted. I just don't get it and nobody seems willing to expand on this concept.
Genuine question here.
Again, a really good central question, and exactly what you must answer in order to progress in this discipline. The best exponents deal with exactly this conundrum. What you are asking is very involved ironically, and it is easy to ask, but to answer simply will not do the concept justice. While I don’t have enough time to fully address this poignant question here to your satisfaction, here’s something to think about:
Gann saw time and price as essentially the same thing…
This concept is of course open to interpretation, and has been debated by many revisionists – my guess is that he saw time and price as two sides of a coin, inherently linked, hence if you focus only on price then you are missing half the picture, and if you can trade just on price, then you can trade just on time, if you understand how markets trend (which entails a host of theories covered in his works such as the various “laws” including time cycles).
Essentially you cannot separate time and price, so it is not that price isn’t an element in the process which of course it is, but it is the notion that timing is often more important than the price level in terms of formulating entries and exits.
The point is that once you understand patterns in the market, and recognise time cycles, and how the two relate, sometimes the relevance of price diminishes (it is always relevant though in terms of the profit you make, but I’m not talking about it in this sense, I’m talking about it in terms of pure entry and exit criteria). Personally I can often project time more accurately than price, based on the pattern for example.
At the core of understanding patterns is understanding patterns of trend and especially counter trends, in various time frames (daily, weekly, monthly for example, but you can extend either way – intraday, quarterly, etc), and this is without even considering the geometric techniques let alone time cycles. This is sufficient to trade from in it’s own right, but can be greatly enhanced using the appropriate techniques. So, the time cycle element is all about precision.
Regards
Magdoran
