In this article I consider the phenomenon that the market quickly indicates to a speculator whether his position is any good. It comes from the fact that any trade immediately either shows a small profit or a small loss. See 'On setting stops' for just how quickly trades I open show their profits (even if there is trouble further on down the road). Anyway, experience has taught me that if a trade initially shows a small profit, then later the small profit often becomes a larger profit. (Like it did in 'On setting stops'). However, if it initially shows a small loss, often the small loss later becomes a larger loss, which is why I like to pay the insurance premiums. Yet my point here is that time is money, right? So this experience of the market tipping its hand after a little time has passed suggests that as well as using price stops and price targets to insure against losses or realise profits, use time stops and time targets as well. In fact, use a mixture of price and time stops and targets.
The experimental strategy for this does not take account of technical, fundamental or quantitative analysis, but just a simple time driven formula. It uses the principle that movements in prices actually indicate to investors all the technical, fundamental and quantitative interpretations of market participants at the time. It assumes that you do not know whether a market is trending, or choppy and rangebound. If there is a trend, then by design the trade must follow the trend. You can experiment with any market. The actual trading algorithm is simple:
The amount of time chosen ought to be enough to discern the true line of least resistance from reactions and eddies and random events or other volatility. Just exactly how long does it take to achieve this? The whole market is trying to decide the same thing. Can the path become clear? How long a time do they take? Anyway, just the fact that the chosen market is not going in the chosen direction after a short amount of time is a worrying fact to take into account on a trade.
Tell me your ideas of this strategy, please get in touch!