Info!! Adapting To The Market's Truthful Clock

The previous post illustrated why trading is challenging, every bit markets alter their volume, volatility, as well as trendiness--sometimes quite radically.  On Friday, for example, SPY traded alongside a truthful hit of over 3%, iii times the average daily truthful hit of the previous twenty trading sessions.  Volume expanded to over 345 i yard m shares, too iii times the average book of the prior twenty sessions.  Friday's pure volatility (volatility per unit of measurement of volume) rose to twice the grade nosotros had averaged since April--meaning that, non solely were nosotros getting to a greater extent than book coming into the market, but the book was creating twice the previous movement.

Above nosotros run across a nautical chart of ES cost displace for 8/20/15 as well as 8/21/15, where each information indicate is a closing cost afterward 500 cost changes (ticks).  We had 139 cost alter bars for the hateful solar daytime Friday.  By contrast, in that location were 39 bars for the prior Friday.  If nosotros aspect at fourth dimension every bit the market's clock, as well as therefore every hateful solar daytime is similar every other one.  Once nosotros sentiment displace every bit the market's clock (see this fantabulous paper), as well as therefore every hateful solar daytime tin last quite dissimilar as well as offering real dissimilar chance sets. 

The oscillator (red line) is a five-period charge per unit of measurement of alter stair out that acts every bit a short-term overbought/oversold measure.  Because nosotros impress to a greater extent than bars when the market's clock speeds up, nosotros run across to a greater extent than overbought/oversold oscillations.  That could exercise to a greater extent than opportunity; too to a greater extent than frustration as well as confusion.  The challenge is that, using fourth dimension every bit their gauge, nearly traders neglect to check the market's clock: they are similar dancers on a trip the calorie-free fantastic flooring who function along deadening dancing in i lawsuit the melody turns to dubstep.  Conversely, when traders are calibrated faster than the market's pace, they overtrade, expecting to a greater extent than upward as well as downward displace than the marketplace affords.

Imagine playing basketball game when the shot clock randomly changes from 24 seconds to 48 seconds, as well as therefore to 12 seconds, as well as and therefore dorsum to 24.  Influenza A virus subtype H5N1 squad that had i agency of running plays--and i fourth dimension calibration--would inevitably play suboptimally.The market's shot clock changes over time, but therefore oft nosotros don't.

It's simply around other lawsuit of the simple-mindedness behind the advice that traders should "follow their process."  If y'all convey *a* process, you'll function run over when markets change.  It's meta-processes--sets of rules for engaging inwards dissimilar processes--that let i to adjust to ever-changing markets.  From the perspective of meta-process, creativity--not slavish adherence to i agency of doing things--is an essential ingredient of effective discipline.

Further Reading:  Trading inwards Event Time
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