How can an 'edge' work on all timeframes?

This is something that really doesn't make sense to me, how can, for example, some indicator based system, work (theoretically) on all timeframes?

I think in regards to indicators, there is a semblance but in reality the probabilities differ.

fractal nature of markets perhaps ?

If to win, you need to understand/capitalise on, human psychology and the reaction of people to different situations, then this should apply to various timeframes, since different people play different timeframes. So why should the reaction of someone on a 5 minute chart seeing one thing, be vastly different to someone on the one hour or the daily. I'd imagine a slight difference, but still plenty of commonalities.

I don't see any reason at all why an edge on a short timeframe should work on a long timeframe or vice versa. Because the graphs look the same? Come on, total misconception IMO.

So are you saying there are no edges that are timeframe independent dash? This obviously would then imply that all edges are specific to a particular timeframe.

DashRiprock said:

I don't see any reason at all why an edge on a short timeframe should work on a long timeframe or vice versa. Because the graphs look the same? Come on, total misconception IMO.

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Would it not depend on the precise nature of the edge? it's a very broad term.

Volatility and noise are going to be factors for a start that will break any relationship between long and short TF's.

DashRiprock said:

I don't see any reason at all why an edge on a short timeframe should work on a long timeframe or vice versa. Because the graphs look the same? Come on, total misconception IMO.

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But you get noise in all timeframes, and that noise can be exploited.

You get kurtosis across all timeframes, and that kurtosis can be exploited

I dont believe patterns have predictive properties (they just provide a framework which is useful for hanging ideas off) but the same patterns do tend to occur, and they provide the same crutch.

well you know guys this is something that I've come across a couple of times since i joined trade 2 win, the best dialouge was between me and bramble on one of arabians threads. ill try and find it after if finished this post.

OK now no flaming me for saying it OK?

At the very shortest of timeframes, as in on a trade by trade basis, markets are moved by order flow and imbalances between volume and liquidity. From the simple case of slippage, to a raft of orders buying (say) all the available liquidity at one price and testing the market to auction one tick higher, and the many different ways these kind of things play out. At the very longest of timeframes, markets are driven by the domestic and foreign policies of Governments - fiscal and monetary policy, trade tarrifs and agreements, and so on and so on.

It does not seem very sensible to implement a long term edge on a short timescale, or vice versa; The euro is not necessarily fundamentally undervalued because it won't go bid... nor does it mean that the SP500 should necessarily tick down because Sarah Palin and her protectionist ideology is losing voter confidence. See what I mean?

Now, in the reality of things, no timescale is wholly independent of influence from "other timescale" factors - the activity on every timescale is a function of several variables, and the balance between each factor varies as you move along the investment horizon. I personally imagine it like the balance between a push and pull factor. markets go from being wholly "pushed" by volume/liquidity imbalances, to being "pulled" to fair value by the changing macroenomic environment (think gaps at NFP).

So, because that it the way I understand financial markets to work, I cannot agree that an "edge" in one arena is applicable in another; if my "edge" is identifying companies that are attractive takover targets and IMO underpriced by the market, I would not expect that "edge" to be borne out over the next tick or two. Neither would I expect to hold Japanese Yen for 5+ years if my "edge" was fading liquidity imbalances.

See? You need to trade on a timescale that is appropriate for the half-life of your edge.

the hare said:

But you get noise in all timeframes, and that noise can be exploited.

You get kurtosis across all timeframes, and that kurtosis can be exploited

I dont believe patterns have predictive properties (they just provide a framework which is useful for hanging ideas off) but the same patterns do tend to occur, and they provide the same crutch.

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well I personally have never done any research (or even read any research) that shows that returns on a minute basis are indistinguishable from returns on a monthly basis, but I don't think it's an absurd idea and not impossible to believe by any stretch. So, if your "edge" is derived from the nature of these returns (lets keep it straightforward and just say trend following, for example), then a priori I don't see why you can't apply the same techniques on minutely and monthy timescales...

BUT, this approach and the approach outlined in my previous post is kinda like betting on the dog or betting on the tail, a causation/correlation kinda thing; if your edge is more causation than correlation, then it probably can;t be translated to other timescales. If your edge is more correlation that causation, then I can't see why you shouldn't be able to migrate from one to another.

Which shade of grey you are in the causation / correltaion camp though is a slightly different discussion but the foundaion of what we're discussing here.

all imho and I've said this before, but no one really holds my opinion in high regard anyway so I can say what the cuntflap i like

Shakone said:

So are you saying there are no edges that are timeframe independent dash? This obviously would then imply that all edges are specific to a particular timeframe.

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What is an edge? Isn't an edge something that the trader has that puts him ahead of other traders?. If that is the answer, then I do not see how anyone can know whether anyone else's edge can work on all timeframes, since he is unlikely to tell us what he is doing.

I suppose there are edges that do, as well as those that do not, but I do not think that we are ever likely to know. My own edge will not work on all TFs but to say that none do is presumptive.

Chartsy said:

This is something that really doesn't make sense to me, how can, for example, some indicator based system, work (theoretically) on all timeframes?

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It could depending on parameter choice. It is rare though IMO. Common indicators are too slow for short timeframes but usually work well in longer timeframes where the issue is discipline rather than timing.

Edge is more than indicators though. It is a philosophy about the markets.

intradaybill said:

Edge is more than indicators though. It is a philosophy about the markets.

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Yep, you need filtration which dictates which Pairs are going to be in play, then only use time-frames with indicators to 'cherry pick' your trades.