T2W Trading Community

In the chart above, we have the S&P500 Monthly chart covering about 10 years of action. Note that each bar in the chart is a one-month period. Just by simply eye-balling the chart, we see three basic long-term environments dictated by direction of movement: from the beginning of the chart to year 2000, we have a massive up-trend  (period “1”); then from 2000 to 2003: a down-trend  (period “2”) and lastly; from 2003 to present, an up-trend  (period “3”). If you were trading in the last 10 years, you will know that each of those major environments or trends required a specific type of approach to independent trading, regardless of trading style, and no matter how “short-term” the time frame. If you were to employ a specific type of day-trading approach that was successful in period one, odds are it would have gotten you killed in period 2 or even period 3. And vise-versa. Ask any INDEPENDENT trader that has survived the last 10 years, he has had to make at least 3 major “adjustments” that required almost a total adjustment to the market in order to survive through the 3 periods. And I’m talking about just “survival” and not even getting into “consistent profits” yet.

You can say that in periods 1 and 3, the bullishly-biased traders were rewarded, and in period 2, the bearishly-biased traders were rewarded. In trading each period, many attributed their success and/or failures due to a specific winning or losing trading, risk management or technical analysis style. However, when you look in retrospect, it is safe to surmise that the larger design of the market had a lot to do with success or failure, rather than any one specific method.

Looking in greater detail, you will observe that within the 3 major environments, there are many smaller environments that were distinct and even lasting for many months. These smaller “divisions” (some will call them fractals) in time frames go all the way down to Intraday and minutia levels. In fact, we can even say that the 3 major environments in the chart above are only a small portion of an even grander design. The adjustment periods are constant, and this is why no one singular technical analysis method will ever permanently work because the market is in constant pattern rotation and alternation.

Every period of time evolves from a series of larger trends and designs that we can learn and understand in order to manage the chaos of the moment. In today’s world, we have the ability to zoom-in to the market in great detail, and zoom-out to see its even grander designs.

If your longevity as a trader is important to you, keeping track of the larger picture is critical to your survival. Even if you are a day-trader operating in the minutia time-frames, your understanding of the market’s larger trends enhances your ability to navigate and make quick decisions within the chaotic short-term market. It will help prepare you for the market’s many changes ahead, and your long-term survival as a trader has a lot to do with how quickly you adjust to the market’s changes. It is a very big risk to ignore the big picture, so avoid taking the position that the large time-frames are not important to you as a short-term trader.

The charts and long-term data you need are easily accessible to you – use them! This way, you give yourself the chance to continue to do what you love for a very long time, longer than most others.