Timeframes - Identical Psychology and Action?

[TheBramble]

If all market action is the result of the psychology of the players in the market and if these players' motivations are just fear and greed (which is debatable), then price action on any specific stock should look the same over any timeframe. Right?

By this I mean, whatever TA you're using (S/R, indicators, Fibs, PPs, VWAP) we understand or believe they should work the same in every timeframe. Intraday, daily, weekly, monthly charts etc.

This implies that the motivations of the players in each timeframe are identical. But I'm not convinced they are. Buy-and-Hold has clearly different expectations (and therefore psychological perspective on their position) than does a scalper.

My reason for asking is that it occurs to me there might be an edge is examining precisely what, if any, these differences might be.

I have no idea what the relative ratios of the various categories of trader are: from intraday to swing to position to long-term investors, but if there is a differential it strikes me it might be useful for us to know what it is.

If only to understand what 'they' think is happening and to take advantage of that greater knowledge.

If anyone's been over this ground and can keep me off from heading of down a dead-end, or thinks I'm just plain barkin', please jump in and let me know.

 

[Rognvald]

I think there is something in this but it's a can of worms too.

Have you looked at chaos theory and the market

Take a look at the posts from Grob109 here

http://www.elitetrader.com/vb/showthread.php?s=&threadid=26299&perpage=6&pagenumber=21

 

[BBB]

Do you mean a kind of hierarchy of participants?:

Market makers playing the spread, then short term scalper, followed by the day traders of various time frames, and then the position traders who take entry at the previous day's extreme. Then we have a few long term traders who may take a position from the weekly charts. Last is the investor who may take his position around releases, upgrades, sales, etc. They may take a position every month. Im sure I have missed many other methods and time frames.

The point is, each one is selling/buying to the other guy the next step up the ladder/time frame. The market mker knows day traders have their orders at intraday support/resistance, so drive their prices there to transact. The day trader rides the trend to where he knows the hourly bar trader will have his entry to provide easy profit taking/orders to cover...etc..etc. Eventually, the guy at the end is left with the ball with no one to pass to! Ouch!

The intraday profitable rally on a 10 min chart may have given the daily swing trader the signal to short at the 20 day MA, so the long day trader takes his profit when he sells to the swing trader who shorts on the 20 MA. In turn he covers at a point where he sees support and the longer term trader sees value....

It's all a game of merchandising. Thats why we're traders. We must learn where we can merchandise our stock at prices that are attractive to others. Thats what trading is to me.

 

[stevespray]

Some good points well made Tony...

From what you have written I'd like to add the following questions. Firstly, do certain stocks draw certain players ? When I say players I mean different time frame players. For example, having joing this forum a few weeks back I decided that it was time to try and bring my Tradestation programming skills back up to speed. I set about writing some simple strategies to trade stocks on an end of day basis. When backtesting the strategies against certain stocks if found that they just didnt work. So I tweeked the strategies and still no joy. My point is this, why is it that certain stocks act in such a manner as to be completely un-chartable ? Who is involved in these stocks which makes them such ? Is it the case that some stocks move in this manner because there are a higher number of external variables (exchange rates / price of certain commodities etc) which directly effect the perception of value of the stock in the market place.
For example 3M (NYSE:MMM). I find it very hard to write a simple strategy to make money either long or short. Why ? Because its movements are just too random. Is this randomness due to a much higher number of players or a smaller number of players ?
Do people scalp MMM ? Is it purely an investment stock ? Do people look at MMM as I have done and say "this is too hard to trade, I'll trade something else" thus making it less likely to comform to patterns which might appear in more tradable stocks.
Is there a basis of rotation around which traders move relating to stocks which chart well. For example, if I spotted a stock which traded well today and informed a number of people about it would that stock, over a period of time, trade less well for me on the basis that more people are looking for the same signals that I am ? Thus my edge would be gained from the early spotting of stocks which appear to be trading well and then trading them until it looked like the nature of its movements were changing.
Could it be therefore that such a stock as MMM draws in many people who are attempting to tame such a beast ? Could be that this is the reason for such randomness ?

Are there other reasons below the surface which allow the market to be manipulated and therefore are there movements that are totally un-predictable. An example of this are 'broker upgrades'. I have long been a watcher of Cisco Systems (Nasdaq:CSCO). What I have found with Cisco is that it charts quite well but has a nasty habit of being gapped through key areas of resistance. This is mainly done via broker upgrades. I am certain that the timing of these upgrades is to a large extent based on TA. The same is true of the Nasdaq index as a whole. Take a look at COMPX daily chart for example, recent highs were just below the 2120 level, resistance at that level was growing on my charts, it looked a clear shorting op, we even got an engulfing red candle (not that counts for much anymore). You will then notice that we were gapped through 2120 a few days ago by a mixture of bullish items 'released' by certain bodies. Broker upgrades were amongst these items. Perfect timing. That goes on with Cisco all the time. Why also is it that multipul brokers upgrade on the same day at the same time in the same stock ?

So you see, it's hard just to say that the movement of stock prices is purely down to plain buying and selling. The price of a stock is simply set by matching supply and demand in a very short term time frame.

Steve.

 

[Rognvald]

Can I refer you to this extract from a thread on EliteTrader on the concept (not mine) of Seamless Continuous Trading

The two main posters are Scientist and Grob 109
"SCT is a complete method of its own. In the optimum stage it involves trading in every timeframe, effectively encapsulating one trade within another. Effectively, trades will often cancel each other out, but the essence is to cover as many market paces as possible. This is a very special approach, but once this is mastered, it results in a seamless and continuous positioning in the market, with lesser relative exposure and higher gains
expectations"

The thread goes on at some length but I find it fascinating

If you are interested I have attached an edited version here

 

[BBB]

Steve, I personally think - and this is only a hunch, that the more spiky a chart is then the more scalpers there are trading it. This is because they are continually jumping in and out, so a trend never really gets the chance to develop, unless you zoom out to a larger time frame. Charts that do trend better on say a 10min chart probably means that 10-30 min bar traders are trading this a lot. Then the 5 min charters sees this, join the crowd to get on the trend, but all jump out early when they see profit. Thus the trending 10 min chart becomes too choppy and the 10 min traders go off and find what the hourly traders are upto, fading their trends....

This explains the ES. When the SEC decided all stock day traders need a balance of $25k, all the small guys jumped to trade ES where there were no cash restrictions. What you got is a load of smaller traders trading 1 lots who took their profit as soon as they had 1-2 ticks. This is why the ES is at times quite choppy for its liquidity

 

[stevespray]

BBB - Good reasoning, however, some of the spiky stocks have huge gaps almost every other day. How can this come about ?

Steve.

 

[BBB]

GAps for no reason shows market makers opening the market higher (lower) at the open to trigger all the stop orders. They short into these, and then some. The gap must be filled if there are no real longs in the market. The market makers then get their return by covering as day traders spot what is happening and begin to short. At the end of the day you get a lower close. Totally contrived and planned move right from the start (open)?? This sort of thing is very prevalent if you look at prices in a trading range - the tighter the better, but also in trends.

 

[TheBramble]

Read somewhere (I'll re-research if anyone REALLY needs to know the source) that:-

Gaps commening a rally/decline are professionally driven - Gaps at the end of Rally/Decline are novice driven.

Makes sense?