Timing as They Say is Everything!
Posted on Thursday, March 9, 2017 at 2:23 PM
There is an old saying that many floor traders have heard: “Never wrong, just early.” It means if you are in a losing trade, hold on to it for days or weeks until it becomes profitable.
Obviously, this is a dreadful approach to trading. Timing is a fickle thing and very difficult to quantify. Markets trend or consolidate, move or coil, rest or run. Either way you look at it, catching a trend early requires good timing.
My search for an answer began with 2 questions. Is the market ripe to run? Has the market established a fair value area? Markets tend to develop overlapping fair value areas over consecutive days before the onset of a trend.
The 30-minute bar chart includes daily value areas for S&P futures from early to mid-February. A value area is a Market Profile term and it covers a standard deviation of volume around the mean or high volume price. It is deemed a fair area where buyers and seller agree on price most often. In this example the value areas cover regular trading hours and are color coded to distinguish days of the week.
The large green rectangle encapsulates 4 days of severely overlapping value areas. Such periods of consolidation over 3 or 4 sessions frequently precede large vertical moves. In this case the trend higher resumed after a respite.
So, for timing breakouts search markets that have below average day ranges that overlap over a few sessions. When a market violates the top or bottom of a 3-4 day value area, volume tends to rise and a trend often ensues.
Senior Futures Instructor