Wednesday, September 9, 2009

Time and Price

I have a lot of comments to which I really need to reply. Give me some time. This post is about two critical elements in technical analysis, Time and price.

The immediate relevance ia a request by men to find out if it is possible to forecast the time in which a head and shoulder bullish breakout will hit its target.

Now, Time is a much more difficult element to forecast. Any number of unknown events can influence Time. Suppose a big hedge fund trader did not come to office today. Therefore a planned trade was not taken, which if taken would have pushed up prices of Orchid (example). He came in the next day, when the trade was taken. Understand how time has been influenced by a factor completely unrelated to charts. You can easily imagine many more scenarios like this.

Price forecasting and target setting is much easier. In fact, setting a price target is part of many technical analysis studies. Often, these targets wil be hit, but when? As I have just explained, the time factor is difficult to predict.

Now, there are some sections of technical analyysis, which do forecast time. Gann, was a pioneer in such forecasting. Since no one after him has been equally successful, I assume that Gann had some extraordinary abilities. The methods which deal in Time forecasting are: cycles, Different types of fibonacci time projections (including Elliot Waves). If you do work on Time, then you should be looking at Time zones rather than a date.

Price and Time together
Think carefully, if a trader can forecast Price and Time, both, then what is left? You are really like God, telling us the exact future. Therefore, this ability is unlikely. Traders who do try to forecast time and price understand that they will get only one of the components right. Either Time or Price. An example for the Nifty is given below.

NIFTY

For the Nifty, two last two time projections for swing lows worked out well, but the price targets were not touched, which suggested strength. The last three targets for swing highs were touched suggesting strength. The current up move was projected as below:
Price target: 4730 - 4870 zone
Time Zone: Sept 4 to Sept 8.
What happens if prices move up today also. Then the Time target has shifted. What happens if prices move beyond 4870. Then, the price targets have also shifted. Thus, you can only surmise that the Nifty may be reaching some kind of short term consolidation.

The downside time zone as of now is: Sept 14 to Sept 18.
The price zone is: 4525 - 4385.

Remember, these are only probabilities. Also, as I explained, usually, Time or Price (amy one) may touch our estimates.

Please do not trade on these numbers, as much more analysis (on your part) will be required to use them. But you can surely try to correlate these ideas with your own analysis.

Cheers.

15 comments:

Student Of Market said...

Sir,

your discussion on time and price reminds me, since I have been trained as a physicist!, of Heisenberg's uncertainty principle, and suggests the following "trading uncertainty principle"

You cannot simultaneously predict time and price with arbitrary accuracy.

Perhaps this is well known to traders, but fun for me to understand it in this way.

Thanks.

StudentOfMarket

stockmarket-methods-in-madness.blogspot.com

CHANDU said...

Very good clarification between Time and Price.Thanks for your post sir.You already clarified my doubts always ,let me come up with a adavanced doubt may be about advanced technicals...lol :).

I must thank my teacher sudarshan ji for giving good education.And u plz forgive this poor student who forgot to thank u on teachers day.

Best regards :)

gurivi said...

Wow....Never thought about this aspect of a trading.
Thanks Sudarshan ji for broaden our horizon.

Thanks!!!
Gurvinder (Gurvi)

Anirvan said...

Sudarshan Sir,

Hello and Good Morning,

I was looking at the nifty charts today and a question popped up -
- When its a bullish head and shoulder every one is so optimistic that it has broken out - but in the same vein THE same head and shoulders pattern failed a couple of months back for this rally to start across all indices globally

I would just like to know your thoughts on that

men said...

Thank you Mr. Sudarshan for clarifiying. Sir your model p/f is needed here. Thanks once again.

Shazia said...

Sir,
According to the time and price ranges you have suggested we should have the sense of the direction of the nifty in next 2 days, correct me if i am wrong. Since you have mentioned time frame i have noticed that the markets mostly trend in one direction for about 6 months and then the trend changes mostly (of course the trend did not change in 07 and that is why the trend also remained one way in 08). Awaiting your comments

Thanks
Shazia

keralkrishna said...

Iam comparatively a beginner in trading and i admire you as a good teacher and analyst.According to you and everyone nifty has broken out and will now move towards 5100 levels.But for the past two days nifty is moving in a tight range.In your previous posts you said that if the range is broken then the move will be fast.Is it suggesting a consolidation or false breakout?

VK said...

Gud evening Sudarshanji: Very good article regarding time and price. A trader can only decide to enter at a comfortable price and wait patiently with a digestable stop loss. The waiting period called TIME translates into MONEY. Last year these very levels of Nifty were year lows, this year these very levels are year highs, no wonder Time is Money phrase is so true and you have elaborated it so nicely on this at the right time!!!

aashish said...

I like your note on time. I understand that technical analysis is a study of variation in price.

I have commented on your blog last year regarding the hypothesis regarding time compression. Using the almost-to-be-superimposed charts of the DOW Monthly between 1970-83 versus the same pattern on the Sensesx/Nifty weekly between 2000-03, I argued that not only does history repeat itself but at an accelerated pace.

So, with that I ask, did time get compressed or did price accelerate?? You can label it anyway, I guess...

If we understand time to be constant and price to be elastic, then this study is known as technical analysis.

Like, in July 2007, I saw that the Nifty Futures has a range of 555 points. The average monthly movement in the months and three years prior was 200 points.

I remember that when the city of Bombay was flooded with rains in 2006 and Udayan made his was to the studio with trousers folded till the knee, he was plesantly surprised that the Sensex climbed a 100 points each or thereabouts each day for 3 days!

Today the sensex does 250 points easily in a day and we don't even blink.

So, I guess that we are looking at a constant as time and the variable as price.

Pioneers like like Maggee / Edwards spoke of volume with price, but I feel that such studies are good over a weekly chart rather than a daily chart. Volume itself seems to have become a laggard in the market that I have witnessed of late.

I feel that in the predictability aspect of time and price, one ought to avoid prediction altogether and have a signal based trailing system in order to trade.

Prediction, to me, seems to be working towards defining. All all that may be definable, may not be actionable.

I agree with the physicist who commented here, and taking his cue, since we are limited beings meaning that we are limited to existence in the 3 dimensions. Some physicists regard time as the fourth dimension and consider it static as of now. When we can begin to visualize time as elastic, I guess the future will reveal itself to us as much as the present does.

I look forward to your comments on the future of the stock market.

God Bless you, Mr. Sukhani in all tour endeavours

P.S. If my factual detail is erroneous, do please feel free to correct the same as I intend for the reader to understand the spirit rather than the letter of this note.

men said...

Mr. Sudarshan, could you please give us some method to protect profits in fno and also in cash.
Thanks in advance.

keralkrishna said...

Good evening sir.
How can we explain these 3 days of tiredness in nifty after a breakout of very long trading range?

Shazia said...

Sir,
The nifty has made its way up closing each day positive after the big move, suggesting strength yet you said on tv that there could be a correction before 5000 is reached? Technically today was an inside day and going by the closing the bias seems on the upside. Its true the markets have showed resistance at 4880 levels but the support is still going strong. What do you say to the broader markets underperforming these past few days after the breakout. Also if i am not wrong except yesterday volumes were pretty low today.

Vinay Mulchandani said...

Sir,
Regarding your comments on CNBC today about a correction of about 200 points before Nifty goes to 5000 and similiar comments on the friday of the week you were playing bull's eye (where you went short on some index stocks).
I trade nifty through options and subscribe to your view as Nifty looks tired and needs to close in the -ve for fresh buyers to get in. Even though the day did'nt turnout as indicated and nifty closed at high point of the day, last time it corrected the next few days and hopefully will do the same again.
My question/s are(a)should we short into strength when we get such signals of tiring or should we wait for some signs of weakness before shorting. (b) What should be an appropriate stop loss for this kind of trade in options. (c)How can I prevent the loss due to time decay of options, since Nifty has done nothing much the last few days. (d)Also in your opinion how prudent would a strategy be if I did'nt close my long on calls when I bought the puts.
Thanks for all the guidance you provide through this blog.
Regards
Vinay

Viral Rajnikant Dholakia said...

Dear Sir,

Can you write a bit on RSI. The most commonly used indicator is usally 14 days RSI. In the interim, in one of your postings, you had recommended short-term traders to use 5 days RSI.

Can you pls elaborate which specific RSI (by number of days) indicators can be used more effectively from short, medium & long term perspective.

Tushar said...

Sir, suppose you are given to trade a lot of Nifty Futures.
And suppose you are forced to trade that lot on this weeks closing price.
What will you do BUY or SHoRT i.e.SELL?
IF Buy what are the reasons?
If sell what are the reasons?

I have asked this question to understand how a pro trader like you thinks..
We are seeing the same chart as you see...
But what does a pro (like you) see that we don't see is important.

So i request you please reply this question on chart with explaination, as it is very imp. & it will help us read charts better..

-tushar