Article: The Importance of Time

I am often asked which tool or study is the best, as if there exists a simple answer to such a question.  Instead of answering that question, perhaps I can help direct your attention to tools that should be given a higher priority.  Let's start our discussion on priority by asking this question:  

How would you rank order the importance of Price, Volume and Time?

I suspect that most traders, particularly new traders, would answer that Price is the most important market factor, followed by Volume, with Time being the least important.  I suspect that this answer is given most often because Price is the easiest to comprehend, and Time is the hardest to understand.  I have come to believe that Time is the most important factor, yes even ahead of Price, and if you would spend more effort analyzing Time, your trading success would improve.  Too often analysis focuses on Price and ignores Time altogether.  So, this month's trading tip is: Learn to use Time related tools.

Hank Dean wrote, 'One of the most critical aspects of successful trading is not what the direction is or why it's happening.  It is the mostly overlooked when.  The when can often be forecasted just like phases of the moon or the tides or waves or rhythms of any kind.  Using one very simple tool, time cycles, and some common sense, you can win consistently.' 

Let's take inventory of Time related tools:

1. Cycles:  Short Term and Seasonal
2. Fibonacci Numbers
3. Fibonacci Ruler
4. Pyrapoint 
5. Gann Square
6. Gann Fan
7. Elliott Wave Theory
8. Trend Lines, particularly Parallel Lines
9. Astronomical clocks and relationships
10. Time of Day and Day of Week

I do not have space or time to give each of these tools new treatment in this article.  The tools on my list have been discussed in prior articles in the Trading Tips newsletter, and a reference to the material on Ensign's web site will suffice.  Of the above, my favorite tools are Pyrapoint, Trend Lines and Fibonacci Numbers in that order.   I am not discounting the value of any of the others.  It is just that when tools are more complex, such as Astronomical relationships, I tend not to use them as much as I should and I find myself seeing the correlation 'after the fact'.

Now, here are the references for additional reading on these Time related tools.

1. Cycles:  Short Term and Seasonal
   January Effect
   Cycles Tool
2. Fibonacci Numbers
   The Power of Counting Bars
   Fibonacci Numbers
3. Fibonacci Ruler
   Fibonacci Time Projections
4. Pyrapoint 
   Time and Price
   Pyrapoint Tool
5. Gann Square
   Using Gann Squares
   Gann Square
6. Gann Fan
   Timing with Gann Angles
   45 Degree Lines
7. Elliott Wave Theory
   Elliott Wave Theory
   A-B-C Wave Forecast
   Lightning Bolt
8. Trend Lines, particularly Parallel Lines
   The Power of Trend Lines
   The Power of Parallel Lines
   
9. Astronomical clocks and relationships
   Moon Phases
10. Time of Day and Day of Week

I see I do not have a reference for Time of Day and Day of Week, so I will finish this article with a discussion on this subject.  This is fresh on my mind because this morning I was in the Ensign Chat Room and a trader made the statement that August Live Cattle was nearing the time for the high of the day, and would be down the rest of the day.  This analysis shared with those in the chat room around 10:10 a.m. was exactly right.  Here is the 5-minute cattle chart showing June 20th, and today, June 21st.

Now, how did this trader know that?  How could he speak so confidently about what the cattle market would do?  His analysis uses two mathematical techniques:  Neural nets and Pyrapoint.  Neural nets are beyond the scope of this article, but can be briefly explained as follows.  A neural net learns the characteristics of a market by examining hundreds of training patterns and refines its forecasting ability by comparing forecast output against actual data.  This trader's neural net forecast a pattern for today's cattle market, and had the time for today's high a little after 10 a.m.

Now a person cannot mentally perform the hundreds of thousands of considerations that a neural net can perform, yet you can still benefit by keeping track of the time of significant market turns over several days.   For example, on a 5-minute cattle chart a significant bottom occurred on June 18th at 10:05 a.m.  On June 19th the high of the day occurred at 9:50 a.m.  The high of the day on June 20th also occurred at 9:50 a.m..  This high is the anchor point for the Pyrapoint tool shown on the cattle chart.  And, the high of the day on June 21st was at 10:25 a.m. as marked by the vertical blue line labeled with 54.  Tip:  Keep track of the Time of Day when tops and bottoms occur.

This trader also uses Pyrapoint.  The highest high of the past two weeks occurred June 20th at 9:50 a.m. as shown in the illustration.  So, that significant point becomes the anchor point for the Pyrapoint construction.  The 2nd end-of-square vertical line was already drawn on the chart prior to 10:25 a.m. and labeled with the bar count of 54.  (Tip:  55 is a Fibonacci number.)  This trader commented that his neural net forecast for the time of today's high correlated with the upcoming Pyrapoint end-of-square.  Tip:  The Pyrapoint principle involved here is that 'when price meets time, a change is imminent.'  And that is exactly what happened.  The price crept upward from the gap down open until it met end-of-square at 10:25 a.m., and then was down the rest of the day.

I and others have followed the correlation of market behavior against the Pyrapoint calculations and continue to be impressed with the insight and accuracy of this tool.   That is why it has become my favorite tool for chart analysis.  Now go back and really study the $SPX Cash Index chart in the Pyrapoint article, and note the high correlation of change in direction occurring on Pyrapoint's vertical blue lines.  These vertical lines are a measurement of Time and known in advance.

Article by Howard Arrington