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WHAT A DIFFERENCE A TIMEFRAME MAKES

Timeframes Tactics Guide
When trading begins to operate beyond the parameters examined in these examples you will begin to
sense longer timeframe involvement. Successful traders continually readjust their strategy and tactics
depending upon timeframe involvement.
Timeframe Trading Behavior: Determining who is dominating in the market on any given day and
understanding how their participation will affect the auction process is crucial in determining ones
trading strategy and tactical implementation.
For this article we have combined scalpers, day traders, and short-term traders into a single group
and classified intermediate and long-term traders into the second group.
The three most important aspects to trading are:
1. Understanding the markets natural two-way auction process and organizing that
information so that you can interpret it to trade effectively
2. Understanding the auctions different timeframe participants and each of their traits and
behaviors
3. Controlling and employing your emotions in a productive manner. [to trade successfully]
The dilemma of learning complex information: The whole is too complex to learn without
understanding each of the pieces, and each of the pieces cant be fully learned and understood
without understanding their context within the whole. This is the same issue that scientists
continually wrestle with. The global warming analysis is a prime example albeit on a much broader
timeline. Scientists must understand recent and current temperature excursions since they started
recording this data; yet they must put these observations in context with long term climate changes
that have occurred prior to science even recording such information.
A note about conflicting information: What is not directly conveyed in the above point but is equally
important to traders is that there will always be an element of uncertainty when our analysis is
completed. This is probably one reason why many traders continually dissect information,
attempting to figure it all out before completing their analysis or, executing a trade. As humans we
have a propensity to seek certainty; however as traders, accepting uncertainty is a fundamental
necessity. To quote Karl Popper as he is cited in The Black Swan by Nassim Nicholas Taleb,
uncertainty is our discipline, and..understanding how to act under conditions of incomplete
information is the highest and most urgent human pursuit. We highly suggest reading this book
listed on our Suggested Reading list.
The basic timeframe descriptions are recapped below. Chapter Three of Markets in Profile deals
more in depth with the broader topic and the Field of Vision video takes timeframe analysis even
deeper as several differing live market examples illustrate this concept.
Timeframes: Market activity is influenced by a wide variety of participants operating under a wide

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variety of timeframes and motivations. The way each of these participants combines and employs
information is different. For learning purposes we have segregated the markets into 5 timeframes:
1. Scalpers are very short-term oriented, trades being completed possibly in seconds; they rely
primarily on intuition and order flow. Today most scalping is done via computer.
2. Day traders come to market each day flat (no position) and leave the day flat. Their behavior
is very short-term and often emotional. They depend almost exclusively on market-generated
information because fundamental information is too slow and cumbersome; fundamental
information can actually be counterintuitive for the day trading process.
3. Short-term traders timeframe is usually 3-5 days or slightly longer under the right
contextual conditions. They supplement market-generated information with an awareness of
recent fundamental information and the effects this can cause on market movement. They
love to trade from the top to the bottom (or bottom to the top) of multiple-day trading
ranges5 to 10 days is ideal.
4. Intermediate-term traders timeframe covers weeks or months of market activity; they rely
on a blanched mix of fundamental and market-generated information. This timeframe prefers
to trade from the top to the bottom or vice versa of large trading ranges or balance. When the
intermediate-term traders begin to dominate a market, their behavior is aggressive. While
they tend to dominate markets far less frequently than the short-term timeframe discussed
above, when they are dominant they are usually very aggressive and move the market
substantially. Shorter-timeframe traders who are unaware of their entry into the market often
suffer substantial losses.
5. Long-term investors/traders may hold positions for months or even years; they are far more
attached to the securities and investments they own. They tend to follow fundamental
information first, followed by market valuation, and finally market-generated information to
supplement their understanding of market activity. When they become dominant, markets
can move out of the more traditional contained ranges of the other timeframes. They move
markets; and when they do, the other timeframes pile on.
LEARNING BY EXAMPLE
We have chosen Friday October 8, 2010 for our example. The monthly Jobs report, which is often
the most important economic report, was released and showed very poor labor conditions. This
would normally be expected to create volatility and interest among all of the timeframes. Lets
review the S&Ps on October 8th in segments:

1. OpeningThe opening immediately begins to prepare us for tactical trading; is the

market in or out of balance. On this day it is in balance; opportunities are likely small
unless the market immediately auctions out of balance.
Openings are important references for day and short-term traders.
2. The initial auction is up leaving a local top. Local top is a carryover term form the old
days when floor locals played a more important part in the market. Local tops provided
evidence that the floor traders were dominating the market; longer timeframes were
absent. The locals could have their way with the market. Now we refer to this non excess
high or low (meaning no buying or selling tail) as a poor or unsecured high or low, which
communicates that day or short-term traders are in control. These traders are unlikely to

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want to or to be able to move the markets very far out of containment areas; that is not
their style or interest. They prefer to trade within well established boundaries.
3. The two-way auction process at workOnce the initial auction ends it immediately
begins in the opposite direction; it continues until an opposite auction begins.
4. Half backHalf back is a simple linear observation that short-term traders use to judge
the days progression and serves as a day timeframe reference. It is simply the center of
the range. If the market, for example, has built up short-term buying interest, a pullback
from the early high would likely find short-term buying interest at halfback; if there is
little buying interest, the halfback reference will not act as support and the selling is
likely to continue.
5. Prominent point of control (POC)-The width of the POC, or fairest price at which
business was being conducted, varies depending on the amount of volume that occurred
or time that was spent at this price level; the greater the time and volume spent at the
POC, the more prominent it becomes and the higher the odds that prices will revisit this
level. We pointed out in our October 8th Pre-market update that the previous session
(October 7th) POC was very prominent and, as a result, presented high odds that prices
would revisit it on October 8th. (Some of you will have questions regarding many of the
terms; unfortunately, to explain them all here would cause us to lose the overall focus of
this trading education article. The books, video, blog, and these trading education articles
are designed to become part of your accumulated experience.) The odds were correct; the
market opened higher but came back down to revisit this numerous times over the first
hour and a half of trading.
6. The downward auction terminates with a local low; the market remains within balance,
i.e. within the previous days range. There is no indication of longer timeframe interest;
our combined group of scalpers, day traders, and short-term traders continue to have their
way with the market.
The two-way auction process continues to function as it begins to explore higher:

Current and
previous days high
for intermediateterm rally

1. The two-way auction continues-Having stopped auctioning lower the two-way auction
continues in the opposite direction. The two-way auction process is the markets way of
searching for information and what is uncovered is referred to as market-generated
information (MGI). The Market Profile is a time sensitive, evolving data base that
records this process.
2. Half back finds buyers rather than sellers; the next likely destination is the local high;
markets are very visual and, very often, trade to the next nearby visual reference. Any
trader can look at a bar chart quickly sees the morning high as a visual reference.

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3. Developing value is unchanged from the previous dayIf you will think in terms of
value versus price you will maintain a healthier perspective.
4. The local high is reachedThe auction probes to the visual reference; our focus is
now on the continuing two-way auction process; does it reverse or continue.
5. Current longer-term and previous daily highIf the two-way auction continues
higher, the next references are the current longer-term rally high, which is also the high
of the previous day. (You mean here the balance area high of past 3 days=115860 area)
6. Destination-The next visual upside destination trade is to the top of these visual
references, this being the high of Thursday, Oct 7th at 116050.

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1. The original local highIm going back to referring to my newer description as a
poor or unsecured high; that simply means that the odds of holding or remaining in place
are low. The auction took out the high and continued upward.
2. The auction continues; during the auctioning process the auctions goal is to discover a
level where two-sided trade can take place; this is the goal of any business-to involve as
many participants as possible. We monitor price acceptance or failure to determine if this
will be the level.
3. Destination tradeOnce again the visual, upside reference of Thursdays high was
reached. I suggest that traders continually divide the market into segments delineated by
as many visual references that are clearly defined and take the market one step at a time.
If we are in a long in this upward move, we monitor for continuation as each reference
comes into play.
A logical questionA logical question would be: how about the poor or unsecured low on October
8th, isnt this important?
The answer is yes; in fact, it is important on the afternoon of October 8th. The poor low
was an indication that the longer timeframes werent intently or aggressively involved in
the market on this day, which greatly reduces the odds that the auction will carry very far
beyond the morning high. As the auction continued higher, trade expectations and profit
targets should have been relatively small. Looking for the big trade on this day would
have lead to disappointment.
This poor low is also important to carry forward after the Friday, Oct 8th session. This
data point is part of market structure that you can read about in our Trading Education
article on 10-3-10.
Summary: Like an operating room, we have chosen a sterilized environment to examine our shortterm trader combined group. I chose to say it this way: We have chosen to examine short-term
timeframe dominance by isolating this discussion to their behavior; how to recognize these
participants and subsequently the most effective trading tactics in any particular session. However it
would be incomplete not to mention other factors to consider as your understanding develops and
you incorporate more context into your observations. Additional information to consider:

Volume: on this day developing volume was very low, which also reduced the odds of further
upside continuation.

Market confidence: tends to be low on those days that are controlled by scalpers, day traders,
and short-term traders with confidence being considerably higher on days that are dominated
by longer timeframes. When the longer timeframes are dominant the shorter timeframes tend
to pile on and drive the auction even further.

Observation: from observation you will see that quite often a daily high or low is established
during the first 90 minutes; once a directional auction begins to dominate it tends to go that
way for the remainder of the day. On October 8th, although the shorter-term traders

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dominated, the market reverted to the longer-term trend, still relatively contained, and
continued through to the close.
Before we present the final three graphs I thought that the market would slightly extend the range in
the afternoon, which would be consistent with the capabilities of the combined scalpers, day trader,
and short-term traders; however, any measurable or lasting upward extension would be inconsistent
with this group; remember, they would prefer to trade within confined level only pushing beyond
those levels to trigger stops.

Destination had been reached and exceeded; stops triggered.

Once the highs were within reach the game became to go trigger the stops; stops are triggered by
bidding prices up until the stops are triggered. The profit occurs when the short-term traders that bid
prices up to trigger the stops immediately sell into the additional rally created by the election of
those stops.
Once the game is over two-side trade can begin.

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The final outcome-On this low confidence day dominated by scalpers, day, and short-term traders
the market settled at the previous days high and had discovered the level where two-side trade could
occur. This is the markets ultimate objective.
Our goal was to show you a low confidence day so that you would be better able to assess when a
higher confidence atmosphere was developing; On a high confidence day the auction will generally
begin moving directionally much earlier and see much less rotation.
On a low confidence day your expectations should be greatly reduce, which allows you to adjust
your tactics and attitude toward risk.