More Than a Matter of Taste. The Timeframe is Everything
2025-01-17
Category: None

Higher Timeframes (daily, weekly, monthly)
Lower Timeframes (intraday timeframe) 

Influential educators often propagate misleading ideas that cost the community money. One of the most harmful and, sadly, widely accepted opinions is: "Since the market is fractal, all timeframes are equal. The timeframe is just a matter of taste." Today, I want to debunk this myth, relying not only on my studies on the subject but also on the most basic logic.

 Mass Psychology: 
Higher timeframes, by aggregating more emotions over longer periods, reflect the psychology of investors more clearly and consistently, thus, a historical record will be more reliable and complete in larger time frames.

 Manipulation: 
Higher timeframes require a larger volume of capital to be manipulated since the interests forming the price action are backed by generally well-capitalized participants who operate with long-term goals.

 News: 
Movements in higher timeframes are less influenced by short-term news, offering a more stable and often more predictive perspective of the market.

 Randomness: 
Randomness increases with shorter timeframes. An example of this is the decrease in the success rate of trading systems as we move to lower timeframes. Profitable (documented) systems on daily charts can become unusable on 4-hour or 1-hour timeframes.

 Additional Elements:   

-There are well-documented profitable trading systems in works by technical analysts like Larry Connor or Thomas Bulkowski, always with a focus on daily or higher timeframes. To date, there are no documented systems for timeframes like 5 or 15 minutes, nor is there a scalper with a transparent record of predictions demonstrating the profitability of their approach.

-All classic indicators (MACD, RSI, Bollinger Bands, Keltner Channels, Donchian Channels, Williams Alligator, Ichimoku Cloud, Parabolic SAR, DMI, etc.) have been created based on a daily or higher timeframe.

-All known classic methodologies (Dow Theory, Chartism, Elliott Wave Theory, Harmonic Patterns, Wyckoff Method, Gann Theories, Hurst Cycles, Japanese Candlestick Patterns, etc.) were developed with a daily or higher timeframe focus.

-All renowned technical analysts have applied a daily or higher timeframe approach to generate wealth.

 On Some Authors:   

-Richard W. Schabacker (the true father of Technical Analysis) in his book "Technical Analysis and Stock Market Profits" (1932) structured market fluctuations into Major Movements (monthly chart or higher), Intermediate Movements (weekly chart), and Minor Movements (daily chart). His analyses were based on understanding these timeframes, and his methodology, now known as "chartism" (though extremely misunderstood and manipulated), warned that it should be used in these timeframes. 
"The longer it takes for the chart to form any pattern, the greater the predictive significance of that pattern and the longer the subsequent move will be, the length, size, and strength of our formation."
He also addressed the topic of manipulation and the high cost of consistently manipulating timeframes like the weekly one.

-Dirk du Toit in his book titled "Bird Watching in Lion Country" comments:
"The smaller your timeframe, the greater the randomness of what you are observing. If you are watching price changes every five or fifteen minutes, the degree of randomness is very high, and your likelihood of anticipating the next correct price movement, or series of price movements, is very low."
"A coin, like a five-minute chart, has no memory. Just because it has come up heads eight times in a row, it doesn't start to 'adjust' to provide the required probability balance of a 50/50 ratio in a certain number of tosses. Five or fifteen-minute charts are the same. Trying to predict whether the next five-minute period will end up or down is exactly like flipping a coin."

-In the documentary titled "Trader" (1987), we observe that despite Wall Street's aggressive style, Paul Tudor analyzed price action on daily and higher timeframes, comparing the historical record of his charts with events as significant as the 1929 Crash. He even used classic methods like Elliott Wave Theory to detect long-term opportunities.

 Conclusions: 
In an occupation in decline, turned into an entertainment industry, we should be extremely cautious. It's no coincidence that aggressive marketing is focused on selling us the dream of getting rich quickly. In the past, only a minority could access markets, but now we are all potential customers regardless of our capital. Platforms know that "hard work" and "long-term consistency" are unmarketable phrases. They want to exploit masses of gullible people, and to fill their coffers, they will show an easy path to "financial freedom." The chances of surviving in this environment of deceptive advertising are nil if one does not question everything. Do we not look to the past to make decisions under the premise that history tends to repeat itself? Then we should look to the classic works in these times of uncertainty. It's a long and lonely path, but it's the only path. 99% of current educators and writers are not technical analysts. None record their predictions, none trade in real-time. They are merely opportunists feeding off people's hopes. It's better to dust off the works of the fathers of Technical Analysis than to spend the next 5 years reading about psychotrading and seeking magical solutions on YouTube. Question everything. The only thing you can never question is your capabilities.