1) I went back to 1994 and tested monthly data for SPY, looking at short-term momentum as measured by a two-period RSI. Interestingly, a median split of the data found returns over the next 10 months that were over twice as high following market strength as following market weakness. That is, over the longer time frame, we have seen momentum effects. Over none of the quartiles, on average, did we see anything close to negative returns.
2) What if the rise of algorithms (which often draw upon large data samples to learn patterns) has combined with the risk aversion of portfolio managers and the needs of day traders to create markets that are most efficient on short time frames? What if the greatest edges are to be found over time frames that traders either cannot trade or do not want to trade? What if opportunity is more a function of holding period than short term "setups", breakouts, and catalyst-driven events?
3) A number of daytraders are finding opportunity trading small stocks that are not traded by institutions. These display a more orderly order flow and clearer trading patterns. Could it be the case that even greater edges could be found by identifying the time frames no one wants to trade/is able to trade and exploiting patterns within those? Might there be a significant edge in the ability to hold positions and not stop out when others must? If one were to optimize that edge, what would the process of trading look like? How would trading psychology differ?
Might the greatest impediment to trading success be the *need* to trade?
Might the greatest opportunities exist at time frames no one looks at?
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