One of the greatest mistakes beginning traders make is to assume that an edge can be derived from a single source: a chart or indicator pattern, an earnings release, a breaking news event, etc. This fails to identify--and understand--the context in which the opportunity is occurring. Here are some of the most powerful edges I have encountered with the traders I've worked with:
* A move occurs across multiple time frames, as in the case of a short-term breakout that is also a breakout on a longer-term basis or a failure of overbought conditions across time periods. The broad context of the shorter-term move often defines the opportunity of that move. When time frames line up, meaningful movements often occur;
* A move occurs multidimensionally. Some of my charts have time on the X-axis; others feature bars that represent fixed units of volume. The most promising opportunities show up across the different charts as well as across time frames. For instance, the moving average crossovers that I track via Ehlers' adaptive moving average measure sometimes occur on the volume-based charts as well as the time-based charts, capturing shifts in momentum in a multidimensional fashion. I have found these opportunities to be especially promising. Similarly, simultaneous signals from multiple indicators/systems tracking opportunities in different ways are worthy of attention.
* A move occurs across related markets. If a move can be detected across the broad range of sector ETFs, there's a good chance that this represents a momentum move of the entire market and broad based participation of institutions. Similarly, if a move is occurring across such asset classes as stocks, bonds, and the dollar, the odds are good that something is occurring across macro markets that is attracting the interest of large investors. Such broad-based participation often signals an evolving trend.
What this means in terms of trading psychology is that one must be focused on many time frames and many markets and charts to identify the most promising opportunities. The great enemy of performance in this dynamic situation is distractibility. It's the ability to see many patterns across many time frames and instruments that enables the trader to capture the best opportunities. This is why it is vital to work on our capacity for focus when markets become busy. It is also why traders often perform best in team settings, where there are multiple sets of eyes on multiple markets and time frames.
Opportunity occurs as patterns of patterns.
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