Time Compression Trading (10-31-2010)

As Jankovsky would himself say - Time Compression Trading: Exploiting Multiple Time Frames in Zero Sum Markets (Wiley Trading)  contains nothing new with respect to to trading - everything that can be said has been said; and has been said over and over again.

I think he tries a little too hard at times, but Jankovsky's method of delivery struck a chord with me.

'Time compression' is Jankovsky's term for what takes place before markets move. I would describe it as the convergence of personal opinion across multiple time frames (I don't recall a systematic definition of the term). The more opinions involved, the greater the compression and the greater the resulting spike/drop in price will be.  And that is the gist of his message: the market is not prices, the market is the process by which people come together in price. People, people, people. For the 'market' to exist, there has to be at least two people on each side of the trade. People will only enter or exit the market because they believe that it is in their best interest to do so, and to do so right now.This means that every trade, EVERY trade, is two opposing perspectives of what is happening or predictions on what will happen, coming together and acting on that perspective. We are all looking at the same information.

And 80% to 90% of us are losing.

Jankovsky suggests that:

'In all these cases, it is not the market that is preventing the traders from prospering but how they choose to participate. ... Until traders choose to look at things in a different manner and choose to participate better, they have only a small chance of ever gaining wealth.'

That is the emphasis throughout the book: winning traders are willing participants in the market - they choose how they will participate, and they choose to participate based on their observation of the market. By watching how the market behaves and understanding and realizing that it is the decisions people are making that is driving price behavior, they choose to participate with what is happening. They choose to participate in  high probability scenarios (there are enough of us losers to make the probabilities rather high). Winning traders maintain a sense of probabilities rather than certainties.

On the other hand, losing traders approach the market looking for certainty. They look at prices and try to evaluate what is happening and how they can profit. Their evaluation is based on price and is concerned with price (rather than understanding the underlying people dynamic). They wait for confirmation of a move. 'They lose perspective because they trust something other than themselves to find the trades for them.' After they are in the trade they constantly review every price change attempting to predict how far the price will go. They are focused on results rather than the choices they make to participate.

Jankosky continually stresses the fact that wins and losses come from a personal perspective - 'the way you choose to see things is how your urge to action is stimulated.' Understanding the true nature of the market frees me to participate - it enables me to observe the choices people are making and act accordingly. It is a shift away from price prediction to predicting the likelihood of people doing things. It is a focus away from 'What does this mean?' to 'What is happening?'

As I mentioned earlier, I don't agree with everything in the book (perhaps why Jankovsky is a successful trader and why I am still on the negative side), but Jankovsky managed to sever my personal stubborn insistence on somehow using price to predict price. He helped me to understand that nothing can predict price and that successful traders don't try to predict price, every moment in the market is unique, every trade in the market is a battle in two equally strong perspectives; he helped me to understand order flow: 'Understanding how the order flow develops and when it is ready to change is a different process from predicting prices. It involves an understanding of what motivates people to do certain things, how they behave when under perceived threat, what they value when placing themselves at risk, and what will change their minds and force them to liquidate.'

Scott shows me it can be done. Douglas lays out the game plan. Jankovsky pushes me over the edge.

Foolish optimism or a rock solid paradigm shift? Time will tell.

Trade well.