JSParticipant
Master
Using a time frame implicitly represents price as a function of time…
In other words, time becomes the independent variable against which price is plotted…
But is price really a function of time?
From an economic perspective, price is not determined by time itself. Instead, it emerges from the continuous interaction between supply and demand in a free market. Time does not cause price changes; it merely provides a chronological order in which market events occur.
If price is fundamentally a function of supply and demand rather than time, then an important question arises: Is a time-based chart the most appropriate representation of market behavior, or is it merely a convenient projection of a more complex underlying process?
Time-based candlestick charts are undoubtedly useful because they provide a standardized and intuitive view of price evolution. However, they also impose a temporal structure on a market whose dynamics are fundamentally event-driven. This raises the question of whether traditional time charts reveal the true nature of the market or whether they create an illusion by suggesting that time, rather than market activity, is the primary organizing principle.
I think time is a convenient projection of a more complex underlying process.
Events are usually driven by the news that are released at a predefined time. Differentiating between two timeframes can be used to get rid of the noise due to some events, so that no matter if some news at 09:00 mafe the price fall, later news may cause a pullback or even a rise, thus using a larger timeframe, such as Daily, may help ignore those events to focus on the opening and closing prices.
Any tick produced is the result of an event which has been the source for a trader’s action. We may group them by time (as we mostly do) or use any other method: tick, renko charts etc…
The answer to the question of whether traditional time charts reveal the true nature of the market or whether they create an illusion by suggesting that time, rather than market activity, is the primary organizing principle is, in my part, that WE naturally use time as a measure:
- how long was that surge?
- when will a retracement occur?
while asking:
- how many ticks dit that surge last?
- in how many ticks will a retracement occur?
is not so natural.
Any trader may choose to use time or any other measure, though, for the most part, indicators usually rely on time for their calculations.
JSParticipant
Master
Thank Roberto…
It seems we actually agree that time-based charts are convenient projections of a more complex underlying process…
That underlying process is the continuous interaction between supply and demand—that is, between buyers and sellers…
From my own experience, algorithms based on supply and demand tend to be more robust, more stable, and less risky than algorithms that rely primarily on time-based representations of the market…
That is precisely why I started questioning whether time should be considered the fundamental independent variable in market analysis…
JSParticipant
Master
Retail traders keep entering this battlefield, despite the signs at the entrance:
“Entering this battlefield is entirely at your own risk, the expected casualty rate is between 70% and 90%.”
And to make matters worse, retail traders are handed weapons equipped with an “illusion” scope…
