Time and Price

All investors buy and sell with the intention of making profit. They tend to monitor prices of asset classes and examine trends displayed by these price movements. Short term traders aim to benefit from price inefficiencies between cash and futures market, NSE and BSE, shorter and long term trends etc. Thus we tend to attach much importance to 'Prices' and their movements.
However there seems to be a fallacy attached to this argument. In today's Internet savvy world every one has the same information at the same time. Thus we may not be having any first mover advantage over other traders. We are seeing same charts in the same time frame. And those trading with high speed machines and software would have much greater advantage over our slower manual inputs. Therefore I feel that we should move away from 'Price specific trading and investing' and shift focus to 'Time specific trading and investing'. I shall explain how and why.

Events dictate sentiments and hence price fluctuations in stock markets. Events can not be predicted by anyone. One would never know when a stock would rise or fall by 20% etc using any software. However what we would certainly know is when major trends are changing. Major trends do not change with respect to a stock price or an index level. They change when macroeconomic scenario has changed or is perceived to be changing.

A look at HDFC Bank chart indicates the following.
The stock remained bearish for a long time from July 08 to March 09. Prices were drifting lower steadily. It corrected with the market sentiment. 1400, 1300 and 1100 were intermediate tops for the stock. Down arrow on the price chart indicates this trend. While this was happening the MACD started to rise slowly. The upside arrow indicates this trend. A keen observer of TA would notice this change immediately. Notice that prices were not important. What mattered was changes in the macroeconomic scenario. Finally at 'A', the stock started to rise on the back of bears short covering in March 09. It moved up above the MACD '0' line and has not looked back since then. Prices corrected again and retraced back to 1400. But there was good money to support it from there.

MACD captures the events and sentiment correctly. It attaches more importance to 'Time' than 'Price. While prices may vary, MACD above '0' line means that the stock is bullish and we are buying in 'Good times'. MACD below '0' line means stock is bearish and we are 'Selling in bad times'. One need not worry about prices on a daily basis.

Do back test this theory and write your feedback.

rgds
Vibhas