# Is T/A based on hope?



## wayneL (18 July 2006)

Don't get me wrong, I'm a techie to the core; but I notice 2 things about T/A.

1/ There are always different interpretations on the *same* chart.

2/ People select the appropriate analysis to suit their "hopefulness"

...and a comment. The chart doesn't give a fat rat's about our T/A, it will ultimately do what it damn well pleases.

I bring this up because I see a lot of analysis based on what people *hope* will happen.

.... you know what? Come to think of it, I see F/A's do precisely the same thing.

Thoughts?


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## Porper (18 July 2006)

wayneL said:
			
		

> Don't get me wrong, I'm a techie to the core; but I notice 2 things about T/A.
> 
> 1/ There are always different interpretations on the *same* chart.
> 
> ...




In my view, we as human beings need a reason to make a trading/investing decision.That is we need a reason to make a decision to buy or sell anything, whether it be stocks or a new car.

T/A is a valid definitive way to do this, and therefore we feel good when applying our "skills".

F/A is much the same, find an undervalued company with a low P.E.R and good growth prospects and we have our feel good reason to buy.

Let's take a look at the success rate of techies though, this ranges from high percentage winners maybe up to 70% to lows of around 20%.So I think the proof is in the pudding, using charts to predict (I know people say T/A isn't predicting) price action doesn't work particularly well.It does give us a valid reason to trade though.

Of course it isn't the buy or sell signals that make us profitable, it is the bit in between called money management.


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## wayneL (18 July 2006)

Porper said:
			
		

> In my view, we as human beings need a reason to make a trading/investing decision.That is we need a reason to make a decision to buy or sell anything, whether it be stocks or a new car.




Indeed.

I use T/A simply to apply some sort of logic for buy and sell signals. When I enter, I'm in hope mode just like anyone. But there is a logical exit (stop) close by; (or metamorphosis trigger in the case of some option strategies) and I know that mathematics will make me a profit over the course of many trades.... risk/reward/MM blah blah

I just find some of the technical posts interesting from a psyche perspective.

Cheers


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## pharaoh (18 July 2006)

Guys, a mate and I are going to start studying TA tonight, over a webex meeting.

Can yo suggest a couple of really good sites we can read through to get started.

thanks


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## sails (18 July 2006)

pharaoh said:
			
		

> Guys, a mate and I are going to start studying TA tonight, over a webex meeting.
> 
> Can yo suggest a couple of really good sites we can read through to get started.
> 
> thanks



Try this link to the ASX charting library.  The articles are fairly short and to the point...   http://www.asx.com.au/research/charting/library/index.htm


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## Milk Man (18 July 2006)

pharaoh said:
			
		

> Guys, a mate and I are going to start studying TA tonight, over a webex meeting.
> 
> Can yo suggest a couple of really good sites we can read through to get started.
> 
> thanks




I dont think you can go past investopedia for sheer volume of information. That said, if you want answers for more practical questions, youre already here!


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## MichaelD (18 July 2006)

wayneL said:
			
		

> I bring this up because I see a lot of analysis based on what people *hope* will happen.
> 
> .... you know what? Come to think of it, I see F/A's do precisely the same thing.



Simple human nature. The only part of a trade we have any control over whatsoever is the entry. Despite the fact that it is largely irrelevant, that's where most people will concentrate their efforts, simply because they *can*.


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## mit (18 July 2006)

wayneL said:
			
		

> Don't get me wrong, I'm a techie to the core; but I notice 2 things about T/A.
> 
> 1/ There are always different interpretations on the *same* chart.
> 
> ...




There's hope around individual trades but there is an edge in T/A taking advantage of market inefficiencies so in the long run you make money. I think the mistake people make is that they think that money management is all you need but you do need that edge.

MIT


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## sails (18 July 2006)

wayneL said:
			
		

> ...I bring this up because I see a lot of analysis based on what people *hope* will happen.
> 
> .... you know what? Come to think of it, I see F/A's do precisely the same thing...



I don't think it's the fault of T/A or F/A - rather that we don't like to be wrong so the human tendency is to "hope" it will come good again rather than apply risk management.  Both types of analysis gives rules and reasons to trade which should help provide consistency with entries and exits.

I've found one way around this is to work on the assumption that my T/A is no better than a coin flip which means risk management is vital for survival and exits are where the money is made or lost.


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## It's Snake Pliskin (18 July 2006)

> By wayneL
> Don't get me wrong, I'm a techie to the core; but I notice 2 things about T/A.
> 
> 1/ There are always different interpretations on the *same* chart.
> ...




Yes different interpretations because of the multitude of indicators applied to charts. There are those who believe in m/a`s, ew, etc.



> ...and a comment. The chart doesn't give a fat rat's about our T/A, it will ultimately do what it damn well pleases.




Which is why the markets cannot be an exact science. Past interpretation does not predict future action even if the numbers say so. 



> I bring this up because I see a lot of analysis based on what people *hope* will happen.
> 
> .... you know what? Come to think of it, I see F/A's do precisely the same thing.




Is it hope or belief? Or does belief represent hope? Interesting


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## It's Snake Pliskin (18 July 2006)

MichaelD said:
			
		

> Simple human nature. The only part of a trade we have any control over whatsoever is the entry. Despite the fact that it is largely irrelevant, that's where most people will concentrate their efforts, simply because they *can*.





I believe we can control the whole trade, but not the price itself. We can determine entries, the holding time and exits - though discretionary in nature. We set stops so that is control even if we don`t touch the button at the time of stopping out.


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## happytrader (18 July 2006)

I am of the belief charts don't lie, people do. Ever tried telling someone the truth when they didn't want to hear it? The usual reaction observed is instant denial to avoid facing up to a distasteful or harsh reality. One may also find themselves at the receiving end of a fist. If this is a persons habitual behaviour in a these situations, why would it suddenly change when trading?


Cheers
Happytrader


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## carmo (18 July 2006)

Must admit I have just read the book "Trendlines and Tripwires", but since then a have noticed there seems to be defined angles for certain stocks! Viewing charts in hindsite, it appears to be easy, but there is also a large degree of hope.


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## It's Snake Pliskin (18 July 2006)

carmo said:
			
		

> Must admit I have just read the book "Trendlines and Tripwires", but since then a have noticed there seems to be defined angles for certain stocks! Viewing charts in hindsite, it appears to be easy, but there is also a large degree of hope.




Yes reading the right side of the chart is very difficult.


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## Bobby (18 July 2006)

Snake Pliskin said:
			
		

> Yes reading the right side of the chart is very difficult.




Yes Snake its not that easy, but have you tried Telepathy with someone in the future yet ?   : 

Have Fun 
Bob.


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## MichaelD (18 July 2006)

Snake Pliskin said:
			
		

> We set stops so that is control.



Not the way I see it - setting a stop most definitely does not protect you against slippage which can be nasty if you cop a black swan event. Setting stop losses does, however, give one a false sense of control over the exit in that we feel we have control over the price at which we will close a position.

Fortunately, most of the time the illusion is close enough to the reality to not matter.

(GSLOs excepted)


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## It's Snake Pliskin (18 July 2006)

MichaelD said:
			
		

> Not the way I see it - setting a stop most definitely does not protect you against slippage which can be nasty if you cop a black swan event. Setting stop losses does, however, give one a false sense of control over the exit in that we feel we have control over the price at which we will close a position.
> 
> Fortunately, most of the time the illusion is close enough to the reality to not matter.
> 
> (GSLOs excepted)




A classic case of spin using quotes.  

what about the part in red that stated "the action of price itself".

Yes a false sense of control over the market, but one is in control of the trade from a trading plan perspective - that is taking it step by step. 

You are quite right.


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## It's Snake Pliskin (18 July 2006)

Bobby said:
			
		

> Yes Snake its not that easy, but have you tried Telepathy with someone in the future yet ?   :
> 
> Have Fun
> Bob.




No Bob have you?


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## weird (19 July 2006)

Hope ? First look at two basic emotions, Greed and Fear.


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## yogi-in-oz (19 July 2006)

weird said:
			
		

> Hope ? First look at two basic emotions, Greed and Fear.






Hi folks,

..... and, if you have any doubts about the value of the two emotions 
above with relation to your trading, just read the classical tales in
" Extraordinary Popular Delusions and Madness of the Crowds"
by Charles Mackay .....

..... a must-read for every trader !~!

happy days

 yogi


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## wayneL (19 July 2006)

yogi-in-oz said:
			
		

> Hi folks,
> 
> ..... and, if you have any doubts about the value of the two emotions
> above with relation to your trading, just read the classical tales in
> ...





Hehehehe, that's one I suggested a while back too


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## MichaelD (19 July 2006)

Snake Pliskin said:
			
		

> A classic case of spin using quotes.



 
Indeed - I can certainly see your perspective. Still my mindset simply works around the concept that after an individual trade is entered, the profit/loss outcome is unknown until the end of the trade.

We'll have to agree to...agree! (Just looking at things from different angles.)


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## Bobby (19 July 2006)

Snake Pliskin said:
			
		

> No Bob have you?




Greetings Snake,

Iv'e tried everything I can think up so far, & the indubitable fact is that the panacea of knowing what the right side of the chart is still eludes me   .

But the quest goes on !   

Have Fun
Bob.


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## Magdoran (19 July 2006)

sails said:
			
		

> I don't think it's the fault of T/A or F/A - rather that we don't like to be wrong so the human tendency is to "hope" it will come good again rather than apply risk management.  Both types of analysis gives rules and reasons to trade which should help provide consistency with entries and exits.
> 
> I've found one way around this is to work on the assumption that my T/A is no better than a coin flip which means risk management is vital for survival and exits are where the money is made or lost.





Hello Margaret,


So, what style of T/A do you use?



Regards


Magdoran


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## rub92me (19 July 2006)

Man is a pattern seeking animal, which is arguably how we have evolved so successfully. This might help to explain why we continue to think there is any meaning in charts and trends even if we are confronted by evidence to the contrary. Ever read 'Why people believe weird things', by Michael Shermer?


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## blinkybill (19 July 2006)

I don't think t/a is based on hope at all.

there are many traders who are very successful using t/a. the more skilled you are at it then obviously the better your chances of being profitable from it.

i get the impression that most of those who knock t/a either know very little about the concepts and techniques behind it or tried using t/a and failed at it for whatever reasons.

as a wise person once said, a bad tradesman always blames his tools  :


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## happytrader (19 July 2006)

A gift for those looking for a rapid behavioural change.
www.hamr.com 

Just be careful what you wish for.

Cheers
Happytrader


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## sails (19 July 2006)

Magdoran said:
			
		

> Hello Margaret,
> 
> 
> So, what style of T/A do you use?
> ...



Hi Mag, 

Mostly basic T/A techniques -  support and resistance levels derived from a mixture fib and fib extension levels, pattern targets, previous highs and lows, ranges, trend lines,  etc.  While they obviously rarely all come together at any one time, the more that line up at a price level the better.  I do also incorporate some time analysis mainly using calendar days and include some cycle analysis.  Changes in volume and price action are generally used for confirmation. I think that’s it in a nutshell!

Cheers,
Margaret


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## lesm (19 July 2006)

Seeing the topic is about hope, this article may be of interest:

Article that addresses the 'hope' aspect:
http://www.fibtimer.com/subscribers_historical_reports/060521_fibtimer_commentary.asp

From the article:
_"When we take a position in the market, whether bullish or bearish, we hope it will be successful. Hope can be such a powerful emotion, that when the same trading plan that told us to enter a position originally, reverses and tells us to exit immediately, our emotions may very well focus on the possibility that if we just hold on a bit longer, any loss may be erased." _ 

Cheers.


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## cuttlefish (19 July 2006)

I think TA works if applied with discipline.  

The biggest factor in any succesful trading strategy (TA, FA, Sun Spots) is to take the emotion out of it. So having the discipline to plan a trade prior to entry, execute to plan, and apply sound money management, without letting emotions get in the way, is probably at least 50% of trading success.

But the other key is to get the entries and exits right more often than wrong. 

Regardless of the particular TA technique used, it is difficult to refute the overall price action argument.  Prices do cluster around particular zones - and thats due the emotions of the people involved in setting those prices.  And they way that prices move out of and between those zones also gives a guide as to where emotions are moving to.

I'm not a novice to the sharemarket but I still find it very difficult to control the emotional side of things, and still get caught out with emotional trading/investing here and there.  

But I think a good TA (or FA) applies strict discipline in only entering opportunities that meet their strict, quantifiable entry criteria.  And it is after this that they can get emotional - not before.  But even then, pre-determining the exit criteria before entry is essential, and then sticking to it.

One thing I know is I don't have all of this under control - I battle significantly with emotions - a bit like someone knows how to lose weight but doesn't necessarily follow it.

I've been learning a bit about TA lately and see a lot of parallels between applying TA succesfully to applying FA succesfully. In particular patience is another essential emotion in successful trading.  I've always been aware of this with my FA approach but am also seeing that patience is absolutely essential in applying a TA approach succesfully as well.


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## Magdoran (20 July 2006)

sails said:
			
		

> Hi Mag,
> 
> Mostly basic T/A techniques -  support and resistance levels derived from a mixture fib and fib extension levels, pattern targets, previous highs and lows, ranges, trend lines,  etc.  While they obviously rarely all come together at any one time, the more that line up at a price level the better.  I do also incorporate some time analysis mainly using calendar days and include some cycle analysis.  Changes in volume and price action are generally used for confirmation. I think that’s it in a nutshell!
> 
> ...



Hello Margaret,


I like the sound of your approach.  Just looking at the chart patterns I think is the core of any good T/A, I’m in total agreement with you there.

You piqued my interest with this part though: 







> I do also incorporate some time analysis mainly using calendar days and include some cycle analysis.



The term “Calendar days” is music to my ears, as is “cycle analysis”...

You didn’t take much space in your post, but you spoke volumes to me (forgive the pun!).


Regards


Magdoran


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## Bobby (20 July 2006)

Wayne,

Let me be the first to congratulate you on harvesting comulative comments from the rabbits   
There are a few exceptions .

But well done regarding the mission.

Bob,.,


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## wayneL (20 July 2006)

Bobby said:
			
		

> Wayne,
> 
> Let me be the first to congratulate you on harvesting comulative comments from the rabbits
> There are a few exceptions .
> ...


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## Milk Man (20 July 2006)

There is definitely a large degree of hope in trading. No matter how well researched a method is there is always a chance that it will "blow up" as did the turtle traders method (apparently). I think the "hope" should, however, lie with the system in its entirity (sp?) as opposed to individual trades. 

I learned this lesson the hard way. Recently I had a run of a few losers and I was trying to pre-empt another. I saw a couple of trades were in a downtrend on a larger scale and as such I thought were unlikely to be winners. I exited these two positions early for about 2/3 a full profit. These pairs (I trade forex) then went on to break the trend-line and past my prior take profit order.

The way I believe to alieviate this act is to 'hope' that the system as a whole is a winner and NOT individual trades. Having stop-loss and take-profit in place probably helps, as does thoroughly back AND forward testing your system. Draw a line in the sand for how much portfolio loss you will take (good to know historical figures) and ARE comfortable with and go back to the drawing board if you fail. Good money management never goes astray either (see Nicks book). Congratulations if you managed to read through all that jibber-jabber!


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## cuttlefish (20 July 2006)

Bobby said:
			
		

> Wayne,
> 
> Let me be the first to congratulate you on harvesting comulative comments from the rabbits
> There are a few exceptions .
> ...




Ah sorry - I didn't realise the purpose of the discussion was for experienced TA's to smugly sit around patting each other on the back and giggling amongst themselves - how silly of me.

Will a few of these get me in the club: "   "

probably not     

Not being an expert on all flavours of TA but having some grasp of the basic principles, any maybe the odd year here and there of experience dabbling in the market, my observation is that a lot of TA's seem to get very carried away with all sorts of detailed analysis that doesn't necessarily give them much of an advantage over a simple approach.  

Instead of needing to know every variation of a pennant, flag, H&S, inverted triple whatsy doozy and the megiostaticalmanolithic indicator and double logarithmic twincam moving average, plus 90 different varations of a hanging man doji - simple observation of price action combined with the discipline to only enter when the signals are clear and the action is in your favour, and then exit to plan, is enough.

And thats because the market is not actually that complex - it is our own emotions that are complex.

Now where are those carrots.


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## Magdoran (20 July 2006)

cuttlefish said:
			
		

> Ah sorry - I didn't realise the purpose of the discussion was for experienced TA's to smugly sit around patting each other on the back and giggling amongst themselves - how silly of me.
> 
> Will a few of these get me in the club: "   "
> 
> ...



Hello cuttlefish,


I agree with you on the simplicity in looking at the market, and agree you need the discipline, and I kind of agree on one level that the market is actually “simple” (price either goes up or down), but in a way I kind of disagree with you…

I do think that successful trading is probably one of the hardest things to become consistent at.  Partly this is because of psychology, and when it comes to T/A a real trap is to read what you want to see into the charts.

Where I agree with you is the use of moving averages and other lagging indicators, which I think can actually obscure the trader’s ability to “see” the market.  And sure, emphasis on things like “head and shoulders” patterns can be traps too (I don’t think a lot of these patterns are much good to trade anyway, some limited use, but there are much better patterns to look at, that aren’t as obvious, but are much more reliable).

As for your comments at your opening, I’m fully with you there.  Even the best traders need to keep stretching, and there is always something new to learn, and newer traders need to openly express themselves to learn – how else are any of us to develop to our potential?

Regards


Magdoran

P.S. cuttlefish – there are actually some T/A approaches which can put the odds more in your favour – Margaret’s comments I think go to the heart of what effective T/A is all about – just my opinion.  Mag


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## Magdoran (20 July 2006)

Hello cuttlefish,


Rereading my comments above, I don’t think I expressed some concepts very well.  So...

While I agree with most of what you had to say, the key thing that occurred to me is that trading consistently is very hard, most people can’t do it. The question is, why is that.  Primarily it is because you have to get a number of things right.  In this thread we are focusing on T/A, hence T/A capability and emotion are key issues. 

While I agree on one level that on the surface the market is simple, I would argue that trading and T/A are not.  

Certainly being able to look “creatively” at the simplicity of a chart is important, but there is also complexity involved with this process.  This is because behind the “simple” price action are the multifaceted drivers which cause economic shifts which are often not easily identified or understood, or even available.  

Essentially we don’t have perfect knowledge, but often there are different approaches which can identify “clues”, and there are two levels of difficulty in this analytical process.  

The first one you quite rightly identify involves trading psychology when you said:



> And thats (sic) because the market is not actually that complex - it is our own emotions that are complex.




Very true, and that is a vital piece of the puzzle, fully agree with you here.


The second level of difficulty in trading (which I was raising in the last post) was with T/A itself, and recognising “clues”, and being able to assign probabilities and courses of action in a trading plan to limit risk, and identify potentially profitable patterns.  

This is not easy, and I would argue that the majority of T/A users are for one reason or another, not making the best calls they are capable of.  One reason you identify is an overabundance of questionable indicators, or overindulging conventional charting methods:



> my observation is that a lot of TA's seem to get very carried away with all sorts of detailed analysis that doesn't necessarily give them much of an advantage over a simple approach.




Fully agree with you here. It is in poor analysis and interpretation that many T/’s become unstuck.  Sometimes just looking at the simple things is often a good start, quite right.

The corollary of all this thought is the problem compounded by having both the propensity to emotionally impose a view, while using poor T/A.  Add to that a lack of money management, poor system, lack of discipline, and you have the recipe for a disaster, don’t you?

I agree with the psychology angle, I agree with the point regarding obfuscation by using poor T/A (either through a poor use of indicators or conventional charting approaches), but I would argue that there are rigorous T/A approaches which if used correctly can add to your edge in the market.  This of course must be used in conjunction with risk management, psychology, discipline etc.


Regards


Magdoran


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## cuttlefish (20 July 2006)

Magdoran, 

Thanks for the replies and for tolerating my slightly sarcastic post in response to comments from others.

I take your point - and can see what you are saying. I'm throwing the baby out with the bathwater by being critical of the various trading techniques - they are all tools and like all tools they only work if the tradesmen using them understands them well and wields them well, and in addition to the tools I've come across in passing I'm sure there's a lot of good tools out there, as you allude, that I'm not aware of.  (I'm probably getting comulative again ... yep I had to look it up   )

At some stage I'll be interested in learning about the time analysis side of things that yourself and sails and some others seem to make use of.

At the moment I'm focusing on other things - which is basically whether trading is worth even considering as a pasttime.  My approach in the past has been investment based on fundamentals, and lately I've been realising how comfortable I am with it vs the trading approach.  That being said, as I commented in the previous post, I'm also seeing where the similarities are emotionally between the two once one becomes experienced at it.   

I've been trying a variety of things lately, including revisiting some old mistakes that I should know to avoid, but making them in different ways  lol.  I suspect I'll be doing a mixture of both trading and investing in the future and am in the process of figuring out how mentally to separate the two because trying to invest and trade the one stock at the same time definitely doesn't work.


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## cuttlefish (20 July 2006)

Another point - I think in markets there's a time where one approach is better than the other - the top of speculative booms is a great time to trade as there is a lot of new money and emotional hype - just important to avoid getting caught up in it.  The bottom of bear markets is a fantastic time for value investors where you literally can buy money at half price.


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## wayneL (21 July 2006)

cuttlefish said:
			
		

> Ah sorry - I didn't realise the purpose of the discussion was for experienced TA's to smugly sit around patting each other on the back and giggling amongst themselves - how silly of me.




Cuttlefish,

In physics there are two types of systems, deterministic and chaotic. (apologies to fair dinkum physicists if I have oversimplified)

Financial markets are clearly a chaotic system. The shear volume and indeterminability of *all* the data makes it impossible to predict the exact market path into the future, although we can use information to create probabilities of a particular result, add MM etc and be very profitable.

When I started the thread, it was because I noticed a post, obviously by someone fairly new to T/A (nobody who has contributed to this thread BTW) who's opinion based on T/A, was clearly deterministic in nature... and obviously tainted by the persons position in the market.

Sometimes when I ask questions like the one I posed at the beginning of this thread, it is for people to examine there own beliefs without directly criticizing them. 

FWIW, most of the posts in this thread are great, but a couple need to be asked a similar question at some point in the future maybe... In most humble opinion.

But Bobby, probably having studied Socratic thought, saw through my purpose. I was busted   But I don't think any offence was intended, and certainly none on my part.

Cheers


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## michael_selway (21 July 2006)

sails said:
			
		

> Try this link to the ASX charting library.  The articles are fairly short and to the point...   http://www.asx.com.au/research/charting/library/index.htm




That is a great intro to TA 

thanks

MS


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## Magdoran (21 July 2006)

cuttlefish said:
			
		

> Magdoran,
> 
> Thanks for the replies and for tolerating my slightly sarcastic post in response to comments from others.




You’re welcome, and thank you for your ongoing thoughtful posts which I find well worth reading.



			
				cuttlefish said:
			
		

> I suspect I'll be doing a mixture of both trading and investing in the future and am in the process of figuring out how mentally to separate the two because trying to invest and trade the one stock at the same time definitely doesn't work.




You know, it is possible to do both, and at the same time.  But it isn’t easy at first.  You can have a leveraged major position with a long term time frame, and use this as a base to effectively “trade from” by using a range of hedging strategies, or trading strategies.  This of course depends on your personal goals and risk tolerance and knowledge levels, but I assure you, there are ways to do this – just something to consider.

By the way, in my world, T/A and F/A go hand in hand.  I’m primarily T/A orientated, but get very good F/A advice as often as I can.  In fact I work best with a good F/A ally doing the groundwork research while I do the precision work for timing and price points – this can work really well.  Maybe you have a gift for F/A, but knowing how T/A works can be an advantage...  perhaps go with your feelings...


Anyway, I’ll be out of the country for a few days, but I’ll try to answer any questions when I get back.


Regards


Magdoran


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## cuttlefish (21 July 2006)

wayneL said:
			
		

> FWIW, most of the posts in this thread are great, but a couple need to be asked a similar question at some point in the future maybe... In most humble opinion.




Well Wayne, I'm not sure I'm understanding everything you're saying there ... but I find it much easier to cop direct criticism and take it on board than having someone skirt around a subject, thats for sure.  

Now, being paranoid    I took Bobby's post to be directed at mine, because it was a couple of posts after mine. Now maybe he wasn't directing his comments at me - but I do note that I used the phrase 'predetermined exits' and you have just discussed the impossibility of predetermining market behavoiur.  What may have happend here is that my comment was misconstrued to thinking I meant it was possible to predetermine what the stock price was going to do after entry and then exit at that price - which of course it isn't, which is why its essential (to my mind) to have an exit _plan _ prior to entry.

As I've said many times I'm not a T/A but I'm assuming that when entering a trade a T/A does so because they believe there is a greater probability of the price doing one thing than another and they are betting in favour of the greater probability.  When I said having a predetermined exit strategy is important I didn't mean having a predetermined exit price, I meant having a plan for exiting the trade unemotionally - which is best done by putting the plan in place prior to entry because once entered emotions can take over and effect that exit plan.

The exit plan would need to cater for both the favourable and unfavourable outcomes, and it can include all sorts of twists and caveats, as long as they are unambigous ones so that once in the trade the plan can be executed unemotionally.

Now if Bobbies and your comments had nothing to do with my post then I've just babbled on a bit more lol.


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## It's Snake Pliskin (21 July 2006)

> Is it hope or belief? Or does belief represent hope?




Anyone?


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## wayneL (21 July 2006)

cuttlefish said:
			
		

> ...but I do note that I used the phrase 'predetermined exits' and you have just discussed the impossibility of predetermining market behavoiur.  What may have happend here is that my comment was misconstrued to thinking I meant it was possible to predetermine what the stock price was going to do after entry and then exit at that price - which of course it isn't, which is why its essential (to my mind) to have an exit _plan _ prior to entry.




There is a big difference between predeternined exits and predetermined market behaviour.

One says - if ===> then

There other says - the market "will"

The first one is good practice - if the market does this, then I do that.

The second one is shocked when the market blows up their scenario.

FWIW


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## Bobby (21 July 2006)

cuttlefish said:
			
		

> .
> 
> Now, being paranoid    I took Bobby's post to be directed at mine, because it was a couple of posts after mine. Now maybe he wasn't directing his comments at me -




Hello Cuttlefish,

No it was'nt directed at you, but when one is , you will sure know it   

Have Fun
Bob.


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## It's Snake Pliskin (21 July 2006)

Snake Pliskin said:
			
		

> Anyone?




If belief encompasses hope, to what extent does that render the trader useless when the trader has full belief in their analysis?

Feel free to discuss everone, don`t let WL`s socratic thoughts dissuade you from posting.


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## cuttlefish (21 July 2006)

Bobby said:
			
		

> Hello Cuttlefish,
> 
> No it was'nt directed at you, but when one is , you will sure know it
> 
> ...




heheh - I'm sure I will lol.


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## It's Snake Pliskin (22 July 2006)

Snake Pliskin said:
			
		

> If belief encompasses hope, to what extent does that render the trader useless when the trader has full belief in their analysis?
> 
> Feel free to discuss everone, don`t let WL`s socratic thoughts dissuade you from posting.




It seems a perennial question.


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## It's Snake Pliskin (11 August 2006)

Snake Pliskin said:
			
		

> It seems a perennial question.




I am even stronger with my conviction. Perennial!


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## Bobby (11 August 2006)

Snake Pliskin said:
			
		

> I am even stronger with my conviction. Perennial!




Good Evening Snake,

The problem with T/A these days is so many use it , that ambushes are easy to set because  the levels the rabbits are going to act on scream out  :bunny:  :bunny: 

Have Fun 
Bob.


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## It's Snake Pliskin (11 August 2006)

Bobby said:
			
		

> Good Evening Snake,
> 
> The problem with T/A these days is so many use it , that ambushes are easy to set because  the levels the rabbits are going to act on scream out  :bunny:  :bunny:
> 
> ...




Thank you Bob


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## hanover (14 August 2006)

The only way to profit systematically and consistently from the markets is to have a method – whether simple or complex – that locates, and exploits, a statistically significant (non-random) bias in price movements, beyond the point of overcoming costs. Of course it is possible to have a method of entries and exits that delivers such a positive edge, but not be aware of this underlying mathematical principle. I suspect that this is the case with many successful traders.

Proper sizing of positions is worthless if one doesn't have this edge. The best money management can achieve is to merely slow one's descent into bankruptcy. The same applies with psychology: if an edge from entry/exit method is absent, applying all of the discipline in the world is to no avail. The notion that trading is "all about mastering oneself" makes some tenuous assumptions.

The maxims "trade with the trend", "cut losses short" and "let profits run" all suppose that prices "trend" ( i.e. that rising prices will – on balance of probability – continue to rise, and falling prices will continue to fall), and can succeed only to the extent that this "trending" occurs. If, hypothetically speaking, price movements were a random walk, then there would be no technically based system capable of beating the markets mathematically, just as there is no system capable of beating the house at Roulette. Any winning streak, no matter how long its duration, would be nothing more than fortuitous, and such "luck" is not sustainable indefinitely.

So to answer the original question: "is T/A based on hope?" The antithesis to hope is definitive mathematical expectation. Given that, unlike casino type games of chance, market probabilities can not be calculated with mathematical accuracy, the best we can do is to evaluate a suitable historical sample of either price movements, or a trading record of wins and losses, and apply the appropriate tests of statistical confidence.

Regarding two analysts interpreting the same chart differently, it again comes down to the presence of a historically significant bias in the price movements, and the assumption that this will, in the immediate future, repeat itself with similar probability. So it is possible for both analysts to be "correct", in so far as it is possible to make statistical statements of correctness in a "game" where (as the disclaimer, even if used out of context here, so aptly states) "past results offer no guarantee of future performance".


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## Realist (14 August 2006)

Well done Hanover, I agree with you.

There's one thing you missed though.  Trading does require skill.  It is not a science and can not just be learned and practised to a set of rules (say like Blackjack systems) to achieve great results.

There is no set in concrete Trading methodology or system that consistently makes good profits, if there was everyone would use it of course.

The difference between a great trader and one that loses money is not just the methodology but the Trader themselves.     

Common sense, feel for the market, fundamental knowledge, luck, discipline, quick thinking, breaking rules when necessary, etc. etc. all play a part.


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## swingstar (14 August 2006)

Realist said:
			
		

> Common sense, feel for the market, fundamental knowledge, luck, discipline, quick thinking, breaking rules when necessary, etc. etc. all play a part.




A technical edge wouldn't include fundamental variables, since backtesting (whether paper trading or mechanical) the idea wouldn't include them. If you start to include them trading live, then you defeat the purpose of ever testing your edge in the first place, and it then becomes a useless exercise. 

Including variables that you didn't include in backtesting would only increase stress and probably analysis paralysis. 

Discipline is about all you need once you have a tested edge. This includes SEPARATING new ideas from live trading, something I've fallen victim to.


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## NettAssets (14 August 2006)

Realist said:
			
		

> Well done Hanover, I agree with you.
> 
> There's one thing you missed though. Trading does require skill. It is not a science and can not just be learned and practised to a set of rules (say like Blackjack systems) to achieve great results.
> 
> ...




Of course Realist has all the qualifications to teach trading - like most black box salesmen he don't do it , he don't believe it can work, and will only pay tax on a real job.


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## Realist (14 August 2006)

NettAssets said:
			
		

> Of course Realist has all the qualifications to teach trading - like most black box salesmen he don't do it , he don't believe it can work, and will only pay tax on a real job.




Haha, I've never professed to be able to teach Technical trading.

But I know enough about it to know it's pro's and cons. And therefore comment on it.  And knowing its Cons deters me from doing much trading.

It's like playing Blackjack, I know the systems, I know how it works, and I do it for fun once in a while, cause I know the Cons outweigh the Pros.

I have traded a few stocks recently, not sold any yet though. Hahaaa.

I just can't bring myself to sell something easily, its against what I believe in.

I'm holding as trades CQT, FDL, MTN, HCY and NEL.

I've made more money from MRE recently than them combined though, MRE was a fundamental investment.

I believe people can make money from Trading of course, I just don't think over the longterm after all expenses they make as much as diversified value investing and holding.


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## swingstar (14 August 2006)

Realist said:
			
		

> I have traded a few stocks recently, not sold any yet though. Hahaaa.
> 
> I just can't bring myself to sell something easily, its against what I believe in.
> 
> I'm holding as trades CQT, FDL, MTN, HCY and NEL.




That's not trading, that's simply buying some stocks, and you've now let them get away. Trading would be cutting your losses, since the trade didn't go as planned. 

I hope you haven't risked much.


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## Bobby (14 August 2006)

swingstar said:
			
		

> Discipline is about all you need once you have a tested edge. This includes SEPARATING new ideas from live trading, something I've fallen victim to.



 Like that state'ment Swingstar, I still can't help doing it   

Bob.


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## Julia (14 August 2006)

Realist said:
			
		

> Well done Hanover, I agree with you.
> 
> There's one thing you missed though.  Trading does require skill.  It is not a science and can not just be learned and practised to a set of rules (say like Blackjack systems) to achieve great results.
> 
> ...




Wow, Realist!  Now you're an expert trader as well as a devoted fundamentalist.  Now if you can just turn your expertise to tax, self managed super funds, superannuation in general, managed funds etc etc......., we will all become redundant on this forum.  

Just don't know how you cope with knowing so much and being so good at everything.

Julia


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## CanOz (14 August 2006)

She's got you there mate! LMAO!


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## Bobby (14 August 2006)

Julia said:
			
		

> Just don't know how you cope with knowing so much and being so good at everything.
> 
> Julia



 Greeting Julia,

Although I do agree with your post, our realist is funny     we all know He shot his load long ago ! 

Bob.


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## Realist (14 August 2006)

Julia said:
			
		

> Wow, Realist!  Now you're an expert trader as well as a devoted fundamentalist.  Now if you can just turn your expertise to tax, self managed super funds, superannuation in general, managed funds etc etc......., we will all become redundant on this forum.
> 
> Just don't know how you cope with knowing so much and being so good at everything.
> 
> Julia




Sadly these are not my original ideas, they are Ben Graham's. 

And yes for self managed super funds, investing, and managed funds you should use the same theory.  Buy wise and hold. And by doing that you fix the final problem, tax, because there is no tax!! 

I hope you held WDC Julia. It is up 14.7% including dividends in the past few months.

But then again you've stated you're not happy with such small returns, pity.

What should one do for greater returns in your opinion?


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## swingstar (14 August 2006)

Realist said:
			
		

> Sadly these are not my original ideas, they are Ben Graham's.




Out of curiosity, did Graham invest during the Great Depression? If so what were his results?


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## It's Snake Pliskin (14 August 2006)

swingstar said:
			
		

> Out of curiosity, did Graham invest during the Great Depression? If so what were his results?




He probably bought perceived value that was, in hindsight, expensive buying.

We all know about Livermore though. :beat:


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## hanover (15 August 2006)

Hi Realist

Thanks for your reply.

IMHO, there's nothing wrong with the view that trading is an art that requires skill, judgement, discretion, and breaking the rules under appropriate circumstances. But as an analyst/programmer, I would argue that if a certain situation(s) require some kind of judgement, or deviation from the existing set of rules, and that it can be shown that such a variation would increase profitability in a statistically significant manner, then there is a case for the rules to be modified to accommodate it. This might necessitate complexity of definition, and coding, but it means that there is no reason why the system can't remain 100% mechanical. Going through the discipline of defining a rule clearly, and establishing that it has statistical validity, is a valuable exercise. 

My view is that psychology need not become an issue in trading, but that we unnecessarily make it so. Psychology resolves itself to discipline – having the courage to "pull the trigger" when the rules deem it profitable, and the patience to stand aside likewise. If one has the confidence that, statistically, one is making the best possible decision at every point, and that deviation from the rules will theoretically result in inferior profitability, then there is no incentive to deviate. The problem with discretionary actions is that they can become gradually more subjective, to the point where hunches and guesswork take over. Rather than trading what the chart is saying, one trades how one thinks and/or feels, and will somehow find "justification" in the chart for doing so.

A second possible reason for deviation from the rules is position sizes that are too high. IMHO positions should be sized according to emotional tolerance, even if this is results in smaller positions than dictated by any "percentage of total capital" type rule. When one starts to become concerned about the dollar amount actually being won or lost, emotional detachment is being compromised.

Of course we know that the market can do anything that it wishes, and that, with price movements being driven by emotional rather than mathematical considerations, probabilities can not in reality be calculated. But if statistical confidence levels give one the confidence to trade according to one's clearly defined plan, then they are invaluable for that reason alone. 

Best wishes
David


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## It's Snake Pliskin (15 August 2006)

hanover said:
			
		

> Hi Realist
> 
> Thanks for your reply.
> 
> ...




Hi David,

Thanks for the comments. Have a look at the blue and red sections.

Snake


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## It's Snake Pliskin (15 August 2006)

Realist said:
			
		

> What should one do for greater returns in your opinion?




Why not follow Graham and try some trading on the side?  

Go time machine style. It is the holy grail!


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## Bobby (15 August 2006)

Snake Pliskin said:
			
		

> Hi David,
> 
> Thanks for the comments.
> Snake



I'll second that Snake, they were excellent !
Top post David   .

Bob.


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## ducati916 (15 August 2006)

Kahneman et al showed that human psychology [in aggregate] sought minimisation of loss, over and above the seeking of profit.

Viz. the psychology registered greater pain, on a loss, than pleasure on a win.
This was also the central credo of Game Theory, that the correct *rational* strategy was one of *not losing* rather than trying to win.

When linked to probability studies, the following was calculated;

Example;
An investor who can earn a return of 15% in excess of the Treasury rate, with 10% volatility. Calculated via standard deviations;

Probability of making Money
Scale...................................Probabilit y
1yr.........................................93%
1Quarter.................................77%
1month...................................67%
1day......................................54%
1hour.....................................51.3%
1min......................................50.7%

In the short-time frames, it is a 50/50 proposition, but stretched out to the longer time frames, the probabilities rise very high.

The longer time frame, is generally associated with the *investor* rather than the trader, although that is inaccurate as longer term trend following systems such as TT will exceed that timeframe.

What does become apparent however is this;
If, loss, effects a negative psychological reaction due to the aforementioned greater pain due to a loss, you will by trading short-time frames build up a lot of psychological damage due to the lower probabilities of success.

This aversion to the psychological pain, will affect function of the decision centres within the cortex that are vital for efficient and unbiased processing of information, thus exacerbating the breakdown of optimal *rational* functioning, and the change to *emotional* decisions.

Thus, in a chart, you no longer look at it in a rational manner, you look at it in an emotional mind-set, looking to minimise further losses.
This is the path that erodes, and eventually destroys discipline

jog on
d998


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## It's Snake Pliskin (15 August 2006)

Good post Duc!

Why is it that most focus their psychology on losses, or, negative moves rather than positive moves or wins?


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## Realist (15 August 2006)

swingstar said:
			
		

> Out of curiosity, did Graham invest during the Great Depression? If so what were his results?




He went basically bankrupt.


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## Realist (15 August 2006)

Hanover, it seems that you are treating Trading as an exact science.

Trading is not a science, and here's why...

If there was an exact mechanical or automated trading system that made money then people would use it, infact everyone would use it.

Chartists have been around in plentiful numbers for many decades now, Ben Graham was commenting on how they affected the market in the 1940's.

The very fact that not everyone is using the same system and not everyone is making money is testament to the fact that there is no one proven system that works. And it is testament to the fact that if there was a proven system that always worked in the past then as more people use it the less success the system would bring.

Trading is an art. It requires human intervention, human interpretation, judgement and skill. There is no exact way to trade. If you are using the exact system as others then you are competing on buying and selling at exactly the same time, and that creates slippage and bidding wars that would eventually mean your method of making money no longer works.

Infact as more people use one system others use that to their advantage, I'm sure some institutions spot a good company they want to buy, then deliberately pull down the stock price to initiate stop losses then get in the stock cheap when all the traders have been stopped out and the price has plummeted.   No trader will then touch the stock cause its chart looks terrible, then the investors jump in and hold happy in the knowledge they got a bargain.

Some of you traders will have been done by this trap and never even known about it?  Why - cause you are all too predictable.


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## Ageo (15 August 2006)

Realist said:
			
		

> Some of you traders will have been done by this trap and never even known about it?  Why - cause you are all too predictable.




Stop Hunts? market manipulation at its best. And then once your stopped out you see the price boom into your direction but with no trade on.

But there are ways to overcome this.


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## Realist (15 August 2006)

Ageo said:
			
		

> Stop Hunts? market manipulation at its best. And then once your stopped out you see the price boom into your direction but with no trade on.
> 
> But there are ways to overcome this.





How, what can you do?


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## Ageo (15 August 2006)

Realist said:
			
		

> How, what can you do?





well usually when people place there trades there stops are near key support/resistance levels. The best thing to do is try and place your stops at least 10 or so pips away (the more the better of course, but it has to comply with your position sizes) that way you usually get missed. But of course there are times where you cant help it but get in the way.

Thats what i do to avoid getting stopped out and it works most of the time.


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## Realist (15 August 2006)

Ageo said:
			
		

> well usually when people place there trades there stops are near key support/resistance levels. The best thing to do is try and place your stops at least 10 or so pips away (the more the better of course, but it has to comply with your position sizes) that way you usually get missed. But of course there are times where you cant help it but get in the way.
> 
> Thats what i do to avoid getting stopped out and it works most of the time.




Excellent. Smart Move.

That is an example of someone thinking about their trading. Not just doing things mechanically or according to a system!!  And deliberately doing what others don't.

If you do exactly the same as everyone else, you can not succeed.


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## swingstar (15 August 2006)

Agreed Ageo... always a good idea to put your stops above (short) or below (long) round numbers. Even if you do get stopped out though, if the stock doesn't finish low or high in the opposite direction, you can always get back in.


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## Ageo (15 August 2006)

swingstar said:
			
		

> Agreed Ageo... always a good idea to put your stops above (short) or below (long) round numbers. Even if you do get stopped out though, if the stock doesn't finish low or high in the opposite direction, you can always get back in.




Thats right Swingstar,


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