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ducati916 said:
Is chart reading an edge?
Click to expand...
Captain_Chaza said:
Charting / Technical Analysis is merely an Attempt to "Follow the Money"
All the rest is like a Dog's breakfast to me
Click to expand...
DaveTrade said:
Charts play a big part in my way of trading, in my case I rely heavily on charting
Click to expand...

@ducati916 the answer to whether chart reading provides an edge depends on the trader's skills and experience as @DaveTrade has commented. Some traders feel that chart analysis can provide insights into market trends and patterns, giving them a competitive advantage when making trading decisions.

Others, however, contend that chart analysis is subjective and prone to interpretation biases, and hence may not provide a dependable market advantage. Finally, the effectiveness of chart analysis may be determined by the trader's ability to accurately comprehend and implement it in their trading plan, and as @Captain_Chaza remarked, "charting is merely an Attempt to Follow the Money" which makes perfect sense to me.

Skate.
 
"Trading for Beginners - Skate's Practical Guide to Profitable Trading"
A daily series of posts aimed at those just starting out on their trading journey.

39. Trading for a profit
Profitable trading is a difficult but rewarding endeavour that involves a combination of skills, knowledge, and dedication. While markets can be volatile and irrational at times, traders can utilise methods and techniques to discover opportunities and manage risk in a disciplined and informed manner.

The first step towards making money trading is to stop trying to predict every market move and instead focus on discovering opportunities in a methodical and disciplined manner. This requires a thorough grasp of your trading objectives, risk tolerance, and trading strategy. You can improve your skills and obtain a better understanding of the markets by focusing on a specific trading method or technique.

Traders need to employ a number of tools and approaches to discover opportunities, such as technical analysis, and quantitative modelling. Technical analysis is the process of examining charts and other market data to find trends and patterns that can be used to make trading decisions. Quantitative modelling is the process of identifying patterns and trends in market data using mathematical algorithms and statistical analysis.

Successful traders build emotional intelligence, self-awareness, and the ability to manage their emotions in the face of market turbulence and uncertainty. In addition to these techniques, traders need to remain calm and objective even when markets behave in an unexpected manner. Traders who can avoid the temptation of making rash or emotional decisions will stay in the game longer than a trader who doesn’t.

The keys to making money trading requires having a solid trading plan, sticking to your strategy, and managing risk in a disciplined manner. This includes having a specified conditional buy condition and a precise exit strategy.

A conditional buy condition is a set of requirements that must be met before initiating a trade, whereas an exit strategy is a plan in place for when to exit a trade, whether for profit or to minimise losses. Risk management involves the use of trailing stops, stale stops, position sizing, and take-profit stops to help reduce the impact of losses.

Traders can reduce emotional decision-making and boost the likelihood of trading success by adopting a well-defined trading plan. While there is no assurance of trading success, having a well-defined trading plan and strategy in place can assist traders increase their chances of overall success.

Sticking to a sound trading plan and strategy, while managing risk in a disciplined manner are the keys to making money trading. You may boost your chances of success and reach your financial goals by constantly improving your skills and knowledge, remaining disciplined and focused, and responding to changing market conditions. Responding to changing market conditions rather than “reacting” gives you time to think.

Skate.
 
There is always someone wiser than you
Those who speak the most confidently are not always the wisest, even those who appear "wise" may be talking nonsense, that's why everything you read or hear needs to be qualified. Even the wisest of us have blind spots and we all have potential for improvement. One trader doesn't know everything, no matter how smart they appear to be. Wisdom, insight, and information are typically held by numerous minds rather than a single individual. We all have the potential to learn when we stop and listen to alternative views and perspectives. Two heads are better than one and it's for this very reason comments are always welcomed and appreciated.

Although the YouTube video is a joke
There is nearly always someone who understands a topic better than anybody else.


Skate.
 
Losses and drawdowns are unpleasant for any trader
Losses and drawdowns are painful experiences for any trader and can lead to emotional decisions that jeopardise their long-term financial goals. However, limiting drawdowns can assist in limiting behavioural blunders and improve trading discipline. Traders are less inclined to make rash decisions if their portfolio value remains stable.

Limiting drawdowns
To limit drawdowns, traders should devise a strategy that aids in risk management, capital preservation, and discipline. This not only prevents catastrophic losses but also allows traders to rotate their positions and seek out the next profitable opportunity. Reducing drawdowns is an important trading tactic because it encourages a sensible and disciplined attitude, which raises the likelihood of long-term financial success.

Skate.
 
"Trading for Beginners - Skate's Practical Guide to Profitable Trading"
A daily series of posts aimed at those just starting out on their trading journey.

40. Fear
One of the most powerful emotions that might influence trading behaviour is fear. Human emotions play an important role in our decision-making process, and they can influence our decisions in unexpected ways, whether it's fear of losing money or fear of missing out on making money.

FOMO, or "Fear Of Missing Out," is one example of how emotions can influence our behaviour. When traders believe they are missing out on possible market profits, they experience a regretful sensation. As a result of FOMO, traders may make rash or unwise decisions, which might enhance market volatility and uncertainty.

While anxiety is a natural reaction to uncertainty and risk, it can be counterproductive to trading success. Fear can induce traders to make irrational decisions, such as buying or exiting positions too early or too late. This can result in lost chances or financial losses.

Successful traders understand how emotions can influence market behaviour and work to improve their emotional intelligence and self-awareness in order to handle their emotions and biases in a controlled manner. Traders can increase their capacity to make informed, logical decisions in the markets by remaining focused on their trading strategy and avoiding rash or emotional decisions.

It's crucial to remember that the fear of not making enough money is a potent motivation just as much as the fear of losing money. This fear can manifest itself in various ways than the fear of losing money, yet it can still have a strong influence on our judgement and send traders in unanticipated directions.

Another important aspect of successful trading is risk management, which can assist in lessening the impact of fear on trading decisions. Position sizing can be used to minimise possible losses and manage risk.

Experienced traders understand that losing money is a part of the trading process and that risk management and remaining calm under pressure are critical for long-term success. While trading can be difficult and often unpredictable, obtaining the skills and information required for profitable trading is a steep learning curve.

Long-term trading success requires the ability to learn from setbacks. Traders can grow more confident and disciplined in the markets by analysing failures and using them as a chance to enhance their trading and decision-making processes.

Few people are able to consistently succeed over the long run in this hard and frequently unpredictable world of trading. This is in part because developing the abilities necessary for profitable trading need a high learning curve, and adopting the right psychological perspective can be challenging.

To summarise, fear is a natural emotion that can influence trading behaviour, but it does not have to be a hindrance to success. Traders can manage their concerns in a controlled manner and boost their chances of making educated and profitable trading decisions by growing emotional intelligence, practising risk management, and learning from setbacks.

Skate.
 
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Chart analysis: all the below chart the same ticker: GDX driven by the same data.



The short point is that if there was any quantifiable advantage to chart analysis, it would dominate. Essentially chart analysis is predicting the future, which to date is still impossible.

What charts allow is for the trader to use a visual aid to articulate trade management.

Looking again at Mr Skate's backtested results, applying the myriad of indicators (another subject entirely) the results are still 50:50.

If you think that there is a true edge in charts, you are mistaken.

jog on
duc
 


The System Analysis Project (SAP)
This project is designed to complement the series of daily posts with a practical example of how easy it is to trade systematically taking only minutes per week. I'll post some self explanative screenshots to display the power of Amibroker. Amibroker allows you to swap dates, periodicity, and index with a few mouse clicks. The charts display information about the position with notations to display the entry and exit points with notations. The charts below display a process that's simple and effective.

The [Recent Files] shortcut is placed on the top menu bar
The APX file is important it is like the rule book that sets all the programmed parameters. The analysis project file (.apx extension) is a human-readable self-explanatory file that includes all settings and formulas needed in a single file that is required to run the analysis. The single APX file instructs what the Amibroker engine has to do.




# Selecting the strategy (apx) file
Once selected it will populate the formula and settings that have been pre-selected and saved so that each time the strategy is selected it says consistent between different computers




# Exploration Analysis Buy and sell signals
I use the "Exploration Analysis" to generate the buys and sell signals with the information in the same order for submitting those orders to CommSec. Each heading of the analysis report should be self-explanatory.




# Amibroker also has a Backtest Analysis
Some traders prefer the "Backtest Analysis" over the "Exploration Analysis" as the backtest analysis only reports information on the positions in the portfolio whereas the "Exploration Analysis" generates all the raw signals whether they are included or not in the portfolio.




# Charts of a buy and sell notations
The arrows and notations speak for themselves. The first chart is a buy-for (KZA) that was short-lived. The next chart is a sell-for (LAU)







# Same strategy with a loss
(STX) failed to follow through and was sold for a loss. The uniqueness of this strategy ensures position don't tie up capital when they fail to perform as expected.



Skate.
 
Apologies for the fuzziness of the video
The uploaded video had to be compressed to meet the upload limits. In my last post, I uploaded a few screenshots to demonstrate the ease of trading systematically.

No sound
It's unfortunate that sound couldn't be included in this short (2:35sec) video as it would have been easier to lead you through the procedure rather than just reading along.

Recent Files relocation
The relocation of the RECENT FILES to the top menu bar makes switching between strategies quick and easy. When you select the strategy (APX) file, all of the preset settings are loaded, allowing for consistency when swapping between computers.

Periodicity and date picker
If you run the exploration analysis with the wrong dates, nothing will be displayed. The report is generated after changing the dates and using the "FROM-TO" date picker.

Backtest report
The backtest report is detailed, allowing you to see at a glance whether the strategy is suitable for trading live on historical data. If the periodicity for the strategy selected is incorrect, a warning notice alerts me to adjust the time period of the backtest.

Changing strategies
The transition from the SAP Strategy to a modest $20k PANDA Strategy is seamless, using the "Recent File" shortcut on the top menu bar. After running an analysis the information displayed is easy to understand as each column has its own tab description that is self-explanatory.

This short video can be expended to full scree mode
Demonstrates how little time is involved in generating buy and sell signals as well as backtesting. Swapping between strategies, dates, and periodicity is as quick as a mouse click. Personally trading this way couldn't be any easier.

View attachment Studio_Project_V1.mp4

Skate.
 
ducati916 said:
If you think that there is a true edge in charts, you are mistaken.
Click to expand...

@ducati916, if I may play the devil's advocate. I know of one trader who has had success utilising chart analysis as a primary trading technique. This trader employs 5-minute charts and conducts many trades per night, and has a hold time measured in minutes. He's been doing it for twenty years as a full-time trader and he has said that the hours aren't great, but the pay is.

It is crucial to note, however, that this trader's success is most likely due to a mix of variables, including his experience, competence, and trading plan. He may have devised a trading strategy that includes chart analysis as well as other tools and elements such as risk management and market news.

That said, chart analysis does not always provide a complete view of the market, and other factors and events can have a substantial impact on market movements. While chart analysis is not a perfect method for market prediction, it can provide useful insights into trading when combined with other indicators. As a result, traders should utilise chart analysis with caution as part of a comprehensive trading strategy that considers other factors that can influence market movements.

It's also worth mentioning that some traders believe chart analysis isn't a good way to predict market movements. As with any trading method, traders should extensively test and analyse the efficiency of chart analysis before implementing it into a trading strategy. While chart analysis is not a failsafe, traders like the one I cited have found success using it as part of a comprehensive trading strategy.

In conclusion, I believe it's critical to approach chart analysis with a balanced mindset and to utilise it as part of a bigger trading strategy that considers other elements that can influence market movements.

Skate.
 
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What I would be interested to know is: of his last 1000 trades what % were winners, what % were losers and what was the R/R of his trades.

I can point to a number of traders who have a 95%+ win expectation with a 5:1 R/R and oh yes, they no longer trade as they blew themselves up.

That this chap is 20yrs in the game could mean: (a) that he is skilled, (b) he is an example of the turkey problem. On the information provided, he could be either.

Changing the subject slightly:



An example of variability in markets.

Do the price charts of your chosen exposure accurately measure both variables?

jog on
duc
 
ducati916 said:
That this chap is 20yrs in the game could mean: (a) that he is skilled,
Click to expand...

@ducati916, it is possible to conclude that the trader in question has extensive expertise in this field, having worked as a full-time trader for the past 20 years. This indicates that he has most likely established a good skill set and knowledge foundation that allows him to make sound trading selections. Then again he might be the exception to the rule

Furthermore, the fact that he just purchased 5 investment properties suggests that he has likely attained a level of financial success as a result of his trading operations. It is crucial to realise, however, that trading success is not assured, and there are always dangers involved for those just starting out

In conclusion, while the trader had outlined his setup, it was tough and nearly impossible for me to keep up with the setups moving so quickly.

Skate.
 
ducati916 said:
The short point is that if there was any quantifiable advantage to chart analysis, it would dominate. Essentially chart analysis is predicting the future, which to date is still impossible.
Click to expand...
Charts help me by showing me what a market is doing now and what it has previously done. Information from reading the chart adds value to other information related to the market and helps identify possible support and resistance price areas to pay attention too.
ducati916 said:
What charts allow is for the trader to use a visual aid to articulate trade management.
Click to expand...
100% agree with this statement.
ducati916 said:
If you think that there is a true edge in charts, you are mistaken.
Click to expand...
Yes there is no edge in the charts, your edge can be different things depending on how you trade but charting is just a tool to give additional information about the market.
 

The issue isn't really whether he has skill or not. I accept that he is an exceptional trader. The issue is his win/loss ratio and his R/R. Anything under a W/L ratio of 100% still allows for a loss that goes out of control. The next issue is the R/R. If this sinks below a 1:1.5 there can be issues, even with a very disciplined trader. A W/L of 50% with a R/R of 1:1 is a losing proposition over time.

As a day-trader, his 'edge' will likely reside in tight discipline, time of day, position size, scans of set-ups, not trading during Fed announcements etc, avoiding earnings stocks, no overnight risk and a few others. Even intra-day there can be flash-crash, trading halts, fast moving price, liquidity vacuum, which can escalate an accepted loss into a larger than expected loss.

Not to mention the mental grind day-in-day-out of dealing with that risk.

From what you say, he has taken money off the table and placed it elsewhere. Wise. His risk of ruin is lower.

But more generally, the higher the W/L % the lower the R/R. As already stated a W/L at 95% may carry a R/R of 5:1 or worse. This is generally referred to as picking up pennies in front of an approaching train. This has an almost guaranteed outcome of a blow-up.

Mechanical systems or discretionary systems that are in the market for overnight holds assume increased risk of adverse price movement against the position.




Of course, the most extreme example to date. Now I wasn't trading at this time, but reading the histories, you couldn't exit even if you wanted to...there were no trades, the prices just went lower in major Dow stocks.

This is the risk of ruin.

Your trading plan requires an exit if X occurs. There is a problem if X occurs and you cannot execute an exit.

So a trader has a hard stop loss at say 1ATR. The market or stock experiences a flash crash. You will not be exited at 1ATR it might be at 10ATR. This is the risk of a hard stop. You decide no hard stop, a mental stop. Market crashes...it will come back, it's a flash crash.

Now it might be just 1 stock or it could be market wide and the entire portfolio. If you are 100% of your portfolio in the market, undiversified ie. long only (no short positions) this is a problem. If you have had a good winning streak and compounded your position size, this is a problem.

The trading plan must have contingencies for risk of ruin. You cannot allow a 100% blow-up. Otherwise you are out of the game and back to square 1 or even worse if you are highly leveraged. You may be out full stop.

The plan must take account of the fat tails.

jog on
duc
 
"Trading for Beginners - Skate's Practical Guide to Profitable Trading"
A daily series of posts aimed at those just starting out on their trading journey.

41. Securing our financial future
Many of us want to safeguard our financial future, and it goes without saying that money is an important factor in reaching this aim. However, financial stability entails more than simply amassing cash. It also necessitates prudent money management and judgements that are in line with our long-term financial objectives.

Setting financial goals is an important step toward protecting our financial future. Having a clear knowledge of our financial goals and developing a strategy to reach those goals can help us stay focused and motivated to make healthy financial decisions.

Our way of life might have a big impact on our financial security. It is critical that we manage our expenditures wisely, and responsibly, to avoid excessive debt, and prioritise our financial goals ahead of our short-term pleasures. In order to safeguard our financial future, it's critical to put the needs of our family first and adopt a proactive strategy for obtaining financial independence.

It's vital to remember that our financial journey will be determined by the decisions we make along the way. Effective financial planning needs long-term thinking and decision-making that is consistent with our long-term financial goals. We must resist the temptation to make short-term decisions that put our financial stability at risk.

To summarise, protecting our financial future requires a proactive approach to resource management, setting financial goals, and making solid financial decisions that match with our long-term aspirations. We can achieve long-term financial security and realise our financial dreams by adopting a long-term perspective, staying committed to our financial goals, and learning the knowledge and skills required to make educated financial decisions while seeking to have a passive income.

Skate.
 
ducati916 said:
Anything under a W/L ratio of 100% still allows for a loss that goes out of control.
Click to expand...

Don't think I've ever read this elsewhere, or heard, when people are talking about managing risk of ruin. There is no doubt you can drastically reduce your RoR with plannning and discipline, but mathetmatically it annoys the heck out my when people talk about becoming consistent winning traders with controlled risk.

its easy to underestimate how much we've all benefited from mastery of risk management in recent decades, or even over the last century - to the point our safety is somewhat taken for granted in the workplace or hopping on a modern jet aircraft.

Most people seem to really struggle understanding the difference between 1:100, 1:10000, 1:1000000 etc - Dunning Kruger is out there everywhere
 
ducati916 said:
The trading plan must have contingencies for risk of ruin. You cannot allow a 100% blow-up. Otherwise you are out of the game and back to square 1 or even worse if you are highly leveraged.
Click to expand...

Risk of Ruin is definitely something that new traders should be aware of, I've heard many stories of people that have lost their entire account. There are a number of ways that RofR can be reduced in your trade plan like diversification, balancing your directional exposure and not committing all your funds to the market. Even when your RofR has been reduced by a mix of these methods, it still has not been fully controlled.

The only way I know to fully control your RofR, and when I say 'control it' I mean actually removing your exposure to RofR, is to use options. Options can be used in many complex ways, they are the most flexible trading vehicle that exits and this is a double edged sword causing a lot people to view them as being too complex to make the effort to learn. The reality is that in order to replace the basic functions of buying and selling stock, only a basic options knowledge is required. The additional functionality of being able to go Long or Short and having hard definable stops just comes with the fact that your buying and selling options instead of buying and selling stock.
 

@DaveTrade thank you for your thoughts on risk management. I totally agree that our purpose as traders is to profit from price swings, and that taking profits and lowering losses is critical to our overall success. It is true that nothing works 100% of the time while trading.

Regarding your point about utilising options to manage the "risk of ruin", it is true that options can be an effective tool to manage risk, however, it is important to understand that trading options may be complicated and risky even for seasoned traders. Simply, option trading in my opinion is not appropriate for all traders. While options can be used to reduce risk, they can also be used to increase risk and compound losses if not handled effectively.

Finally, having a good grasp of the markets and a well-defined trading strategy based on sound concepts and supported by thorough analysis and risk management is the key to successful trading. Discipline, patience, and a willingness to constantly learn and adapt are required. So, while options can be a useful instrument for risk management, they are not the only means to reduce the risk of ruin, and they should be approached with caution and careful consideration.

Skate.
 
@Skate I agree with what you are saying in your above post with a couple of points that I feel should be clarified.
(1) I'm saying that options can be used to remove the "risk of ruin" not just manage it.
(2) Any method can be used to increase risk and compound losses if a trader chooses to do so, not just options.
 

@DaveTrade I agree that options can be utilised to eliminate the "risk of ruin" totally, rather than just manage it. This is due to the fact that options have a restricted risk and limitless profit potential, as opposed to trading shares outright, which has an unlimited risk potential.

Regarding your second issue
I agree with you that any approach, not just options, can be utilised to raise risk and compound losses. My previous posts while offering an alternative perspective to play the "devil's advocate" it's always important to consider multiple viewpoints and challenge assumptions to gain a more comprehensive understanding of any topic.

Footnote:
However, at times when I play the "devil's advocate", it may not always be productive.

Skate.
 
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