How much analysis is enough? Does complexity equal profitability?

You know I've got to hand it to some of those posters here.
Motorway/Waves and the likes.
Their in depth analysis is second to none---well none here.

But my question to the populace is as the topic says.

While someone like Frankie D's analysis looks complex it really is very simple once learnt.

So to is VSA.
Correct use of conventional T/A is also simplistic when applied.
Even the canned trading methodologies with Advanced Get for Elliott Wave enthusiasts (XTL with trend,Type one buys and sells.type 2 buys and sells) are all quick and easy.

The bottom line is finding a profitable trading method and to my mind one which can be adopted and traded with the least ambiguity.
We all have better things to do than spend countless hrs pouring over charts,frustrated at conflicting opinion and analysis.

Simplistic trading can and is being practiced.
So how much do people really think they need to know,to be profitable?

I pose the statement that its more to do with knowing what we DONT need to know than what we need to know!
How many suffer from analysis paralysis?
How many actually find that after a great deal of analysis they feel that they are really only GUESSING?
How many feel they are on this never ending journey to find a profitable way to trade without actually knowing what it is they are looking for---stumbling from one idea to the next.
Looking for that edge but not knowing what will give it to them---even worse not knowing how to apply ideas to give them that edge.

Is there only a handful of true isms which when applied correctly will ensure success?--OR are there countless ways to succeed in trading---all vastly different.
Is there a common thread with ALL forms of APPLICATION of analysis regardless of what that analysis is---technical and Fundamental?

My swing trading method is embarrassingly simple, almost offhandedly so. In that sense I will go right along with what your proposing here.

But on the other hand, I've stared at enough live charts to have developed a "rich mental map" that TH has mentioned before. So in that sense, it could be possible that I'm subconsciously analyzing more than I think I am. Probably certainly true as I have to like "the pattern".

But back to my first point, I have always been more profitable with KISS principles. Even when I first started off and knew SFA, just the few market truisms stood me in good stead... use low risk entries, cut losses short, lets winner run, use money management.

Here are my expectancy stats on my swing trading (ex option trades and day trades) since I've been in the UK (about six months):



That's a lot better than normal and has been helped by the increased volatility, but with just a very basic swing system using 30 minute bars.

Cheers

I agree.

The more I analyse, the worse I do! It's one reason I have grown to love simple, traditional T/A.

I have gravitated towards as Nick Radge puts it 'micro patterns', not having a definition for them myself, I traded them and just thought of them as simply traditional patterns, but far better for shorter term swing/position trading, lower risk entries and many times, easier to see I found. I also like clean and easily observable chart patterns, not ones in which ambiguity lies and imagination is required, as per many patterns some people apparently see in the charts.

No offence to EW followers, but this is a reason EW has never caught my attention for longer than a couple hours at a time.

As Wayne stated "use low risk entries, cut losses short, lets winner run, use money management".

I would say the same criteria, except to add cut initial losses short and learn where to exit as the trade advances in your favour, whether that be using gaps as support along the way, past resistance turned support levels, swing stops, or even a MA. This is where it becomes more complex, depending on what the market environment is like at the time (volatility, trending etc), but is still relatively simple if understood.

I think many traders, using varying strategies, can apply the same principles, without even knowing it sometimes. But ultimately, this is what makes them successful. This is why it was so funny for me to read Adaptive Analysis, many of the things espoused (except the use of EW, though again, I do beleive in looking at the current trend in relation to the big picture), were similar conclusions I have finally come too after a couple years.

What a rant, hope it makes sense. But excellent thread Tech/A!

Wayne, those numbers are staggering, but I would never doubt you!

Cheers fellas. Off to have some friday night Aussie beers. Enjoy your respective weekends!

tech/a said:

You know I've got to hand it to some of those posters here.
Motorway/Waves and the likes.
Their in depth analysis is second to none---well none here.

But my question to the populace is as the topic says.

While someone like Frankie D's analysis looks complex it really is very simple once learnt.

So to is VSA.
Correct use of conventional T/A is also simplistic when applied.
Even the canned trading methodologies with Advanced Get for Elliott Wave enthusiasts (XTL with trend,Type one buys and sells.type 2 buys and sells) are all quick and easy.

The bottom line is finding a profitable trading method and to my mind one which can be adopted and traded with the least ambiguity.
We all have better things to do than spend countless hrs pouring over charts,frustrated at conflicting opinion and analysis.

Simplistic trading can and is being practiced.
So how much do people really think they need to know,to be profitable?

I pose the statement that its more to do with knowing what we DONT need to know than what we need to know!
How many suffer from analysis paralysis?
How many actually find that after a great deal of analysis they feel that they are really only GUESSING?
How many feel they are on this never ending journey to find a profitable way to trade without actually knowing what it is they are looking for---stumbling from one idea to the next.
Looking for that edge but not knowing what will give it to them---even worse not knowing how to apply ideas to give them that edge.

Is there only a handful of true isms which when applied correctly will ensure success?--OR are there countless ways to succeed in trading---all vastly different.
Is there a common thread with ALL forms of APPLICATION of analysis regardless of what that analysis is---technical and Fundamental?

Click to expand...

I predominantly use indicators to trade which come standard with every charting package and apparently don't work(or so I keep reading). I only have a rough idea on how to throw an EW count on a chart, I don't have a clue about VSA, FrankD's charts don't make that much sense to me, and I'd probably believe it if someone said motorway was speaking in a foreign language, as I have no idea what he's on about most of the time.

complexity = profitability?

No.

LOL!!!!!!!!

Professor, as always, a crack up!

What I would be interested to know? Is with the use of the indicators, do you still apply the basic rules of letting profits run, cutting losses and money management?

I read the book of Gary Smith (one of the famed traders of the 90s and not the famed T/A Gary Smith), he HATED T/A and did not like to talk much about money management, little did he know he was actually using both and didn't even know it!!!!

His most prized set-up was waiting for a downturn over a few days, then a day where the market opens, moves lower throughout the day, only to rally into the close and end up higher. Sound like a hammer reversal?

If the position went against him, he would exit immediately and he would scale into the position as it went his way, sound like typical money management?

MRC & Co said:

Wayne, those numbers are staggering, but I would never doubt you!

Click to expand...

I'm having a rather stunning purple patch at the mo. It's not normally like that.

wayneL said:

I'm having a rather stunning purple patch at the mo. It's not normally like that.

Click to expand...

Maybe so, but I beleive I have seen your methodologies........very simple indeed and runs much along the lines I have gravitated towards.

My belief is use the methods you beleive in and enjoy, apply the simple rules and you stand in good stead. At least you won't wipe yourself out!

If I can have a purple patch like that over the next 6 months, I will

Good stuff!

Cheers

MRC & Co said:

LOL!!!!!!!!

Professor, as always, a crack up!

What I would be interested to know? Is with the use of the indicators, do you still apply the basic rules of letting profits run, cutting losses and money management?

I read the book of Gary Smith (one of the famed traders of the 90s and not the famed T/A Gary Smith), he HATED T/A and did not like to talk much about money management, little did he know he was actually using both and didn't even know it!!!!

His most prized set-up was waiting for a downturn over a few days, then a day where the market opens, moves lower throughout the day, only to rally into the close and end up higher. Sound like a hammer reversal?

If the position went against him, he would exit immediately and he would scale into the position as it went his way, sound like typical money management?

Click to expand...

Yep. Basic rules of trading still apply. They are probably the closest thing to a truism in the markets IMO.

But I should clarify, I do trade a shorter timeframe to most on here, and monitor more than one market at once, so it kind of ends up this way by default - I need pretty colours on my chart so I know what to do without having to think too much

MRC & Co]My belief is use the methods you beleive in and enjoy said:

I'm having a rather stunning purple patch at the mo. It's not normally like that.

Click to expand...

Do you think the change in timezone has helped at all? Must be a hell of a lot easier to be 100% alert at dinner time compared with 4am

professor_frink said:

Do you think the change in timezone has helped at all? Must be a hell of a lot easier to be 100% alert at dinner time compared with 4am

Click to expand...

Don't know yet. I'm certainly happier here, that may be a factor too. But I'll have to see how the numbers pan out over time.

professor_frink said:

I only have a rough idea on how to throw an EW count on a chart, I don't have a clue about VSA, FrankD's charts don't make that much sense to me, and I'd probably believe it if someone said motorway was speaking in a foreign language, as I have no idea what he's on about most of the time.

Click to expand...

Perfect! Love it.

What a great thread tech - nice one! Much to mull upon ... be back.

tech/a,

I pose the statement that its more to do with knowing what we DONT need to know than what we need to know!

Click to expand...

How did you come to this realisation tech/a?

How many actually find that after a great deal of analysis they feel that they are really only GUESSING?

Click to expand...

Naturally. Generally guess would be an apt word. But we could all split hairs and find suitable candidates to confuse the situation.

How many feel they are on this never ending journey to find a profitable way to trade without actually knowing what it is they are looking for---stumbling from one idea to the next.

Click to expand...

Now this may be the most profound piece in this post. Which leads to this.

Looking for that edge but not knowing what will give it to them---even worse not knowing how to apply ideas to give them that edge.

Click to expand...

I would say there is a lot more missing than just this. A juxtaposition of reality for example.

Is there only a handful of true isms which when applied correctly will ensure success?--OR are there countless ways to succeed in trading---all vastly different.

Click to expand...

Perhaps the multitude of interpretations make that a difficult task to come up with a limited number of trueisms.

Is there a common thread with ALL forms of APPLICATION of analysis regardless of what that analysis is---technical and Fundamental?

Click to expand...

Variety is interesting. I don't know the answer to this question.

wayneL said:

Here are my expectancy stats on my swing trading (ex option trades and day trades) since I've been in the UK (about six months):

Click to expand...

Theres some nice stats there Wayne.
Keep up the good work.

Hi tech - your post makes a number of points and asks a multitude of questions, forgive me if I only address a couple of them.

You say some forms of analysis look complex but are simple once learnt, you use Frankie D's analysis, VSA, conventional T/A, AGet all as examples.

WRT VSA I thought it was the most complicated thing when I first started studying it, but once learnt I agree it is simple. Maybe this is just advancing from conscious incompetent to unconscious competent? Motorway expounds on the Wyckoff method and I would argue the same thing applies - it looks very complicated but is simple once learnt. It is daunting (is for me anyway), there is a lot of jargon to learn (many rail against the use of jargon but in a specialised field it is very useful). Once you learn what the jargon means, and applies to, the Wyckoff people confuse you more by abbreviating the terms to initials - geez ... LOL - once learnt, though, it is simple.

I will skip to your last point/question:
"Is there a common thread with ALL forms of APPLICATION of analysis regardless of what that analysis is---technical and Fundamental?"
as I think this is the guts of your post.

Just as the saying goes "Guns don't kill people, people kill people" so there should probably be a phrase coined for traders/investors:
"Analysis doesn't make or lose money, traders/investors make or lose money".
This is merely a pithy way of encapsulating what Nick Radge argues in Adaptive Analysis - there a multitude of ways money can be made in the markets, the common link between traders/investors using all different forms of analysis is control over risk/return - intelligent managing of positions once opened to work towards a good R/R ratio.

One more point, I do believe some forms of analysis are better than others at locating an entry point, and then helping to manage the position, but I also recognise that what I like best is not what others will like best...don't want to get all religious/political about the whole thing.

How much analysis is enough?

Enough to make the trade with confidence that you have made the right decision. That is, without second guessing whether you have made the right decision.

If one system/indicator tells you to buy the stock, and other system or indicator gives an contradictory signal, which one do you believe?

Complexity comes as a result of the lack of understand of the system you are looking at. This is most probably a result of trying to find the magic bullet that will make you rich. Part of the complexity also comes from the different terms used. Weinstein looks a chart in different stages, Wyckoff adds other terms like "sign of strength". Now drag in VSA and you have supply and demand and selling pressure. And then you also need to consider the time frame.

Now here a question - suppose that you have a stock, recently oversold but using your indicators identify it is a buy. But what if there is no creek? or you have not jumped over the creek? or according to VSA there is a lack of demand?

Complexity can be reduced by finding the right mix of parameters that you are comfortable in using for trading.

As for a common thread in all systems - identifying a trade/purchase that will succeed. That is buying something that is oversold (or represents value) that will give you something back in return ($) later on. It is the definition of oversold (and value) that differs depending on your background.

Tim

When banks recommend a sell, buy, because they have already sold.
When banks recommend a buy, sell, because they have already bought.

Stupid?

Dimi

diminike said:

When banks recommend a sell, buy, because they have already sold.
When banks recommend a buy, sell, because they have already bought.

Stupid?

Dimi

Click to expand...

Just a slight alteration

When banks recommend a sell, buy, because they are buying.
When banks recommend a buy, sell, because they are selling.


Instos have to buy and sell into strength.

The short answer to these two questions is:

1. Depends on what you are trying to achieve & what you believe is possible.

2. Depends on what the individual trader is capable of applying.

On the first point...if you believed that 30-40% win percentages were the norm for a successful trader, and you accepted this and you could achieve profitability from such stats, via simple application and analysis, then you'd do it right?

But what if someone opened up your eyes to a world of 80-90% win percentages, and monthly winning trades that equate to money in the in the ball park of a moderate sized house deposit?

And if you knew that the former person lived a normal life and invested an accumulated handful of hours a day into maintaining their trading activities and this sounded like something you'd like to emulate, then if you could you might try to get that person as a coach or a mentor.

The latter person sleeps and wakes at odd hours, and regiments their time and energy in ways that require extreme self-discipline. And really believes that that hours spent studying astrology matters to how their SPY contract trade will turn out.

The latter person you couldn't get as a coach or a mentor under normal circumstances because they're elusive. They never publish their results, never post on forums, and are not socially active, so your chances of bumping into that person at a party and learning about their success is pretty much nil.

Not all people are equally capable, in spite of coaching and training, to apply complexity. And so if complexity equates to greater profitability, your chances of finding people to make that case are much lower. So for this thread the scales are tipped in favour of getting the responses you wanted.

Take golf as an analogy as it's easier to equate things to handicaps to make a point.

Most of us here could probably lay claim to knowing a club pro. Maybe we know a friend from school who grew up to be a pro. None of us know Tiger Woods. And even if we did, most of us accept that he couldn't teach us to be him.

To be a pro, is it necessary to be able to bounce a ball on the end of a driver 20 times and then belt it down the fairway 300 yards? No. I bet your local club pro couldn't do it. And in any case, it's superfluous to getting around a golf course in the fewest number of strokes. But it tells me something about Tiger Woods and his mastery of his craft.

And you don't need to be able to do it to get your handicap down to 14. Assuming you're an average able bodied male and assuming you invest enough of your time, the local club pro could probably coach you down to a 14 handicap by teaching you how to repeatedly apply the basics well.

14 is an arbitrary figure btw, it could be 12, it could be 20.

If anyone is claiming to be a Tiger Woods of trading here... please step forward .

So how many known and famed traders (not on forums, but written about in books) applied complexity to the markets to gain their status?

I know of very few.

Are you saying those who successfully apply complexity are all mute hermits?

The correct amount of analysis will ensure that you start the trade.
Any less and you will be uncertain and you won't start the trade.
Too much and you will be uncertain and you won't start the trade.

Most of us do too little or too much.

NO, complexity does not produce more profits (eg. LTCM).

Effective trade management equals profitability.