How much analysis is enough? Does complexity equal profitability?

Frank D said:

Wavepicker,

My criticism of EW was because it was missing a key component to technical analysis, and that was Time.

Time is the only ‘thing’ in the markets that traders can forecast.

I said once you incorporate Time into your analysis it will be much better as a trading tool

So what did you do, which you weren’t doing before?

You introduced Time components, and not that long ago.

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Frank, my problem with your criticism was that you condemned my work(EW) as too complicated, especially some analysis on ANZ at the time saying that one should never short banks. My EW analysis pointed to a third wave about to start in the banks, the rest is history, the banks got hammered and so the AMT model in that case was not successful, but there is nothing wrong with that because nothing is perfect and all approaches have flaws.

In so far a time goes, I did not incorporate it into my style on your say so. In fact I started looking at time back in late 2003. The cycles approach which I have worked on(and still working on) started back then.

I have looked at your work briefly and applaud the effort you have put in around it’s foundations. I understand your approach has a number of unique aspects that are built upon a foundation. But what I am doing also does too.

As an example Frank/Chops this is a chart of a trade I entered last night


I entered the EURUSD short last night at 1.5613(stop 1.5636), with the changing of a candle colour AND MY REQUIREMENTS. Trading strategy was to take partial profits at 1.5560 and close out the rest 1.5501. You would have to be pretty unlucky to get stopped with this strategy but it does happen on occasion as it's not perfect.
112 pips later in my favour trade completed. Typically get between 2-3 of these setups a week using multiframe time analysis of the 1hr and 4hr chart combo.

Now you tell me how hard it is to trade from this chart?

BTW, the appearance, the way I use these is changing continually as I try and improve this and add new ideas either my own or others I pick up from other people. There are similar approaches around and this does show resemblance in appearance as the core concept is over 40 year old. Channel analysis has been around for ages.
The way I use this is mine, i.e. the calculations, the mechanics behind the construction, the way the cycles are calculated dynamically and the mechanics behind the multi timeframe analysis is very different and that aspect is my own.( in large due to my Noise and Vibration and cycles background in my day to day job)
As mentioned before it does not matter because this will never be commercialized, I just like to trade. But also this approach is also continually evolving.


END OF THIS DISCUSSION

All the best

Wavepicker

To add to this debate, I was takling the other day to some self proposed mathematical genius graduated from an Ivy League Uni. Here was his comments, which I have to admit, some are a bit over my head!

His arguement is that any trying to trade traditional TA will ultimately fail, unless you simply get lucky.

Anybody have any comments?

Quants generally have PhDs in pure mathematics, physics, or engineering. They do multivariate time series analysis, and look for statistically significant price and volatility relationships. They try to do walk-forward testing through Monte Carlo simulation and boot strap simulation. These days, the proprietary stuff is more sophisticated and often times very secretive. A lot of there models are then automated through algorithms, and trade rapidly, hence the smaller bid ask spreads you see now adays...the algo bots correct most of the mispricings in the markets these days.

Im using a French keyboard, so my grammar sucks.

And TA is crap. Hence why there arent any billionare day traders. Soros was global macro, same with Jim Rogers. Neiderhoff is a quant. Steinhardt was FA and just plain information hoarding.

Now, PRice Action and tape reading might have some validity. Scalping works, but its stupid.

See, time series analysis is kind of TA, except it means something. Drawing wedges on a 5 min chart means nothing. Theres no argument. Im just saying, you will fail-the law of large numbers will catch up with you. Learn a real trade, no pun intended. Your playing slots, not poker -and instead of a casino, you have a broker.

MRC & Co said:

To add to this debate, I was takling the other day to some self proposed mathematical genius graduated from an Ivy League Uni. Here was his comments, which I have to admit, some are a bit over my head!

His arguement is that any trying to trade traditional TA will ultimately fail, unless you simply get lucky.

Anybody have any comments?

Quants generally have PhDs in pure mathematics, physics, or engineering. They do multivariate time series analysis, and look for statistically significant price and volatility relationships. They try to do walk-forward testing through Monte Carlo simulation and boot strap simulation. These days, the proprietary stuff is more sophisticated and often times very secretive. A lot of there models are then automated through algorithms, and trade rapidly, hence the smaller bid ask spreads you see now adays...the algo bots correct most of the mispricings in the markets these days.

Im using a French keyboard, so my grammar sucks.

And TA is crap. Hence why there arent any billionare day traders. Soros was global macro, same with Jim Rogers. Neiderhoff is a quant. Steinhardt was FA and just plain information hoarding.

Now, PRice Action and tape reading might have some validity. Scalping works, but its stupid.

See, time series analysis is kind of TA, except it means something. Drawing wedges on a 5 min chart means nothing. Theres no argument. Im just saying, you will fail-the law of large numbers will catch up with you. Learn a real trade, no pun intended. Your playing slots, not poker -and instead of a casino, you have a broker.

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Nice addition to the discussion.

I agree TA is hit and miss and relies a lot on luck. I recently undertook some investigation into another pursuit which revealed some stuff about trading that I had probably not clearly seen. I realised long ago that TA is hit and miss and even with the best intentions it can be hard to get a better than 50% win rate. The recent realisation was more profound and understandable.

But it is not about the analysis. It is about the law of large numbers and if you have a positve edge then it is simply the total of wins not the percentage of wins that tells the story, but we all know that.

Yes FA has its merits as does TA, but it ain't tennis.

Can some of the "it doesn't work" crowd please tell me when my LUCK will run out. I mean I must be the luckiest person alive. On average 150 trades or more a day for the last 3 years. Surely my luck should have ran out by now. I mean that is at least 30,000 trades probably many more.

I keep looking over my shoulder for "the law of large numbers to catch up with me" But even after all that brokerage I still seem to be out running the wankers that sprout this "I carn't so no one can" RUBBISH.

Trembling Hand said:

Can some of the "it doesn't work" crowd please tell me when my LUCK will run out. I mean I must be the luckiest person alive. On average 150 trades or more a day for the last 3 years. Surly my luck should have ran out by now. I mean that is at least 30,000 trades probably many more.

I keep looking over my shoulder for "the law of large numbers to catch up with me" But even after all that brokerage I still seem to be out running the wankers that sprout this "I carn't so no one can" RUBBISH.

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I do believe the standard counter to this argument is survivorship bias. You are the one in a million that has survived according to the mathematicians and academics There's no winning this type of argument so best to try and avoid them.

Hence why there arent any billionare day traders

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These guys may not be billionaires but they're chart traders and wouldn't be far off:

Louis Bacon
Paul Tudor-Jones
Toby Crabel
Jerry Parker
Salem Abraham
Rich Dennis
Bill Eckhardt
Keith Campbell
Ken Tropin
Monroe Trout

Nick Radge said:

These guys may not be billionaires but they're chart traders and wouldn't be far off:

Louis Bacon
Paul Tudor-Jones
Toby Crabel
Jerry Parker
Salem Abraham
Rich Dennis
Bill Eckhardt
Keith Campbell
Ken Tropin
Monroe Trout

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Does Crabel still daytrade or has he got some longer term stuff he uses these days?

You can include Martin Schwartz in the chart/daytrader multi-million list

Son is finishing his Doctorate in Physics. Majoring in Photonics and Lasers at Adelaide Uni.

I took him to Nicks seminar on Saturday. Ive always mentioned to Kris that I'd love to work with him on trading once finishing his Doctorate.

Driving home I asked---what do you think (meaning trading principal in general).
His reply.
"I love it---but you dont need me!".

Now that wasnt a personal observation by Kris on my ability to trade but on HOW you profit from trading.
Snakes got the gist.
I'll just be thankful for any "luck" that comes my way.

Just throwing my in.

I think its all well and good to slowly build up a portfolio and then eventually after holding super long term it is worth billions. IE - Buffett etc.

The thing that makes it harder for daytraders (and MRC this is why there may not be many billionarre DT's) is volume. They cant exactly put say $100mill through to scalp instantly without shifting the price.

hope that makes sense...

MRC & Co said:

Now, PRice Action and tape reading might have some validity. Scalping works, but its stupid.

See, time series analysis is kind of TA, except it means something. Drawing wedges on a 5 min chart means nothing. Theres no argument. Im just saying, you will fail-the law of large numbers will catch up with you. Learn a real trade, no pun intended. Your playing slots, not poker -and instead of a casino, you have a broker.

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Looks like the law of high-IQ has caught up with your buddy. That is, the law which says that if you are hyper-intelligent and invest a lot of time and effort into getting well recognised letters behind your name you'll invariably come to believe that no-one should be able to out-succeed you with less sophisticated methods.

Two words: open mind.

theasxgorilla said:

Looks like the law of high-IQ has caught up with your buddy. That is, the law which says that if you are hyper-intelligent and invest a lot of time and effort into getting well recognised letters behind your name you'll invariably come to believe that no-one should be able to out-succeed you with less sophisticated methods.

Two words: open mind.

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One word:
Rubbish

tech/a said:

One word:
Rubbish

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Maybe in your narrow view of the world. Then again I don't expect that in your field you'll run into this situation much.

But what is multivariate time series analysis?

And what is global macro?

Now, PRice Action and tape reading might have some validity - isn't TA exactly that, capturing price action but relating it to crowd psychology?

Tech and ASX, you are agreeing I beleive. Tech argues it is not high IQ but trade management which determines results. ASX is stating this guy I was talking to (not my buddy), believes as he is hyper-intelligent, he can not be outperformed by lesser academic traders. So you are on the same wavelength I beleive.

MRC & Co said:

And TA is crap. Hence why there arent any billionare day traders. Soros was global macro, same with Jim Rogers. Neiderhoff is a quant. Steinhardt was FA and just plain information hoarding.

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tell that to this guy MRC: He has made milions on millions using simple pattern trading techniques

Amongst his recommended reading list: "Elliott Wave Principle"


Get Rich with Dan Zanger, The Investor Who Turned $10,000 into $42 Million
Posted by Blain Reinkensmeyer
September 26, 2007 at 4:15 pm
Dan Zanger holds the World Record for boasting a 29,233% return in his own portfolio in single year.

Through his site chartpattern.com Dan now runs a daily newsletter sharing his stock picks that has made some readers over a million dollars.

MRC & Co said:

But what is multivariate time series analysis?

And what is global macro?

Now, PRice Action and tape reading might have some validity - isn't TA exactly that, capturing price action but relating it to crowd psychology?

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when he says global macro, he is talking about looking at things from a macroeconomic perspective, the big picture.

I think once you start talking time series analysis, you are moving towards the wide world of statistics and data manipulation(I think, I'm no math genius)

Yeh, that's what I gathered Professor.

Wavepicker, I am not stating what you quoted. I am simply stating another perspective from an arrogant Ivy League mathematician.

Ah yes, good pick up WP. Zanger made $22m in 2006, purely from chart patterns and short terms moves. He used to have his tax returns on his site for validation.

MRC & Co said:

And what is global macro?

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Ah, this is the stuff that really makes the world go round. It's what I think of when people talk about 'the elephant in the room'. Government policies (intervention, regulation, subsidisation, tariffs), central bank monetary policies, wars, cartels etc.

China industrialising = what? demand for resources, demand for AUDs, higher profits in Aust, overheated economy, higher interest rates, even higher demand for high yielding AUDs

How much analysis is enough in this space? As a lowly retail investor it's probably never enough, because you can never know and understand everything...there is too much information and there are two many invisible elephants.

But you can make educated guesses.

Oil at $80 a barrel = what? not really hurting anyone yet. Are Australians and Americans really driving the smallest cars they can feasibly get away with? Are European governments really making do with the least amount of fuel taxes they can sustain their policies with? No. Is demand subsiding? No. Oil can go higher (yes I realise this is hindsight analysis: but the Europeans still haven't implemented their proposed reforms to reduce their fuel taxes, and Americans are still driving a disproportionate number of SUVs, and Australians still drive cars that are twice as fuel hungry as the Europeans and pay half as much for fuel. Conclusion: Oil can still go much higher than $135).

As always the plus side to being a retail investor is that you can move your person and your capital around much more freely than the big boys. eg. Australian interest rates and property prices too high? Move to Sweden. Swedish wages too low and taxes too high? Get an ex-pat job in the Netherlands etc. Medium-to-long term risk of a decline in the EUR? Transfer savings to a currency bloc expected to increase against most other currencies (Asia?).

MRC & Co said:

Now, PRice Action and tape reading might have some validity - isn't TA exactly that, capturing price action but relating it to crowd psychology?

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That's what I thought.

MRC & Co said:

Tech and ASX, you are agreeing I beleive. Tech argues it is not high IQ but trade management which determines results. ASX is stating this guy I was talking to (not my buddy), believes as he is hyper-intelligent, he can not be outperformed by lesser academic traders. So you are on the same wavelength I beleive.

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I doubt it :

I'll say this. My belief is that people should be mindful of their biases. Strong belief in or even a demonstrated path to success is not sufficient to invalidate all others.

Keep an open mind. Accept that there are many paths to success (profit), and when you feel you've observed enough, pick one and go for it.

"TA is crap" sounds like arrogance to me. Arrogance and success are frequent bedfellows, but as M says to Bond in Casino Royale: "Arrogance and self-awareness seldom go hand in hand".

Your friend is probably not qualified to have an opinion on TA that I would value. He's not aware of this, and it's not your job to make him aware of it, just so long as you're aware of it.

It sounds like he may have a good deal of valuable insight on Quant Analysis/Trading though.

Yeh, Global Macro is how I started out in this business after a fascination with economics (particularly Macro) and ended up graduating with my Economics GPA the highest of my two degrees.

Can definately predict trends, but you still need your exits, position sizing, money management etc, which is why I have gravitated towards TA, easier to get a feel of IMO. But then again, that is just what makes me comfortable.

ha ha, like the idea of moving your person!