Is T/A based on hope?

[wayneL]

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

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

 

[MichaelD]

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.)

 

[Bobby]

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.

 

[Magdoran]

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

 

[rub92me]

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?

 

[blinkybill]

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 :

 

[happytrader]

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

Just be careful what you wish for.

Cheers
Happytrader

 

[sails]

Hello Margaret,


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



Regards


Magdoran

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

 

[lesm]

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.

 

[cuttlefish]

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.

 

[Magdoran]

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

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

 

[Bobby]

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,.,

 

[wayneL]

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,.,

 

[Milk Man]

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!

 

[cuttlefish]

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,.,

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.

 

[Magdoran]

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.

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

 

[Magdoran]

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

 

[cuttlefish]

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.

 

[cuttlefish]

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.

 

[wayneL]

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