Technical Analysis - Smoke & Mirrors?

[tech/a]

Sir O

Can only say

 

[Sir Osisofliver]

LOL - thanks Tech/A that made me chuckle - and considering I'm still at my desk I need the diversion.

Cheers

Sir O

 

[Trembling Hand]

Hell no! I would totally agree that taking on more risk is not conducive to better trading. BUT I believe there is a right way to trade for me based upon how I take in information and my personality type. The same is true for everyone. Remember Trembling Hands thread about placing a hedge against a self-built stock index? TH is a successful trader in his own right, but his methodology of I think I have a fair idea how this will play out so I'm just gonna try it completely did my head in. He's a Kinesthetic, you can tell from the language he uses on these boards.

Makes you wonder how well you can listen to your "clients" Sir O rather than just jumping to conclusions.

Let me state it again for the 100th time. Maybe you will LISTEN this time. I have very long history of back testing that idea and forward testing it. But although profitable it NEVER got anywhere close to being as profitable as using it on a discretionary basis. Thats why I'm a discretionary trader. Nothing comes close to providing me with the $$s. Which one do you want me to use??

 

[Trembling Hand]

It DOES have an effect, if you let it. The negative feedback mechanism is a very well understood one. Ow that hurt, I won't do that again. That has helped our species to evolve, so those feedback mechanisms are literally hard-wired into our brain. IMO only by using a system or strategy that removes emotion from the decision making, do we eliminate this as a factor from our trading....but some people hate system trading.

You have way way way over simplified emotion responses to fit your idea of "non emotional" trading. Especially a negative emotional response.

 

[Sir Osisofliver]

Makes you wonder how well you can listen to your "clients" Sir O rather than just jumping to conclusions.

Let me state it again for the 100th time. Maybe you will LISTEN this time. I have very long history of back testing that idea and forward testing it. But although profitable it NEVER got anywhere close to being as profitable as using it on a discretionary basis. Thats why I'm a discretionary trader. Nothing comes close to providing me with the $$s. Which one do you want me to use??

TH - It was late, I couldn't be stuffed looking up the thread for perfect accuracy and I paraphrased. As I said... I can't do discretionary trading. It does my head in. You can. Congratulations. I in no way attempted to say that you were a bad trader. I was merely looking to clarify an issue around different personalities by using you as an example. I in no way attempted to degrade you or your methodology and if I offended you I sincerely apologise. I do not however like the hostility I read in your post. Don't worry I will never use you as an example for clarification purposes again.

You have way way way over simplified emotion responses to fit your idea of "non emotional" trading. Especially a negative emotional response.

Duh? Of course I oversimplified. It's a complex topic involving those chaotic creatures, human beings. Millions of words have been written about it by people with impressive letters after their names and Doctorates on psychology and Nobel prizes. But funnily enough we happen to be in the Beginners Forum. Perhaps this isn't the place to write a book about Behavioural Economics and Investor Psychology but instead gently point out a few things to encourage them to do their own research.

Cheers

Sir O

 

[tech/a]

As I said... I can't do discretionary trading. It does my head in.

I actually enjoy both systems and discretionary trading.

**Once you've tested enough ideas over enough data it is pretty obvious you simply need to tilt the number of wins or the return of wins in your favor to be profitable just as you do with Systems trading---with the added advantage of being very agressive in your approach both in minimising risk and maximising return (Normally using postion sizing) --- being able to pounce when you can see the train!-----and get off while others are boarding it!.

What I have found is smoothness of curve is for me at least best achieved with System trading.
Discretionary trading is like looking for a train line and standing on one that looks like the train is going to fly and hit you any minute---and waiting to get hit!

I have some spectacular wins and some prolonged bleeding the curve (Overall) jumps most when this form of trading is included in the mix.

Provided you understand **

 

[ugotdan]

I believe, just with economic analysis, if you can use a broad range of indicators from the entire "toolshop" and have a majority line up, then a trade may be born. TA + FA + Economic Analysis....
Everyone is biased in their own way, should we not be more inclined to continually study new techniques?
TA indicators are another form of model of the real world. choose your inputs carefully - As Natenberg said, "Garbage in = Garbage out".

 

[tech/a]

if you can use a broad range of indicators from the entire "toolshop" and have a majority line up, then a trade may be born.

Another common misconception with regard to "Use" of indicators.
EVERY indicator is a derivative of
High
Low
Range
volume
Open
Close
or open interest.

So most say the same/very similar as the next indicator.
Like Jumping in a Porche/Merc or BMW and driving to Sydney
They are all cars going to the same destination.Argueably any one being better than the other.
You only need one!

 

[joea]

Comments on Indicators.
In 2004 a 74 page guide was produced called "Charting Power Stocks".
It covered a number of Indicators, and showed how to use them.
A summary from the book is as follows...
Key Thought on Indicators.
1 Use trend following indicators to trade trends.
2 However , trend following indicators only give good results in strong sustained trends.
3 Use momentum oscillators to trade sideways.
4 Most trend following indicators lag behind the market.
5 No Indicator is perfect.
6 Because indicators are not infallible, it is important to look for confirmation of
signals from analysis of the price charts and perhaps another indicator.
7 Because indicators are not infallible, always know the failure points.
8 Indicators will never replace, or be a substitute for analysis of the price chart.
Indicators are not an easy way to avoid studying what price charts can reveal about
the balance of supply and demand.

What has happened through technology is that to make it easy for beginners, indicators
that are termed "PROPRIETARY INDICATORS" are marketed to make it easy.
As far as I know these type of indicators are generally a combination of normal indicators.

Because there are different rules for a particular indicator in either a "sideways or trending" market, new traders shoud be aware of that situation.
For instance the OS and OB levels of RSI in a trending market are different to those in a sideways market.

Cheers.

 

[motorway]

Another common misconception with regard to "Use" of indicators.
EVERY indicator is a derivative of
High
Low
Range
volume
Open
Close
or open interest.

So most say the same/very similar as the next indicator.
Like Jumping in a Porche/Merc or BMW and driving to Sydney
They are all cars going to the same destination.Argueably any one being better than the other.
You only need one!

Here was a good pointer..

Any indicator is a non optimized lagging ( to some degree ) derivative
of the price action ( or Volume )

You can see what any MACD RSI AVERAGE would tell you by just looking at the structure of the price action

If you can't maybe you should not use the indicator at ALL

...
So what about indicators ( definition needed what is an indicator ? Maybe a Trendline for example is NOT though it can give indications.... )

Maybe OK to scan for Situations etc ( maybe OK )

Make some quantified definitions to work from

etc

Indicators to me have a non optimized look back period
That is non optimized to the action it is going to be applied to ( the future )

Some things imo do not have such failings at least to the same degree


Motorway

 

[tech/a]

For instance the OS and OB levels of RSI in a trending market are different to those in a sideways market.

No there not!!

The use of the indicator is though!

 

[nukz]

Tech analysis i believe has some validity but what to often happens is unforseen events alter markets perceptions. I find people also develop market bias's that can alter market conditions(Soros talks allot about this in his book "Alchemy of finance").

I have a few friends who swear by Gann theory but when i used it i was not convinced, i ushally prefer to just use fundamentals. Ie. Floods in a state that is a massive coal exporter to China and that very coal is normally transported by rail which is now underwater.. i would look at shorting rail transport companys, you could also look at going long on coal prices as supply/demand 101.

I believe Buffet has publiclly states that tech analysis is useless(but coming from a buy and holder it may be useless).

 

[motorway]

Tech analysis i believe has some validity but what to often happens is unforseen events alter markets perceptions. I find people also develop market bias's that can alter market conditions(Soros talks allot about this in his book "Alchemy of finance").

I have a few friends who swear by Gann theory but when i used it i was not convinced, i ushally prefer to just use fundamentals. Ie. Floods in a state that is a massive coal exporter to China and that very coal that is normally transported by rail which is underwater.. i would look at shorting rail transport companys, you could also look at going long on coal prices as supply/demand 101.

I believe Buffet has publiclly states that tech analysis is useless(but coming from a buy and holder it may be useless).

Everyone has their Biases==>

If Mr market was a real person and went to a doctor
Would a chart of his pertinent medical history , a chart of his pathology be useful ?
swings in hormones Blood Pressure ,, circadian rhythms ?

Would such TA be useful ? eg is he really depressed right now !

A bias many have no matter what their methods and tools
Is to expect too Much from them... and underestimate the value of other tools one as decided are of No VALUE...



"Looks Random, Seems Random, So It Must Be Random?

The rational school of economists who postulated efficient markets assumed stock prices were random. Harry C. Roberts presented one of the earliest renderings of randomness in stocks in 1959. Of course the simplest way to prove randomness in stocks is to discredit anyone who postulates patterns in stocks.

The unlucky "patternists" in this case were the technical analysts ,Roberts's paper compared real stock prices with what we might call virtual stock prices. His virtual graphs were constructed of data obtained from a random number generator. The original graphs are reproduced in diagram 10-2. His assertion, or perhaps his assumption, is that because the real and the virtual stock chart have the "same visual appearance," stock prices are random.

" The graph seems to show a pattern, but in fact a pattern does not exist."

This may be a dubious logic.


After all, if you showed a physician an EKG graph generated from random numbers and he gave you a diagnosis, does it prove that the patterns in all the real EKG data are random or did you just put one over on the good doctor?

Could it be that the cognitive error is on the part of those who are culturally biased against patterns whether in technical analysis, chaos, or whatever.



The Challenge of Chartism

Price charts only tell us what we think they tell us. Our bias interferes with the potential for an objective perception of a given price history. We see only what we have been taught to see.

One may say the same thing about fundamentals. Fundamentals are perceptual, too. The terrible news of the bankruptcy of WorldCom and generally failing communications companies were negative fundamentals for the telecom sector. Yet, some would say that these bankruptcies have finally created value in telecom shares, which had been overvalued for years.

The return to realism and the reduction of expectations to reasonable growth may actually provide the best fundamentals in years. Who sees what? Those with a perpetually bullish bias are victims of the adage that beauty is in the eye of the buy-and-holder.

Woody Dorsey"

 

[joea]

No there not!!

The use of the indicator is though!

yes they are, if you use the two levels as the original concept.

downtrend 60 :20, sideways 70:30 and 80:40 for uptrend.
That gives the best fit to touch the lines.
The lines need to be biased unless the period changed.
Just needs a fiddle.

But it is good you commented.

We have back testers on the forum. it would be good if we could get an indicator and combine all that it could cover and see if it will perform as a reliable stand alone system..
Say DMI.
Just a thought.

Cheers

 

[tech/a]

Can test anything you want but will guarantee you NOT ONE will return a profit as a stand alone Indicator.

One of the reasons I Dont use them in discretionary trading at all and only limited in Systems trading.

 

[It's Snake Pliskin]

Can test anything you want but will guarantee you NOT ONE will return a profit as a stand alone Indicator.

One of the reasons I Dont use them in discretionary trading at all and only limited in Systems trading.

I was hoping to make millions with the MACD

Seriously, can testing really give what a sea captain can give to his voyage?

 

[ginar]

Can test anything you want but will guarantee you NOT ONE will return a profit as a stand alone Indicator.

One of the reasons I Dont use them in discretionary trading at all and only limited in Systems trading.

Whilst im not a fan of indicators i'm NOT silly enough to make a statement like that . whats the guarantee and whats on offer if said guarantee is claimed upon ?

 

[tech/a]

I'll put up $500 to support Joe if anyone can find me a Single Indicator which shows a profit better than Buy and hold over a period of 2 yrs over the XAO.(any 2 yrs)

In fact I doubt you could get one over the XJO.

I reserve the right to test it on my software if you find it.

Ever read "The Encyclopedia of Technical Indicators"?
100s of them not one out performed.

If Proven wrong Joe gets $500

Now I lost to Sir O once so happy to lose again.

 

[Boggo]

Whilst im not a fan of indicators i'm NOT silly enough to make a statement like that . whats the guarantee and whats on offer if said guarantee is claimed upon ?

I have spent ages testing all sorts of indicators and many times thought that I had found the holy grail only to have each one fail dismally on its own.

I personally am convinced that it is much more important a pattern and a set of associated conditions that can be tested both in theory and in practice with real money.

The problem I found was how do I locate these "this is a heads up" patterns on both a daily and weekly basis from a list of over 1900 stocks.

My solution was to find the patterns that I want and then work backwards and analyse the indicators that were associated with that pattern and then come up with a set of indicators where together they would find the patterns that I wanted.

Get the indicators qualified (adjusted) to work together just like a company (tech/a ?) would get its employees, all with slightly different talents, working together to achieve a predetermined outcome.

I never look at the indicators, they are in the background in my scan formula, I only need to see their results after each scan.
I have also found that if any scan is producing results of more than 5% of the total group you are scanning then you need to restrict the conditions associated with the scan to narrow the field.

The first chart below is and example of a result (ASL) where my scan found my "heads up" arrow.

The second chart is just a simple Turtle breakout but I already knew that it may be coming thanks to my employees working together.

That is my

(click to expand)

 

[tech/a]

Boggo

They are all momentum based all telling you the same thing.

Like asking the same question to
Paul
Mark
David
Eric

You'll get the same answer but the one giving it to you will be a little different from the next.

But for God's sake Dont ask Mary as she's a female and you'll be there all day!