The psychology of technical analysis

[tech/a]

Its just that, when I look into the crowd, ... I see a crowd!

This I believe encapsulates many like you B.

How much psychology even is there anymore?

This is also a valid observation.
But it can also be one which is explored by quants that write algo's.

One of the ways to develop a statistically viable is to find readily available price/volume/pattern or combination of which repeat often enough to give a positive expectancy.

I've actually come to the conclusion that many patterns and price movements happen repeatedly WITHOUT human thought process. Like a part of nature---they keep happening but you just cant put a rhyme or reason to it.

I cant explain why CLEAR Elliott wave patterns form often enough to be of valuable help when trading.
But they certainly happen.

 

[burglar]

This I believe encapsulates many like you B ...

It doesn't frustrate me yet.
I don't give up.

I've come too far!

Four years ago, I would continuously ask ,
"What just happened?"
"Shouldn't they go up on good news??"

Now I recognise what drives share price.
The net effect of a diverse group of people.
And T/A is the study of their behaviour through charting and patterns.
I will endeavour to learn more, albeit slowly.

 

[tech/a]

B

I look at the crowd as the Bars on the chart.
Crowds and charts will do the following.

(1) Nothing--they will be leaderless.
(2) Strong leaders will take control and point a direction which is adhered to in an orderly fashion by those in the crowd.
(3) There will be panic and confusion diving one way then the other.
(4) Small or larger groups will disagree with the crowd.
(5) The crowd will over power the minority.
(6) Some will stand out from the crowd.
(7) People will leave the crowd and not return.
(8) People will join the crowd and not leave.
(9) People will come and go.

When your next watching a chart ask yourself
What is the crowd doing long term
What is the crowd doing this week
What is the crowd doing now.

How does this effect the way Ill participate with the crowd.
Do I want to be in this crowd---and for how long?

Take the Money out of it---you'll be surprised what you find!

 

[Wysiwyg]

Not the crowd I think but the weight of securities being controlled by an individual or fund or funds. For example one holder of a million $1 shares could easily introduce fear to the majority of other holders by placing an order into the market. So the crowd as such does get prompted to react in some way. Stimulus - response stuff.

 

[minwa]

How much psychology even is there anymore? With the common idea that 80% of market volume is computers/algos, there wouldn't really be any psychology, just a predetermined set of rules that they are all trying to follow and compete with one another in?

That is still psychology. The set of rules are determined by the human mind, who had psychological decisions when programming it. Emotions are removed for EXECUTION only but the psychology is still there when the rules were determined, and when and for how long these set of rules/algos/systems will be run and turned off. Even if its set to run 24/7/365 that's still a human decision made to not turn it off and there is always the possibility it will be turned off.

So until artificial intelligence has freedom of will and make its decisions itself, human psychology will always remain in the markets. Even if that happens - its still AI psychology.

 

[tech/a]

Not the crowd I think but the weight of securities being controlled by an individual or fund or funds. For example one holder of a million $1 shares could easily introduce fear to the majority of other holders by placing an order into the market. So the crowd as such does get prompted to react in some way. Stimulus - response stuff.

Yes this is true.
I see it in the Futures market all the time.

We are currently doing a great deal of work on.

Number of trades V Volume being traded.
Does a fall in Trade volume but at the same time
an increase in Contract numbers in a direction influence
future price and for how long.

Like the DAX last night.



We have data on how many traders traded that volume.
Was it 2000
or 20?

These markets are moved by big players there is proof everyday.

How to trade against them?
Trade WITH them.

 

[Pnut]

What causes support and resistance levels to be respected by the market?

You should also consider that trading has been around for many hundreds of years and that computers have only been around for a brief period. W.D.Gann claimed in the 40's or 50's that one day man would have a machine that could trade the stocks and commodities. Naturally his peers ridiculed him and talked about him behind his back.
In the early 1900's Livermore referred to Gann as some sort of pet freak they kept out the back, due to kindness and the charts he was using to trade with were fantasy and the only true way to trade was through the ticker.

My thought is, it is simple for you to see a double top or support and resistance. But the farmer or share holder who makes his money buy selling the cotton or grain or selling his holdings of a company can only see the price he has paid and the price he wants. Mix that with the price he has seen over the years or what he recalls from the top of his head. $1.80 for beef maybe a better price then he has ever received or the AUD is low so it would translate into $2.20 which to him is a good price.

So for example the guys whom make a living out of mining or processing copper, know's that $2 lb is a very special price and they respect that level. You easily can see the levels of respect because you have a "Time Calculator" of the underlying asset in front of you depicted as a price chart.

My point being that you can see it on the chart but it was happening before charting even started. If you look closely at the levels you will notice they are a round number or a special number that reflects an underlying fundamental that you may not know. The $2 copper is a good example. Glencore Finance put's in a special clause to most loans for copper / gold mines that if the price of copper falls below $2 they can call the finance and cancel the loan. This is how they have stolen so many deposits in Australia while the incompetent watch dogs have looked on. Not even a mention that Glencore is the biggest copper trader in the world and they can easily manipulate the price.


My thought's only.
Pnut

 

[Mdean]

This 130 page PDF maybe helpful.

http://www.volumespreadanalysis.com/tradeseqexp.pdf

Thanks for that share, interesting read! Definitley something I've overlooked in the past.

Cheers