Chart Patterns - tosh?

[ducati998]

ChartMan,

For my part, I always try to find both sides of the equation. There has to be two sides to every story. Without that, there is no market so there HAS to be two sides.

Just so, however the chart does not display vital information, which is "intent". This will make a lie of much of the information contained within a chart. As such, the price chart is a flawed concept. Which returns me to your 50% expectancy. This is a short cut to financial disaster.

The views expressed here are my personal views and for your information only. Any expression of likely movement of a share is merely guesswork and is to be treated as such.This information must NOT be used as a basis for making any investment decision.

I find your personal disclaimer very illuminating, I accept that it may well be slightly toungue in cheek, however, it speaks volumes does it not?

Cheers d998

 

[DaveJB]

Ducati,
I don't know what you do with musicians in NZ, but

musicians generally do not compete directly against each other........however when they do, there is only 1 winner, everyone else loses.

but apparently it's lethal - over here a best seller was a concert by 'The Three Tenors' and I'm pretty sure all three walked away trousering a good fee. Is there any particular reason why so many of your 'proofs' rely on completely illogical foundations and logical non-sequitors? Musicians do NOT generally speaking go head to head with only one survivor, and for what it's worth in today's 'sue everyone on the slightest pretext' environment Chartman is simply taking a sensible precaution to preclude being sued by some dummy who figures he can misquote Richard and live off the proceeds.
Dave

 

[DaveJB]

FWIW,
over the past 10 mins I have enjoyed a 20 c rise in NVDA (UK time the 20:10 bar) having traded a simple 1-2-3 over 10 minutes - this is the 4th consecutive move in this stock I've traded using that formation, one broke even (I expected a bigger rise and exited having moved my stop up to my entry point over the preceding half hour or so), the other 3 being winners. Now call me Mr Coincidence, but that's a simple peice of TA right 4 times on the trot - I accept this is possible in the normal run of luck, but I'm still happy with it.... incidentally each entry was planned on TA, I said 'the price will go here, I'll enter when it does this and rises/drops to xxxx. That's a heck of a lot of coincidences playing out - 'up or down' I can accept is occasionally just an unlikely run of luck, but expecting the turns each time, and expecting 3 out of 4 reversals for the exit.... ?

... and I'm a REAL amateur compared to a lot of guys round here.

Dave

 

[ducati998]

Dave,

over here a best seller was a concert by 'The Three Tenors' and I'm pretty sure all three walked away trousering a good fee.

Really, take all performing arts, actors, musicians, writers, and the unemployment rate runs at what ......99%. Sure the guys that make it, make it huge, but the same can be said for traders, not that they are unemployed, just that they don't make it big.

Is there any particular reason why so many of your 'proofs' rely on completely illogical foundations and logical non-sequitors?

I have not proffered these as proofs, these are analogies advanced by others, I have merely utilised their own analogies. The proof, if you like, have been posited by any number of studies showing the overwhelming stats. of daytraders losing. By comparison what proofs have you offered?

Odean received the trading history of over 60,000 accounts that where active been 1991 and 1996 from a discount broker and used the data to study the trading behaviors of online investors. Not surprisingly, most of them underperformed the stock market and only a small minority beat the market. In fact only half of active traders managed to just break even. Most simply made little or lost a little. Only a small minority produced outstanding returns(the top 5% had an average return over 2.41% a month and only 1% had a return over 4.86% a month. Professional investors do not fare all that much better as half of all mutual funds fail to beat the S&P 500 index every year.

Here is one from your very own boards. There are other studies that show equivelent outcomes. The TOP 5% had returns of 2.41%/month, or 28.9% annually. Now I concede that that return is EXCELLENT, but 5% is not a big number. Does it inspire you to give up your day job?

As regards the litigative society that we live in, sure I understand where he is coming from, the wording is what amused me..........you can have a disclaimer that legally fulfills your criteria without using the word "guessing"

over the past 10 mins I have enjoyed a 20 c rise in NVDA (UK time the 20:10 bar) having traded a simple 1-2-3 over 10 minutes

Now without wanting to sound critical and instigate a slanging match, consider the following questions.
1...What trade size (# of shares) did you use?
2...What % of your total funds is this?
3..What % return on total funds does $0.20 represent
4..How many trades at these levels would you have to complete to return 20% on total funds
5..How many losses would it take to reduce the returns to 10%

Cheers d998

 

[DaveJB]

To repeat myself - illogical foundations and non-sequitors - where does the failure rate of traders prove anyhting about TA? You ARE proving that the majority of would be traders fail, but NOT proving anything about TA - there is NO EVIDENCE WHATSOEVER that these people used TA, or (more importantly) used it 'correctly' ... I am perfectly happy to accept that 'correctly' is a fuzzy point, but from my limited experience of fellow traders they are overwhelmingly in favour of flitting from idea to idea like moths, like a number of other T2W habitues I'm not surprised they failed. Neither would I recognise the vast majority as 'TA users' - failing traders proves that traders fail, for the period 1991-1996, knowing how popular guys like Jim Slater etc were in those days, I'd suggest you just 'proved' that growth investing doesn't work as much as anything in the TA line.

I'm not arguing particularly with your selection of TA as a target here, I've already accepted you are anti - TA and somewhat perversely decided to join a predominantly TA board to extol your belief system in trading - what I'm actually objecting to is the sloppy logic you employ as I just don't like people 'proving' ideas with facts (real or perceived) that aren't actually related to the discussion. The returns of traders in general means nothing, if you want to prove something about people following a system or style of investing then you have to concentrate on the results from a group of such people, ensure that they follow the system correctly, and compare their results to that of a control group who are NOT following the system.... that way you have a system of comparison, which then allows you to draw logical conclusions.

I honestly don't give a fig that you don't follow TA or believe in it, I don't believe in it either - it's not a belief system, it's a tool I use and I'm happy with it. As for your final section of questions - they're actually about money management, not the selection process for entry or exit (which TA is) and therefore about as irrelevant as the rest. I could be using any methodology and those questions would be equally relevant (or irrelevant) - they are not of sole concern to TA, and therefore irrelevant to a decision on the effectiveness of TA.

Best wishes anyhow,
Dave

 

[JumpOff]

I am finding this dialogue very enjoyable!

This question is of central relevance,........why do you believe, sitting at home with your computer, any additional data feeds etc, that you can beat the house, on ground of their own choosing, utilising a system that competes on SENTIMENT and MOMENTUM?....

Who said I was trying to beat the house, or even the more experienced traders? I don't mind paying the broker their little pittance. And I have no need to "make a killing." TA reminds me a bit of a vehicle with loose steering - the signals are a little delayed but still useful. I had an ugly old truck like that once - steering was loose as h**l, but I still managed to keep it on the road as long as I didn't get carried away with delusion of grandeur, speed, and my own strength.

If 90+% of new traders lose most of their cash, it may be worthwhile to ask new traders why they trade with cash. Certainly most of them know it's a fool's strategy, but somehow think they are special, smart, intuitive, deserving? Who know's what's going through their heads?

I'd rather learn how to trade before I risk real money - In fact I know that I am already ahead of the game by about $30,000. (That's how much I've 'lost' in the last year paper trading). I am now pleased to be breaking even. I still have to keep learning, and only after several months of consistent gains,will I be ready to open a small account. There is nothing about TA that requires me to put all my assets on the line and start gambling with them. I don't equate paper trading with real trading, but certainly if I can't consistently grow my paper account (which demonstrates I have not mastered even the simple concepts of TA), why try with real cash?

If someone offered to teach how to play the violin in 4 easy lessons for $2,000, and gave a money back guarantee to be playing to sell out crowds next month, is it the violin's fault the idiot plunks down the money?

Flies don't have to predict where the cattle herd will go in order to get a meal, they just have to follow the smell.
JO

Can y'all tell I grew up on a farm?

 

[ducati998]

Dave

Odean received the trading history of over 60,000 accounts that where active been 1991 and 1996 from a discount broker and used the data to study the trading behaviors of online investors. Not surprisingly, most of them underperformed the stock market and only a small minority beat the market. In fact only half of active traders managed to just break even. Most simply made little or lost a little. Only a small minority produced outstanding returns(the top 5% had an average return over 2.41% a month and only 1% had a return over 4.86% a month. Professional investors do not fare all that much better as half of all mutual funds fail to beat the S&P 500 index every year.

,

To repeat myself - illogical foundations and non-sequitors - where does the failure rate of traders prove anyhting about TA? You ARE proving that the majority of would be traders fail, but NOT proving anything about TA - there is NO EVIDENCE WHATSOEVER that these people used TA, or (more importantly) used it 'correctly'

I believe that you are mistaken. I am making some assumptions, and that can be dangerous, however, online investors, and active traders implies short-term trading. Short-term trading implies chart and technical trading, as contrasted with "Professional investors" who are identified as mutual funds utilising some form of fundamental or combination of analysis.
Now if you accept that the short-term traders are in all likelihood utilising charts/T/A, then my argument has foundation and at least by this study proven correct.

failing traders proves that traders fail, for the period 1991-1996, knowing how popular guys like Jim Slater etc were in those days, I'd suggest you just 'proved' that growth investing doesn't work as much as anything in the TA line.

Oh, obviously you will disagree, however "growth investing" as practitioned by many is nothing more than momentum based trading, and subject to all the pitfalls of chart based trading. Obviously I am not going to change your mind, but it would seem that you are unable to even consider the potential pitfalls.

I'm not arguing particularly with your selection of TA as a target here, I've already accepted you are anti - TA and somewhat perversely decided to join a predominantly TA board to extol your belief system in trading - what I'm actually objecting to is the sloppy logic you employ as I just don't like people 'proving' ideas with facts (real or perceived) that aren't actually related to the discussion. The returns of traders in general means nothing, if you want to prove something about people following a system or style of investing then you have to concentrate on the results from a group of such people, ensure that they follow the system correctly, and compare their results to that of a control group who are NOT following the system.... that way you have a system of comparison, which then allows you to draw logical conclusions.

Sloppy logic, interesting, I have simply put forward some ideas and opinions regarding charts which was the whole point of this thread. I also posted an excerpt from a study that provided statistical evidence of the point made.

From your post I assume that you have a correctly constructed research paper, complete with power calculations showing that daytrading will generate returns of XYZ in timeframe ABC etc. Point of fact is, there are studies completed with daytraders showing that it is a very unprofitable undertaking.

I honestly don't give a fig that you don't follow TA or believe in it, I don't believe in it either - it's not a belief system, it's a tool I use and I'm happy with it. As for your final section of questions - they're actually about money management, not the selection process for entry or exit (which TA is) and therefore about as irrelevant as the rest. I could be using any methodology and those questions would be equally relevant (or irrelevant) - they are not of sole concern to TA, and therefore irrelevant to a decision on the effectiveness of TA.

The questions while having a money management context, were not asked in this context.
What I was more interested in knowing was your conviction in your 75% probability rate. How much weighting did you really assign to the set-up, and what were the results to date, as I assumed you would have the data handy, or easily calcuable from your trading records. So again I feel relevance has been shown.

Cheers d998

 

[ducati998]

JO,

Who said I was trying to beat the house, or even the more experienced traders? I don't mind paying the broker their little pittance. And I have no need to "make a killing."

But you are playing the house, and the house are the market makers in NASDAQ, or Specialists in NYSE listed stocks. And this house likes to win. There has already been a settlement regarding blatant manipulation last year from NYSE Specialists. NASDAQ is now electronic, but you don't seriously think that they don't compare order flow? Once upon a time you identified the axe, and tried to duplicate, or stay on his side at least, this may well be an outmoded strategy now however.

I'd rather learn how to trade before I risk real money - In fact I know that I am already ahead of the game by about $30,000. (That's how much I've 'lost' in the last year paper trading). I am now pleased to be breaking even. I still have to keep learning, and only after several months of consistent gains,will I be ready to open a small account. There is nothing about TA that requires me to put all my assets on the line and start gambling with them. I don't equate paper trading with real trading, but certainly if I can't consistently grow my paper account (which demonstrates I have not mastered even the simple concepts of TA), why try with real cash?

On the surface this is an eminently sensible option. It fails however to take into account 1 significant item, and that is, should you eventually graduate to trading size, on a daytrading methodology, you will compete ever more directly with market makers, and they will break "setups" just because its a fast way for them to make a buck, and because they can, and you better believe they know the set-ups.

This is partially why I have been asking the questions relating to position size in relation to set-ups. Forget money management at the moment, it is about the probabilities changing within certain volume characteristics........which relates to your original topic of the reliability of chart patterns.

Cheers d998

 

[JumpOff]

Who said I was trading stocks? Or that daytrading would be my only option. Or that I need to trade large sizes. You seem to be full of reasons why I will neverplay the violin. Meanwhile I am loggin my hours of practice and learning my fingering. People no longer flee when I tune up and rosin the bow.

I am not suggesting that you should play the violin, but I'm tired of hanging around here listening to you tell us all it's not possible.

Good trading to you.
JO

 

[barjon]

ducati998

I have always believed there is potentially greater profit in trading the ups and downs of the market and that the clues were in the price movement. I've been at it since those far off days when you had to draw your own charts and use a ruler for s/r and trend lines to avoid too much rubbing out (and when the amateur couldn't go short of course). Conversely, my wife is a buy and hold speculator.

Sad to say she has outperformed me most years , but I put that down to the fact that I'm still learning . But I reckon I've had more fun and I'm ahead this year so far

The moral as I see it? For your wealth protection/retirement pot - buy and hold (judiciously). Your trading pot is high risk and shoudn't represent a high proportion of the total.

jon

 

[DaveJB]

Hi Ducati,
I give up - you are totally right, I am totally wrong, I'll just keep ignoring it when I get it right, it's obviously a fluke. Have a nice day old chap.
Dave

 

[ChartMan]

Never mind , Dave.... I'm sure you'll get there in the end.

 

[ducati998]

JO,

Who said I was trying to beat the house, or even the more experienced traders? I don't mind paying the broker their little pittance. And I have no need to "make a killing."

As to paying the broker, the smaller the account, the larger the %costs of the brokerage, this should be an important consideration.

I'd rather learn how to trade before I risk real money - In fact I know that I am already ahead of the game by about $30,000. (That's how much I've 'lost' in the last year paper trading). I am now pleased to be breaking even. I still have to keep learning, and only after several months of consistent gains,will I be ready to open a small account. There is nothing about TA that requires me to put all my assets on the line and start gambling with them.

So far you mirror the statistics, you would argue that you are improving, and I accept that. What is still unknown is how the 2 variables that cannot be experienced via paper trading will impact you when you eventuate to real trading, and they are, the emotional element within your own psyche, and the variability of probabilities within your set-ups

.

Who said I was trading stocks? Or that daytrading would be my only option. Or that I need to trade large sizes. You seem to be full of reasons why I will neverplay the violin

Quite so, however you will need to trade size if wealth is your motivation, and would you not rather discuss some of the negatives for free, than pay the market to slap you?

am not suggesting that you should play the violin, but I'm tired of hanging around here listening to you tell us all it's not possible

Well I never said it was not possible, what I have been saying is that for the vast majority T/A has a high failure rate. That charts are a highly inefficient means of trading the markets. That there are other methods that are more efficient. This however, not unexpectedly on a technical forum, does not go down well. What does surprise me however is the real lack of interest in at least debating the point.

I give up - you are totally right, I am totally wrong, I'll just keep ignoring it when I get it right, it's obviously a fluke. Have a nice day old chap.

Now if you believe that daytrading is a profitable undertaking for the majority and this view was accepted fairly universally, then it would be relatively easy to provide some evidence to support your case. No evidence was ever forthcoming, save for my last 4 trades were all profitable using XYZ set-up..........and you criticised my methodology, what a joke.

Anyhow, we can agree to disagree, and I shall abandon the subject.
Cheers d998

 

[DaveJB]

Oh damn,
and there's my AMZN post yesterday suggesting it was a short, and the darn thing just dropped $7.50... when will I learn ??? With an EPS of 1.448 and a P/E of 23.92 it's a bit of a bargain play, and I STILL insist on shorting it. Okay, so the short was up a wee bit, whilst the fundamental play is currently listening to 'abide with me' and sending out for chestnuts (might as well roast a few while we're in here...) but I think we can all agree that the sensible play was in fact the long, and TA was only superficially correct?
Dave

 

[pttrader]

Chart reading is just too subjective. The only thing that matters in short-term trading is "actual" price action. Even though charts are a grafic example of price action they are a lagging indicator. That is the chart is formed AFTER the price has been made thus it is lagging. The problem with charts and these posts prove my point is they are "subjective". You see a triangle where I see something else. Then you base your forecast on the chart formation you "see". I base mine on what I "see". Since we both see two different things our forecast are different. Now IF you base a forecast on actual price numbers instead of any pattern they form you are not being subjective in your forecast but you are being objective with empirical data-real numbers. Therefore, if you have a system that takes the numbers of real price data and does some major number-crunching and arrives at a "most likely" forecast of TOMMORROWS price based upon recent empirical price data THEN you have a system that tends to have a high "win rate". Why is this? Simply because tommorrows prices "usually" are close to the most recent prices. Not always. But "most" of the time. The value of a new Ford truck today is going to be close to it's value yesterday or 5 days ago or even 10 days ago. Generally it is the same way with stocks. Now, if your system takes into account any trend the stock may be in then that could also become a part of the equation. Taking into consideration the present trend AND recent price action a feasible forecast can thus be given for tommorow. That is you can trade without every looking at a chart and trying to figure out a formation and making a forecast based upon a subjective interpretation of a chart formation. Why? Because you are trading based upon numbers that are exact representation of prices. Since tommorow tends to be close to yesterday or a few days ago this makes a feasible system. There are exceptions of course such as gap down or gap up on the open. In such a case you simply key in the new data that includes the gap and you get new numbers to work off from that make a new forecast. Of course, this is providing you do not buy "on the open" but wait to see what the open is going to be like. I have such a system already programmed up as a standalone software. My email is [email protected] if anyone wishes to reach me.

My 2 cents worth on charts. Have a great day,

pttrader

 

[SOCRATES]

Chart reading is just too subjective. The only thing that matters in short-term trading is "actual" price action. Even though charts are a grafic example of price action they are a lagging indicator. That is the chart is formed AFTER the price has been made thus it is lagging. The problem with charts and these posts prove my point is they are "subjective". You see a triangle where I see something else. Then you base your forecast on the chart formation you "see". I base mine on what I "see". Since we both see two different things our forecast are different. Now IF you base a forecast on actual price numbers instead of any pattern they form you are not being subjective in your forecast but you are being objective with empirical data-real numbers. Therefore, if you have a system that takes the numbers of real price data and does some major number-crunching and arrives at a "most likely" forecast of TOMMORROWS price based upon recent empirical price data THEN you have a system that tends to have a high "win rate". Why is this? Simply because tommorrows prices "usually" are close to the most recent prices. Not always. But "most" of the time. The value of a new Ford truck today is going to be close to it's value yesterday or 5 days ago or even 10 days ago. Generally it is the same way with stocks. Now, if your system takes into account any trend the stock may be in then that could also become a part of the equation. Taking into consideration the present trend AND recent price action a feasible forecast can thus be given for tommorow. That is you can trade without every looking at a chart and trying to figure out a formation and making a forecast based upon a subjective interpretation of a chart formation. Why? Because you are trading based upon numbers that are exact representation of prices. Since tommorow tends to be close to yesterday or a few days ago this makes a feasible system. There are exceptions of course such as gap down or gap up on the open. In such a case you simply key in the new data that includes the gap and you get new numbers to work off from that make a new forecast. Of course, this is providing you do not buy "on the open" but wait to see what the open is going to be like. I have such a system already programmed up as a standalone software. My email is [email protected] if anyone wishes to reach me.

My 2 cents worth on charts. Have a great day,

pttrader

This post merits a detailed reply, and I shall give it tomorrow because now it is too late in the day to give it the attention it merits. I will come back to you on this one, i promise.

 

[Salty Gibbon]

Socrates post #44

At the other extreme there are people who purport to derive benefit from watching many screens at the same time. There is a point at which the observer has to decide what constitutes information overload and what does not. The refining of this concept takes a long time, and is the consequence of repeated exposure, which leads to experience.

I believe that I am in this phase at the moment.

I have cut down on my information intake - and stopped the business of trying to monitor 50 charts simultaneously in the hope that I will see my perfect set-up.

I have also drastically cut back the number of set-ups that I am willing to consider for trading purposes.

I am trying to condition my brain to be objective and not to "please" me by seeing things in the charts that are not there. ie. force fitting

As Socrates says this is a long process and involves re-programming of one's brain to a large extent.

When I sit down to trade I tell myself to ignore all but MY own pre-defined "perfect" set-ups which seem to work most of the time - when I look back. However, with the best will in the world my half-century old brain still tricks me into seeing things that are not there, especially after a prolonged period of sitting on one's hands and frustration creeping in.

Yes Socrates, it does take a long time and as you say, at the end of the process - provided one gets to the end - you have gained invaluable experience which hopefully leads to consistent trading success, money falling out of the sky, sun, sand, sex on the beach, tequila sunrises at dawn............ ah the life !!

 

[SOCRATES]

Socrates post #44



I believe that I am in this phase at the moment.

I have cut down on my information intake - and stopped the business of trying to monitor 50 charts simultaneously in the hope that I will see my perfect set-up.

I have also drastically cut back the number of set-ups that I am willing to consider for trading purposes.

I am trying to condition my brain to be objective and not to "please" me by seeing things in the charts that are not there. ie. force fitting

As Socrates says this is a long process and involves re-programming of one's brain to a large extent.

When I sit down to trade I tell myself to ignore all but MY own pre-defined "perfect" set-ups which seem to work most of the time - when I look back. However, with the best will in the world my half-century old brain still tricks me into seeing things that are not there, especially after a prolonged period of sitting on one's hands and frustration creeping in.

Yes Socrates, it does take a long time and as you say, at the end of the process - provided one gets to the end - you have gained invaluable experience which hopefully leads to consistent trading success, money falling out of the sky, sun, sand, sex on the beach, tequila sunrises at dawn............ ah the life !!

Look Salty, as I said, there is no point in complicating matters by choice, since this is complicated enough already. 50 charts is far too much. All beginners fall for the temptation of having multiple screens with multiple dispIays and so on, this is a natural phase that is overcome with time. I use two, maximum three charts, at any given time, special situations exempted.

By the way, it is now 09.10 I have the rest of the day free. I have finished since 11 minutes ago. The ability to enact in a nanosecond is not just experience and knowledge but also as a result of not being hampered by information overload. If you have too much information to consider, you find yourself ricochetting from one view to another. This is a disaster, because it absolutely prevents you from reacting cleanly, that is, pulling the trigger really fast when you need to.

 

[Salty Gibbon]

You going to the beach then Socrates ?

 

[SOCRATES]

Salty, I have had another look at your post above.

The temptation to force fit is the single most dangerous misdirection you can subliminally impose on yourself when looking at a screen. You must adopt a posture of impartiality. You must learn to accept the facts as they are and not as you may think, wish or otherwise misinterpret. You must make yourself intellectually available. You must not have opinions, whether predetermined or otherwise. You must develop the ability to have views, the correct ones, consistently. You must master the concept of leaving your ego and personality out of it. The market does not respect your values or your hopes, aspirations, emotions, as an individual person, but only your judgement as an independent entity.