Does TA work ?

[Stockjunkie]

In my own methodology , I refrain from using too many TAs , as my general premise is that they don't work , at least they way they are marketed .

So with that in mind , I want to talk about 2 things : Head and shoulders charts formations , double and triple tops and RSI .

I start with the RSI . Now this is a strength indicator , supposed giving us a signal of when the market is over bought therefore signalling a sell and oversold , signalling a buy .

However , when observing it diruing my early days , I noticed that not only did this not play out but indeed the reverse began to happen .
When RSi said overbought , for the next couple of hours the instrument at would go higher sometimes quite a lot ! That's when I decided as a so called buy / sell indicator , it wasn't much use in the regular sense.

The same with reversal patterns , a lot of times when I notice H&S , doubles , triple occuring , the price tends to do nothing or it goes the way it is supposed to for a short while and then reverses the reversal in a big way .

Not good.

However I have observed and modified the above . It has to do with combining these with other indicators and the connection between the different trends that run within a large time frame .
Also , I use these differently depending on if I am going long or short .

 

[tommog]

Hi,

Depends what you mean by TA, anything that involves looking at price movement and making a decision on price direction is TA in my opinion.
If by TA you mean indicators, personally i have little use for them, MACD cross overs, EMA cross overs tell you if the market is going up or down, a child could tell you whether price is in an uptrend or downtrend you dont need trend following indicators in my opinion.
Other indicators such as ADX RSI etc tell you whether we are accelerating in any particular direction, again i dont feel you need a study to show this, a good trader can tell this without technical studies.
However, i think TA can be helpful to people that perhaps feel they dont have the reading of the market, and want to clarify what the overall picture of the market is.

But remember this, indicators dont give you signals, they give you a picture of what is happening in the market, its up to you make a decision upon that. For example Stochastics may read oversold, but that doesnt mean the market will be bought back, thats where people go wrong.

Tom

 

[Stockjunkie]

You have answered your own question .

Reading / feel for the markets are NOT TA , they are individual qualities rather than analysis.

And No you are mistaken or underestimate HOW indicators are marketed , and a lot of them most definitely are labeled as signals . The word indicator implies a signal in itself . My point that they don't work as they should but DO work with modification and personalisation ( at least the few that I use )

 

[rich64]

Hi,

Depends what you mean by TA, anything that involves looking at price movement and making a decision on price direction is TA in my opinion.
If by TA you mean indicators, personally i have little use for them, MACD cross overs, EMA cross overs tell you if the market is going up or down, a child could tell you whether price is in an uptrend or downtrend you dont need trend following indicators in my opinion.
Other indicators such as ADX RSI etc tell you whether we are accelerating in any particular direction, again i dont feel you need a study to show this, a good trader can tell this without technical studies.
However, i think TA can be helpful to people that perhaps feel they dont have the reading of the market, and want to clarify what the overall picture of the market is.

But remember this, indicators dont give you signals, they give you a picture of what is happening in the market, its up to you make a decision upon that. For example Stochastics may read oversold, but that doesnt mean the market will be bought back, thats where people go wrong.

Tom

Agreed about most indicators, but surely TA at a basic level is valid due to the large number of traders looking for the same thing and the law of "self-fulfilling prophecies"

Support and Resistance tends to be important as, for the most part, human nature is similar. If a stock is rising/falling it is normal that traders will have set stops or limit orders at the next whole number or just above creating resistance/support.

I use basic TA to be aware of what the stock has done that day (and week to some extent) when trading the Nasdaq but only as a point of reference as price action from the Level2 screen is always more important to me in making the final trading decision.

 

[SOCRATES]

TA does not work, but the thinking applied to it is what makes it work.

But then this thinking is not mainstream thinking, it is a sort of Alice in Wonderland kind of thinking, and this serves to baffle and frustrate ordinary people.

Indicators and signals do not work either, but a proper understanding of the reasoning behind them may work, but only if applied properly.

Nothing exonerates anyone from having to do the proper work required.

But before this work can be done one has to work on oneself first, and then everything else after.

For this reason I hold the view that traders are born, and not made.

 

[Stockjunkie]

TA does not work, but the thinking applied to it is what makes it work.

But then this thinking is not mainstream thinking, it is a sort of Alice in Wonderland kind of thinking, and this serves to baffle and frustrate ordinary people.

Indicators and signals do not work either, but a proper understanding of the reasoning behind them may work, but only if applied properly.

Nothing exonerates anyone from having to do the proper work required.

But before this work can be done one has to work on oneself first, and then everything else after.

For this reason I hold the view that traders are born, and not made.

Agreed , I would extend the concept of understanding the the formulation of indicators to then being able to recombine them and reinterpret them into winning combos.

 

[TWI]

Problem with TA is that a lot of traders complicate it too much. If you keep it simple you will find that there are times when you need to ask yourself,
"If I am not prepared to buy/sell this here then when on Earth would I buy/sell it"
When the answer to that question is "never" get on board and place your stop.
Recent examples would be weekly Nikkei inverted SHS, (resulted in one of my best trades of the year). Double top in US long bond, USDJPY 115 upside break. All 100% technical trades.
I am a big fan of fundamentals as I largely trade commodities, but there is no point in being right fundamentally and then blowing your pot on timing inefficiency. I used to work for Cargill which meant reports from all over the World every day, I do not recall ever making a trading decision from a chart in my 4 years there. Now I rely on far less complete fundamentals and so technicals have to fill that efficiency gap.
Who is happy trading without a chart? If you are then I would call you fundamental. If you require a chart then you are technical by virtue of studying it.
I have been from simple through complex and back to simple with technical analysis. I now know what works for me but still I learn. It has taken 15 years so far.

 

[SOCRATES]

Agreed , I would extend the concept of understanding the the formulation of indicators to then being able to recombine them and reinterpret them into winning combos.

Yes, granted. But as "abstract concepts" and not as mechanical displays.

 

[Stockjunkie]

in my view , you either have something that works within 6-8 months of serious trading or you are going to find it very hard to a consistent winner.

 

[tommog]

Twalker,

Interesting you used to work for Cargill, i used to be a broker at ACI and we handled large volumes of trades from your Soybean oil desk, were you involved in that?

As i stated i am not a huge fan of indicators i believe they only show what can already be seen from price action, one or two indicators can occasionaly smooth the data and make the charts seem a little less complicated, but the more indicators you have the more clouded the picture starts to become again.

If by TA we are refering to S/R levels, patterns etc then id have to say they definately do work. Indicators lag the market but S/R levels give us the chance to anticipate the market. It takes big money buying and big money selling to halt a move and form a resistance level, it is these big money players that control the market, their advantage is they know when they are going to step in and effect the price action. Their disadvantage is that they leave very big clues in the market as to where they are camped out, good traders exploit that.
When people say "no TA doesnt work" i have no idea what they are talking about, unless you are looking at some aspect of a chart whether it be moving averages, support/resistance, chart patterns, volume etc etc then what exactly are you looking at? Just randomly guessing?

 

[Stockjunkie]

yes , you understand by default .

I agreed with Soc on the indicator point but I also do agree that traders are born not made .

BUT that does fit in with my earlier comment . Traders are born - yes , YET winning trading can be taught - yes .

HOW ? simple only those who can trade will have the potential to transfer that talent to students .
You cannot teach what you don't know or don't have - that is the ability to trade successfully .

See Dennis & the Turtles , as if you don't know.

Your last point I agree with .

 

[TWI]

Tommog - I did work at both the UK and Amsterdam soycrush for a while but dealt with the bean and meal import from US/Brazil not the actual domestic crush side.
Was great place to work and even today I consider it the best foundation anybody could have for trading commodities. Only downside was that the city paid much better so I had to leave.

 

[SOCRATES]

in my view , you either have something that works within 6-8 months of serious trading or you are going to find it very hard to a consistent winner.

Yes agreed, because if something does not work it does not because it cannot work at all at a mechanical level, which is at the rock bottom starting level of proficiency.

 

[SOCRATES]

Twalker,

Interesting you used to work for Cargill, i used to be a broker at ACI and we handled large volumes of trades from your Soybean oil desk, were you involved in that?

As i stated i am not a huge fan of indicators i believe they only show what can already be seen from price action, one or two indicators can occasionaly smooth the data and make the charts seem a little less complicated, but the more indicators you have the more clouded the picture starts to become again.

If by TA we are refering to S/R levels, patterns etc then id have to say they definately do work. Indicators lag the market but S/R levels give us the chance to anticipate the market. It takes big money buying and big money selling to halt a move and form a resistance level, it is these big money players that control the market, their advantage is they know when they are going to step in and effect the price action. Their disadvantage is that they leave very big clues in the market as to where they are camped out, good traders exploit that.
When people say "no TA doesnt work" i have no idea what they are talking about, unless you are looking at some aspect of a chart whether it be moving averages, support/resistance, chart patterns, volume etc etc then what exactly are you looking at? Just randomly guessing?

No, not exactly, there is no random guessing in it. Random guessing applies to games of chance, like Roulette and the Lottery and Bingo.

The chart is just a chart, and that is all it is.

It is just there to confirm a record of what is happening and what has happened, nothing more.

 

[SOCRATES]

On another thread you have commented that trading can be taught and yet on this one you are agreeing with Socrates when he said traders are born not made or has there been a misunderstanding somewhere?

My own view on TA is that it works well almost in reverse. By that I mean that it works well for the 5% of people who dont use it who take the money off the other 95% who do use TA


S4T

I think what you probably mean is just that it works well for the 5 % of people who don't RELY EXCLUSIVELY on it who take the money off the other 95% who RELY on it.

A chart is just a chart after all. It is in terms of what can best be described as "multidimensional abstract conceptualisation", ineffectual absolutely.

 

[Stockjunkie]

I think what you probably mean is just that it works well for the 5 % of people who don't RELY EXCLUSIVELY on it who take the money off the other 95% who RELY on it.

A chart is just a chart after all. It is in terms of what can best be described as "multidimensional abstract conceptualisation", ineffectual absolutely.

Couldn't have put it better myself . And not exclusively can mean just 1or 2 added modifications , which can make all the difference between winning and losing. This is what the masses don't understand .

 

[SOCRATES]

Couldn't have put it better myself . And not exclusively can mean just 1or 2 added modifications , which can make all the difference between winning and losing. This is what the masses don't understand .

What I mean by not exclusively is not related to applying modifications per se.

"Not exclusively" relates not to the use of the charts but to the thinking that underpins the reasoning. It is the reasoning that counts and not modifications. For this reason a whole roomful can be looking at a chart and seeing anything except the true meaning within the chart itself.

IThe chart does not and cannot display the abstract element because what is missing is the inability of the occupants of the room to manipulate what is an abstract concept into a tangible reality, and what is a tangible reality backwards into what is a an abstract concept, to and fro until fusion takes place.

Very few have the natural ability to manipulate and re engineer abstract concepts in this way, as it is not mainstream thinking, and is a natural gift and not a learned skill.

In parallel it would be somewhat like this:~

One very small group of priviledged people allowing themselves to take control of a vehicle and are driving it, for real.

Another group of people not allowing themselves to drive a vehicle, and instead contenting themselves with the idea of driving it, and resorting to driving in virtual reality, in which they see the road in front of them on a screen and drive, but what they percieve is the road laid out in front of them and the road made to move under the car and not the other way round. This is not driving, because driving for real is not only material reality, it also involves real control instead of virtual control.

If the second example was the only experiential example available (with very very few exceptions) it would then logically progress to the great majority blindly arguing that the car is static, but the road moves under it.

This is exactly what happens in terms of a perceptual trap that the masses fall into. In the world of trading there are many variations of this trap. Any one of the complete family has the ability to totally disable and disempower the victim completely.

Therefore as a perceptual parallel, if the masses were to be effectively corrupted to believe that the road moves under the car, it is best if they are left corrupted and prisoners of their own perceptions, and thus to leave the roads free for real drivers to enjoy.

Therefore as there are very few who do not succumb to become prisoners of their own perceptions, for this reason I hold the view that real traders are born, and not made.

 

[tommog]

Socrates,

When you say:

"No, not exactly, there is no random guessing in it. Random guessing applies to games of chance, like Roulette and the Lottery and Bingo.

The chart is just a chart, and that is all it is.

It is just there to confirm a record of what is happening and what has happened, nothing more"

I am particularly confused by your last line, when you say "It is just there to confirm a record of what is happening and what has happened, nothing more" are you saying that you dont base your trading decisions on a chart seeing as it is "nothing more than a record", you say it isnt gambling or "not exactly". I may be misreading what you write but am i correct in saying you dont base your trades on a chart? If not a chart how else do you go about placing a trade? PLease expand

Tom

 

[scrappy]

what a load of rubbish.

cant believe you guys actually believe this crap. Tangible, abstract - only to those who don't know what heir looking for.
Soc, didn't you say trading was simple, only we make it difficult.

 

[SOCRATES]

Socrates,

When you say:

"No, not exactly, there is no random guessing in it. Random guessing applies to games of chance, like Roulette and the Lottery and Bingo.

The chart is just a chart, and that is all it is.

It is just there to confirm a record of what is happening and what has happened, nothing more"

I am particularly confused by your last line, when you say "It is just there to confirm a record of what is happening and what has happened, nothing more" are you saying that you dont base your trading decisions on a chart seeing as it is "nothing more than a record", you say it isnt gambling or "not exactly". I may be misreading what you write but am i correct in saying you dont base your trades on a chart? If not a chart how else do you go about placing a trade? PLease expand

Tom

A chart provides a background record and a reference of what has transpired and if the chart is running in real time, it also shows the current price and how it is moving, no more no less.

The key is not basing a trade dependent upon what is displayed on a chart, the key is dependent upon the implications that the chart displays in limited format, in only one dimension, which is flat format. The decision to committ or not to commit and in which direction hinges on understanding.

I will give you a parallel example:~

One evening in the Channel Islands I was having a Curry with someone in an Indian Restaurant in St. Peter Port. We were discussing this very subject from the point of view of perceptions.

On the wall was a very attractive painting. This painting showed an Indian dignitary sitting in an armchair. The scene was the patio of his home, al fresco. All round the perimeter of this patio people thronged, sitting, standing.

On his right were some musicians. Right in front of him was a girl, scantily but elaborately costumed, dancing in her bare feet, with bells around her ankles. In a corner was a small brazier, burning incense. There was a brass tray at his side, with a jug on it. In his hand he held a goblet, as he leaned forward and was putting his attention on the girl dancing, obviously for him.

What hung on the wall was a painting. Just a painting.

But, if you had the ability to penetrate the barrier of abstraction you could very well have been there yourself also, in the painting come to life, and you would have heard the music, smelt the incense, seen the people standing and the musicians playing, watched the girl dancing, and seen the interaction between the entertainer and the entertained.

It would no longer just have been a painting on the wall. It would have been very real if you could have been in it, instead of just looking at it.

Charts are like the painting, all they display is imagery. The meaning is in your perception.

Your perception is what really counts in you enjoying the painting so much by almost being there yourself. Now the painting is no longer a picture, it becomes very real to you.

But it is only a painting, it is not real. But you can make it real by altering your perception of it.

A chart is only a chart. It is how you are able to manipulate your perception of it that makes more than it really is. For this you have to get inside it and be it. But it has limits.

But what happens is that when you are able to get inside it so far you are able to clock what has happened right up to the last second, and bring it to life.

You can now dispense with it. It has now served its purpose as far as is practically possible.

The decision to committ or not to and in which direction comes from understanding.

Understanding is very far beyond what a chart can display. This understanding is a form of "Knowing". Knowing and Understanding hinge upon one another. they are inseparable.

It is through knowing and understandting that correct decisions are always made.