If you want to fail as a trader, study TA

[dcraig1]

So, in effect, you are using something yet have no idea why it works ?

Either your reading comprehension is lacking or you want to set up straw men. Which is it?

 

[DionysusToast]

I'm not disagreeing with you or even advocating any particular trading style. Rather just trying to illustrate that DT is talking a whole load of nonsense.

It is of course interesting that I am speaking nonsense, yet I back up every point I make with an explanation of why I think this is the case.

The arguments against my views are not often presented with points as to why I am incorrect.

Now, if we are technically minded, then surely we should be able to back up S/R with some reasons for it's validity.

I will start with one valid reason that intraday support will work. Simply put, some buy side trader may have a large amount of buy orders to fill at a specific price point. As long as this order is not completed, price will not penetrate this level. Of course, each time price returns to this level, those orders are depleted and eventually there will be none left at which time support will fail. Obviously, this will only be evident within a narrow timeframe. This is also a very specific case and not all points where price changes direction will be a place where a large bunch of orders is sitting ready to eat all of the selling.

So, there is a reason for Support to work in a small timeframe on a stock/future. Clearly, the same case cannot be applied to Forex as there is no buy side trader with a large order to fill, it's a different marketplace that works in a different way.

Can anyone present a similar case for support working in higher timeframes, specifically across days/weeks/months/years ? I certainly can't as I think splitlink is right in his assessment.

 

[kimo'sabby]

I have one goal here. That is to help people learn from my mistakes.


Fantastic, so the mentored becomes the mentor after a half hour training session, and for someone who talks about trading reality....

There are people on this site who are genuine helpers, Trader Dante comes to mind. He's not just helpful, he's got credibility and credibility goes along way in terms of being able to trust what he says.

Unsubscribed.

 

[DionysusToast]

Either your reading comprehension is lacking or you want to set up straw men. Which is it?

Serious discussion on why S/R works and what the dynamics are in the marketplace at the time that S/R is impacting price behaviour.

 

[jon1971]

Serious discussion on why S/R works and what the dynamics are in the marketplace at the time that S/R is impacting price behaviour.

Why are you so desperate to understand why it works DT? Is it because of your need for absolutes in your analysis. You don't have to understand why it works to make money, you can't be the master of the market.

It works or doesn't for any number of underlying reasons, but mainly because there is no conviction from ANY market participants that price will move beyond it, therefore buying pressure (using long as the example) is spent at that level. Maybe because all of the big players are out to lunch.

Get this; YOU WILL NEVER KNOW THE REAL REASON WHY A PRICE BREAKS OR DOESN'T BREAK A LEVEL (unless you are the individual with the financial and psychological resources to push it through, to take out all of the offers at that level and push it one tick higher or maybe stood next to the guy doing it in the pit) AND WHAT'S MORE, YOU DON'T NEED TO KNOW if you view your analysis as probabilistic.

 

[SH-101]

You don't have to understand why it works to make money

I'd tend to agree with that. I make significant use of fibs in my trading and also somewhat less significant use of pivots. Other than the self-fulfilling prophecy line I can't explain why the market reacts to them but I've never needed to; knowing that - in the right conditions - there is a good chance they will provide the reaction I'm looking for is enough for me.

There is some theory behind other types of S/R that I use but even then I can't prove that those theories are necessarily correct and again, I don't actually need to know - it's enough for me that over the years they've worked time and time again.

Maybe I'm just too much of a simpleton for the advanced stuff

 

[jon1971]

PS. I know S&R are zones and not specific price levels, but I'm trying to keep it simple. You know that old chestnut the "K.I.S.S." principle.

 

[jon1971]

Maybe I'm just too much of a simpleton for the advanced stuff

You and me both...

 

[wackypete2]

You don't have to understand why it works to make money, you can't be the master of the market.

I agree with this, although it helps if you understand. A very simplified example is most people have no clue how the banking system works, but they do know if they put a few dollars in their savings account the bank pays them interest. Most will even tell you they don't care how it works as long as they get their interest. (ok, it's a very paltry amount but thats not the point).

Peter

 

[Splitlink]

PS. I know S&R are zones and not specific price levels, but I'm trying to keep it simple. You know that old chestnut the "K.I.S.S." principle.

A zone covers a lot of points, so when you enter you put a stop at where? It's very grey area to cover so I KISS, too. A straight number with no pondering about where the best place is.

 

[jon1971]

I agree with this, although it helps if you understand. A very simplified example is most people have no clue how the banking system works, but they do know if they put a few dollars in their savings account the bank pays them interest. Most will even tell you they don't care how it works as long as they get their interest. (ok, it's a very paltry amount but thats not the point).

Peter

Fair point Peter, but what I'm saying is that you will never know the real reason, the underlying reasons for price movement, unless you are the "DYNAMIC" trader (by dynamic, I mean having the resources to actually move a market on your own, for your own agenda).

Maybe he's buying to break resistance so he can access a ton of retail stops to create an instant pool of short covering or rather buying because he wants to sell his massive position into that short covering. Once he's dumped his 100K lot or 500K or pick a number, what happens then? We get what is commonly referred to as a false break.

The point being, your analysis cannot read his mind, so the real reason your analysis worked or didn't will be so far away from what you think it is, it's not worth fretting over.

TA works because (although it can't measure the motivations of the individual dynamic trader), it can measure mass psychology, ie. all the rest of the poor schmucks.

And yes it is all rather paradoxical, which is why we think probabilistically and employ rock solid money-management.

 

[jon1971]

A zone covers a lot of points, so when you enter you put a stop at where? It's very grey area to cover so I KISS, too. A straight number with no pondering about where the best place is.

What ever works for you Spitlink.

 

[montmorencyt2w]

Fair point Peter, but what I'm saying is that you will never know the real reason, the underlying reasons for price movement, unless you are the "DYNAMIC" trader (by dynamic, I mean having the resources to actually move a market on your own, for your own agenda).

Maybe he's buying to break resistance so he can access a ton of retail stops to create an instant pool of short covering or rather buying because he wants to sell his massive position into that short covering. Once he's dumped his 100K lot or 500K or pick a number, what happens then? We get what is commonly referred to as a false break.

The point being, your analysis cannot read his mind, so the real reason your analysis worked or didn't will be so far away from what you think it is, it's not worth fretting over.

TA works because (although it can't measure the motivations of the individual dynamic trader), it can measure mass psychology, ie. all the rest of the poor schmucks.

And yes it is all rather paradoxical, which is why we think probabilistically and employ rock solid money-management.

If you think probabilistically, then you must have some idea of the probability of a given support or resistance level "holding". What is your knowledge of these probabilities based on?

How do you guard yourself against the danger of remembering when these levels "held" and fogetting about when they failed?

[maybe that is bringing this back to a bit of psychology].

What are your grounds (i.e. what is your evidence) for believing that TA can measure mass psychology?

@Whackypete2: I think in view of recent history, taking the banks is a particularly bad example. If we all knew a bit more about how the banks actually worked, they might have been forced into being a bit more accountable, and some of the problems may not have occurred or may have been mitigated.

@Split:

What exactly does

A zone covers a lot of points, so when you enter you put a stop at where? It's very grey area to cover so I KISS, too. A straight number with no pondering about where the best place is.

actually mean? I know what you mean by saying S/R is a zone and not an exact level (even though traders on here often go on about judging it to the exact pip, but let's leave that, since you obviously don't).

If it is a grey area, where are you getting this "straight number" from that you don't need to ponder about? Do you just mean that you stick it at the far end of the zone to play safe? I would understand that of course, though it doesn't sound like the exact science that some proponents of TA would have us believe, with their über-macho tight-stops and all (probably tight T-shirts and jeans as well... ).

 

[jon1971]

If you think probabilistically, then you must have some idea of the probability of a given support or resistance level "holding". What is your knowledge of these probabilities based on?

How do you guard yourself against the danger of remembering when these levels "held" and fogetting about when they failed?

[maybe that is bringing this back to a bit of psychology].

What are your grounds (i.e. what is your evidence) for believing that TA can measure mass psychology?

@Whackypete2: I think in view of recent history, taking the banks is a particularly bad example. If we all knew a bit more about how the banks actually worked, they might have been forced into being a bit more accountable, and some of the problems may not have occurred or may have been mitigated.

@Split:

What exactly does


actually mean? I know what you mean by saying S/R is a zone and not an exact level (even though traders on here often go on about judging it to the exact pip, but let's leave that, since you obviously don't).

If it is a grey area, where are you getting this "straight number" from that you don't need to ponder about? Do you just mean that you stick it at the far end of the zone to play safe? I would understand that of course, though it doesn't sound like the exact science that some proponents of TA would have us believe, with their über-macho tight-stops and all (probably tight T-shirts and jeans as well... ).

Hi Mike, re, S&R, you've answered your own question (later in your post), ie. other evidence.

I don't actually use much flat S&R in my methodology. I use it for my initial profit target (to cover risk exposure ASAP, in a scaling out strategy) and that's about it.

If I have cluster support just beneath (or cluster resistance just above) my entry then I will use it as secondary evidence, I certainly don't put much value on a single flat line.

My signals are generated from other areas, trend structure analysis, momentum strength indicator (my own custom set up) and I dial in my entries using stochastic to define cycle peaks and troughs (NOT ON STANDARD SETTINGS) I get further confirmation by going to a higher TF and analysing a couple of indicators on that.

Please don't ask me to explain how TA measures Mass psychology, I'm sure some other TA fan can take that up with you. I'll say something about Dow theory or something and DT will never let me hear the end of it. Also, I rarely get clarity of expression, I know what I'm going on about, but conveying it in understandable terms is a whole different thing.

Cheers,

Jon

PS. I base my probabilities on past performance of my model, I review on-going & regularly, once I've completed a specified number of trades, a pre defined sample size (to account for changes in the market environment).

 

[Traduk]

With a little bit of thought I would think that TA measuring mass psychology is self explanatory.

If in mass traded markets the driving force of price is the underlying psychological bias of the mass of participants then a measure applied to price is measuring both price and the driving motivation of those that move price.

There may be a lot of follow the leader but if price is bullish then movers and shakers are optimistic about higher prices and if price is dropping like a stone the movers and shakers are taking to the life-boats (pessimism). The public driven by media and brokers fit into the equation as major players by being driven upwards by fear of missing out (greed) and in severe downturns, capitulation for fear of financial ruin.

TA is no good on many stocks and some markets because they are not traded enough for true market forces to govern price and are therefore more manipulated than driven by mass psychology.

 

[DionysusToast]

Why are you so desperate to understand why it works DT? Is it because of your need for absolutes in your analysis. You don't have to understand why it works to make money, you can't be the master of the market.

Then you will never improve.

You will never learn about clustering around certain strike prices near expiration time which will give you false flags on S/R.

You will analyze failed trades and find out that some of your failed trades failed because of preventable fundamental reasons.

Or perhaps you are suggesting that once you learn TA, there is not a factor on the planet outside of TA that could improve your trading.

Interesting indeed.

This is the fate of the TA purist - they think something will work because of anecdotal evidene on teh interweb. It probably qualifies as a cult. No-one can explain why it's supposed to work but they trade it anyway.

Perhaps it's faith. More likely - it's mass psychology. Everyone talks it up so no-one questions it.

 

[Charlton]

An edge

This all boils down to whether or not YOUR version of TA or FA is causal or symptomatic and how much information is available to you. This in turn boils down to what really moves price. In my view this is not just TA and not just FA, but involves aspects of both.

If you have access to information that informs you as to the cause of price movement then this must be better than simply having information about the symptoms of price movement.

It means that you can act quicker.

However iff you only have access to the symptoms then you can still make money if you have access to/are able to analyse the data better/quicker than others.

In all cases, unless you are specifically the individual that causes price movement, the latency of the information is also a measure of the probability your ability to determine price movement ahead of other participants.

If you are ahead of the game you are increasing your probability of creating an edge. This is the best that you can do and aim for and, as such, there is no black and white, no right or wrong, but a gradation of shades that represent success or failure within the equity curve.

Charlton

 

[jon1971]

Then you will never improve.

You will never learn about clustering around certain strike prices near expiration time which will give you false flags on S/R.

You will analyze failed trades and find out that some of your failed trades failed because of preventable fundamental reasons.

Or perhaps you are suggesting that once you learn TA, there is not a factor on the planet outside of TA that could improve your trading.

Interesting indeed.

This is the fate of the TA purist - they think something will work because of anecdotal evidene on teh interweb. It probably qualifies as a cult. No-one can explain why it's supposed to work but they trade it anyway.

Perhaps it's faith. More likely - it's mass psychology. Everyone talks it up so no-one questions it.

Ahh DT, no P&L screen shots today? Surely you've not entered the draw-down phase of your boom & bust cycle already.

"You will never learn about clustering around certain strike prices near expiration time"

Why's that then DT? You explain it to me, or is it just another vague concept that's popped into your head? (I mean why it is you think I'm incapable of learning anything, not the part about contract expiration).

 

[kimo'sabby]

Then you will never improve.

You will never learn about clustering around certain strike prices near expiration time which will give you false flags on S/R.

You will analyze failed trades and find out that some of your failed trades failed because of preventable fundamental reasons.

Or perhaps you are suggesting that once you learn TA, there is not a factor on the planet outside of TA that could improve your trading.

Interesting indeed.

This is the fate of the TA purist - they think something will work because of anecdotal evidene on teh interweb. It probably qualifies as a cult. No-one can explain why it's supposed to work but they trade it anyway.

Perhaps it's faith. More likely - it's mass psychology. Everyone talks it up so no-one questions it.

re-subscribed.

I have to say this DT, because i feel a little bit guilty, i think a lot of your arguement makes sense, in the main i think you are right about what you are saying....i just like playing devils advocate.

We often hear the phrase 'i do not predict', text book TA is predicting, would you agree?

If we take open interest and volume, let's say we are looking at the DOM, it becomes more evident about which side of the market a trader should be placed. That's not saying that any trade is going to be absolutely probable, but a least a trader knows when they are in the ball park so to speak in terms of on-side and off-side. Would you agree?

Now, if we take what i have said above can be reflected in the price, without knowing or having an idea about how volume or open interest works, is price action only trading just another TA textbook gimmick?

I personally can't make my mind up about this, but i would probably lean towards the side of yes it probably is.

Any thoughts, anybody?

 

[jon1971]

re-subscribed.

I have to say this DT, because i feel a little bit guilty, i think a lot of your arguement makes sense, in the main i think you are right about what you are saying....i just like playing devils advocate.

I've conceded that he makes the odd good point, but he is very selective in highlighting other peoples sentences and taking them out of context and then lambasting people for saying something that they didn't actually mean.

I'm going to be a bit out of my depth talking about futures & options as it's not an area that I currently work in. However, it is an area that I'd like to learn about, so I shall be reviewing this thread with eager anticipation of getting a few usable nuggets. Don't disappoint now...