If you want to fail as a trader, study TA

[DionysusToast]

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

Let me get this right - if I do post P&L, I am trying to sell something. If I don't post P&L, I am losing money ?

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

Well - I think it is fairly self explanatory - prices tend to cluster around certain strike prices near expiration time. Stocks have derivatives and those derivatives can obviously impact the action on a stock - especially around expiration time. Sometimes the action on an instrument is not because of the instrument itself. It is because of an external factor, like a derivative.

Research can be found on google if you type in someting like "price clustering options". If anything it is interesting reading. I use this example as it shows how S/R patterns can be created by the action of a derivative and not because of psychological levels/pivots/ or whatever reason S/R is supposed to work. This will not happen in markets that do not have underlying derivatives - like most forex markets. So - we can see that specific markets can produce different TA patterns ecause of the different structure and therefore knowing your market can add to your edge.

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).

It is simple - if you use a TA technique and ignore everything else, then you presume that everything you need is TA and nothing else matters. It therefore goes without saying that you will not look outside of TA when trades fail. So, you limit the horizons within which you look for improvements.

 

[rathcoole_exile]

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

Do you know what percentage of S/R play out the way you expected them to ?

enough

 

[DionysusToast]

enough

Not after 4 pints at Dirty Nelly's it isn't...

 

[rathcoole_exile]

(they were wrong).

so what ?? this is the fundamental flaw with every mickey mouse trader, that they think they have to be right all the time !!

imagine a scenario where you plan in advance that once price dips below the two upper lines, whatever they are, you will be a buyer, but once price pushed through the third barrier, you concede and line up with the bears

so the first trade is probably a scratch, maybe +2, move SL to B/E...DONE
trade two is a definite LOSER (again, I ask "so what"), but only -2 or so because of your tight stops
the third trade, when you go with the flow and flip from long to short, is err hum, a big winner.

that's all it is guys........you win some, you lose more, you scratch a few

NOBODY EVER WINS ALL THE TIME, AND AS SOON AS YOU CAN ACCEPT, NAY EVEN WELCOME LOSERS, AS SETTING YOU UP FOR THE NEXT BIG WIN, THE BETTER,

but you won't, so fkk youse........

 

[jon1971]

Phew, I was starting to worry then, thinking you'd had a bad day. Look I was only kidding, of course I don't want to see your results, but you set yourself up the other day by posting them like that.

DT, where have I ever advocated a PURE TA approach? That one time I said 99% TA, which I later said was an exaggeration and in any-case 99% is still not pure. Your trouble is that you misinterpret what people say and for some reason seem to take it personally. I'll direct you to post number #443 which is where this started getting personal and it wasn't my post.

As I've said I'm currently at a stage where I want to focus on a purely mechanical approach FOR THE TIME BEING, once I've proved to myself that I can generate positive equity growth using that, I will move on to a more subjective & discretionary approach. It kind of goes back to my "not one-size fits all" point "horses for courses" if you will.

Anyways thanks for the tip (now are you sure that I'm actually allowed to read some theory? joke).

Actually I have about 6 hours worth of Options Boot-camp avi.s buried somewhere on my hard drive that I've never bothered watching, will have to dig them out.

 

[SH-101]

that's all it is guys........you win some, you lose more, you scratch a few

Exactly - I could scratch my head all day long wondering which non-technical reasons caused me to lose a trade, or I can chalk it up to probabilities and move on, happy that over an extended sample of trades I will make a profit because I have what I define as an "edge". No need to over-complicate any more than that...
:cheers:

 

[kimo'sabby]

Let me get this right - if I do post P&L, I am trying to sell something. If I don't post P&L, I am losing money ?



Well - I think it is fairly self explanatory - prices tend to cluster around certain strike prices near expiration time. Stocks have derivatives and those derivatives can obviously impact the action on a stock - especially around expiration time. Sometimes the action on an instrument is not because of the instrument itself. It is because of an external factor, like a derivative.

Research can be found on google if you type in someting like "price clustering options". If anything it is interesting reading. I use this example as it shows how S/R patterns can be created by the action of a derivative and not because of psychological levels/pivots/ or whatever reason S/R is supposed to work. This will not happen in markets that do not have underlying derivatives - like most forex markets. So - we can see that specific markets can produce different TA patterns ecause of the different structure and therefore knowing your market can add to your edge.



It is simple - if you use a TA technique and ignore everything else, then you presume that everything you need is TA and nothing else matters. It therefore goes without saying that you will not look outside of TA when trades fail. So, you limit the horizons within which you look for improvements.

A lot of the differences in opinion come from what instrument a trader uses, Spreadbetters can really only rely on textbook TA principles, whereas DA traders will probably pick up on other techniques.

The rolling sp500 contract price offered by an SB firm may be 3 pts off what is deemed to be technical support, but 3 pts to a DA trader is 12 ticks, and so when a lot of sbers are starting to buy in DA traders can still be getting in on the short side with tight pre-set trade parameters. This is a big advantage considering how price generally whips into supportive areas.

I have nothing against SB traders or companies, but i do think that the SB traders can be limited in terms of techniques.

Just an observation.

 

[jon1971]

imagine a scenario where you plan in advance that once price dips below the two upper lines, whatever they are, you will be a buyer, but once price pushed through the third barrier, you concede and line up with the bears

Wouldn't know fella, I don't trade reversals. I leave that to the mugs and those that have a decent spot on the information curve. (it's a probability thing).

 

[wackypete2]

re-subscribed.

Ahhhh, just couldn't stay away, could ya!!

Peter

 

[kimo'sabby]

Ahhhh, just couldn't stay away, could ya!!

Peter

Is there a smiley that denotes a sucker?

Re-subscribed.:sucker!:

It could have saved you some finger work

 

[jon1971]

Originally Posted by dcraig1 View Post
No - because many traders are observing S/R. It's neither a prophecy nor self fulfilling. It is a factor that influences price behavior.

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

Do you know what percentage of S/R play out the way you expected them to ?

Good grief, I really need to get a life, it's a lovely evening out there...

I think that you're entirely missing the point that dcraig1 is trying to make here DT

You asked, What % of S/R plays out the way you expected?

He stated (I believe and please correct me if I'm wrong dcraig) that he has NO expectation of it, he merely sees it as an area of interest where price MAY reverse or MAY consolidate briefly before continuing, of course if bullish or bearish conviction is strong enough it may just plough straight through.

 

[jon1971]

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

I believe that I've already covered this somewhere along the line, if I may quote myself, "major fundamental news releases will always trump technicals."

You're quite welcome to go back through the thread to check, if the post is edited check the date and time stamp.

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

Are we cool on this now? Again please feel free to go back and check my posts for ANY references to advocating a purist ideology.

Do you understand what I mean when I say that you sometimes pick up on things that people have said and then use them out of context?

These little smileys are quite fun aren't they.

 

[dealer911]

Originally Posted by dcraig1 View Post
No - because many traders are observing S/R. It's neither a prophecy nor self fulfilling. It is a factor that influences price behavior.



Good grief, I really need to get a life, it's a lovely evening out there...

I think that you're entirely missing the point that dcraig1 is trying to make here DT

You asked, What % of S/R plays out the way you expected?

He stated (I believe and please correct me if I'm wrong dcraig) that he has NO expectation of it, he merely sees it as an area of interest where price MAY reverse or MAY consolidate briefly before continuing, of course if bullish or bearish conviction is strong enough it may just plough straight through.

If it truley is an area of interest it should be confirmed by an increase in volume ..I guess you are trying to gauge where the supply and demand are likely to be. If it ploughs straight through your level then your level would be considered wrong!

 

[jon1971]

If it truley is an area of interest it should be confirmed by an increase in volume ..I guess you are trying to gauge where the supply and demand are likely to be. If it ploughs straight through your level then your level would be considered wrong!

It's not my level, I have no ownership of it, it is something that exists in the market, which is observable, (a very basic rule of thumb re. flat S&R is - "third time's a charm," if it's held and we're on the fourth test, then the probability is that it will hold).

Personally I don't use much S&R on my analysis for entries and think that it is a fairly weak source of evidence. Much like any single indicator in TA, when used on it's own in isolation of other evidence, it is next to useless, but when used in conjunction with other aspects of TA and indeed FA and if it confirms what everything else is saying then it adds to the probability score of a trade. I've already detailed my methodology in this thread as much as I'm willing to divulge.

sly: Once all my little ducks are lined up in a row, I've identified where I'm wrong and I'm comfortable with the risk, I've identified my initial profit target (I prefer to scale out), green light, then I get stopped in one tick above or below my triggering bar.

Simples, (but requires patience, I like quality over quantity).

I view Technical Analysis as very much akin to card counting, stacking the odds in my favour, having the "EDGE."

An interesting read: http://en.wikipedia.org/wiki/Edward_O._Thorp

Look, I'm not saying TA is better than any other methodology, scalp L2 data if you want, or trade the "five past ten" 2nd reversal up until the lunchtime doldrums (or whatever time it is) if that works for you, or trade the crop reports. Just do what suits you and be aware that you cannot get a reward without first putting something at risk (ie. your money), have the discipline to take your loss if the trade has gone "tits" and at a level you are comfortable with and don't think you know better than what the market is telling you.

 

[DionysusToast]

One of the things about TA, is that sometimes it's the prior action you are looking at that will give false flags.

I've given 2 examples of how S/R can be created. One can be expected to impact price in the short term (someone having a large amount of ordres to fill), the other cannot be expected to impact price next time it comes there (S/R created by derivatives impact).

Another scenario would be a buyout offer. If you have a stock at $20 and some company announces their intent to buy at $25, then the price will move to $25 and stay there until the company is brought or the buyer decides against it. This $25 level will look like major resistance yet there is no reason to think it will impact future prices.

It we take the 'psychology' view and look at the wild swings at the start of the Iraq war, we can see support and resistance levels were created. This was during a tense period. Should we expect people to be in the same psychological state of mind a few years later when things settle down ?

All of this tells me that, whatever your rationale for using these price points (apart from - "sut up DT - it just works") you need to know the context of how those levels were created in the first place.

I have never seen an argument for why textbook TA should work that stands up to any scrutiny. It all seems to boil down to faith.

 

[wistundra]

I have never seen an argument for why textbook TA should work that stands up to any scrutiny. It all seems to boil down to faith.

This has to be the best explanation I've seen on the value of TA. For many years I was a believer and ended up giving the markets my hard earned money. After i abandoned TA i stated making money. And that money is now consistant money. Also no longer sit up late at night scrutinizing
chart patterns.

 

[DionysusToast]

Here's another.

A stock does an IPO, issues 20 million shares, 18 million being held by company insiders who can't sell them for 6 months (lock up period). After 6 months, the insiders sell their 18 million shares on the open market.

What relevance can any of the prior support/resistance level have when the supply situation is now so different ?

 

[jon1971]

Again a few good points, although where exactly I've said shut up, it works is a figment of your imagination.

TA is very prone to giving false signals, which is why you never take anything on face value & in isolation, but rather look for a preponderance of evidence (I'm using an iPhone app with no spell checker, so apologies in advance). If you're happy with the probability score. I use 5 totally seperate areas and score each out of 20%, then if a trade has a total score over 70% it get's the green light.

Certainly keeping an eye on news flow will certainly filter out even more false signals, as I've said, major changes in the underlying fundamental environment will ALWAYS trump technicals.

The key (in my opinion), is to not have blind faith in your position & the analysis (whatever it may be) that got you into that position, but rather be flexible in your perception of what Market data is telling you. Or alternatively if you don't want to micro manage, place a religious stop, where your reasons for being in the trade are no longer valid.

It's just a different approach that may work for some and not for others.

There are no right or wrongs in trading, just performing and non-performing positions. The Market isn't concerned with rights & wrongs, it's just doing it's thang.

 

[jon1971]

Also, please stop using flat s&r as you're one and only example of TA, I've said my opinion of it. Anyone who takes a trade based purely on flat s&r is gambling with no edge. They may as well go and play black & reds, where again they have a less than 50% probability.

Also you seem to be lumping all TA into the category of main stream John L Murphy style TA, this again is skewing the discussion.

 

[DionysusToast]

Jon - if S/R is a fundamentally flawed concept, then it doesn't matter what you add to it, a bit like building a house on sand. S/R is just an example. So if you aren't trading purely on S/R but are including it in your toolbox, then the system would still be flawed.

I would be more than happy to discuss another aspect of TA and why TA proponents think it should work. The problem is no-one seems to want to make a case in favour of any part of textbook TA, other that saying "it just works".

I have shown a case where S/R could work (albeit short term) and cases where it should be treated with suspicion.

In the spirit of having a reasoned debate can't anyone come up with solid reasons for all this stuff to work ?