Practicalities and philosophy of trading from a profitable trader

[goldmember1]

Charting Part 8 - Other predictive indicators

There are many other predictive indicators that I have not covered. This includes volume, moving averages, pivot points, trendlines, fibonacchi lines and many other trading tools that some traders use. With all these tools before you look at them you need to make sure that you understand what benefits and advantages they give. I have looked at many of these indicators, and from my experience I have not found an edge in them. Although anecdotally there are examples where volume and trendlines "work" but there is not the level of consistency where they are able to turn a consistent profit.

I could go on at length about my findings or the reasons that certain indicators do not work or are not reliable. Ultimately a lot of these indicators and chart tools rely on a convincing story behind them - for example, someone PM'd me to ask me my opinion on volume. I have read up on some traders using it, and using volume is used as a marker for 'smart money' hiding their trades. My opinion on the effectiveness of volume for instance is that it cannot be reliable for a retailer because the broker volume is significantly different from the real market volume even if you use an aggregated feed. There are also various other reasons why it doesn't make very much sense to me.

The same can be applied to trendlines - for instance some people assume that a trendline will give after the 'third time.' I'm not quite sure why someone would even go to assign a logical explanation for this apparent phenomenon, but the explanation borders on the improbable and I do not use methods that I find illogical.

A popular trading tool is the fibonacchi tool (which was used to model rabbit populations), and many traders use the 38% and the 61% lines to trade with. Often it is in conjunction with a line of support and resistance or a pivot line, perhaps divergence, RSI, or another chart tool. As I recognised it the 38% or 61% 'pullback' was a mathematical event where an exponentially growing population (such as rabbits) would die off and then repopulate. That requires traders to assume the same in their trading - that the value of the asset they are buying or selling is going to exponentially grow like a warren of rabbits. If you put it down to plain English to someone who never traded before - it does sound slightly ridiculous - you are going to buy Euros at the 61% fib because a mathematician calculated that a rabbit population grows in a certain way.

I have noticed also that traders have extended the fibonacchi lines and now use 50% and 78.6% as well as the 38% and the 61%. In essence if someone is teaching 'fib' retraces they can't be wrong - because if there isn't a pullback at 38%, there is a chance at 50%, and another chance at 61%, and another chance at 78%, and at 100% of course there is a double bottom. Of course you are going to get a retrace off ONE of these lines, but is it random luck or is there a real edge? Before you waste any time using this tool (which I use for measurement only not placing orders), test it and see whether it really benefits you at all - I have my own results. For instance you can look whether one of the fib lines has any more reversals off it than the others - the result might surprise you.

So, I have ended up badmouthing almost every trading tool out there - because I feel they are used in the wrong way - there is a right way to use them in a technical trading method (which I have mentioned already) and in a way to help illustrate your charts (which is another way I will come onto).

 

[goldmember1]

Charting Part 9 - Press descriptions of charts and technical analysis.

Many articles I have read or which I notice in the corner of my eye have attributed a nature or a personality to a pair. Some have gone so far as to say that a certain pair 'has a rhythm' and to trade successfully you just need to 'feel the rhythm' of the pair. If you trade well you are 'in tune with the market.' Other articles on places such as myfxbook or dailyfx persistently and annoyingly for me have headlines like "EURUSD toys with 1.37." EURUSD flirts with 1.37. EURUSD magnetically drawn to 1.37. EURUSD dances around 1.37 with caution. EURUSD strengthens its link with 1.37. I consider this total junk journalism. All these articles and headlines are saying is that EURUSD = 1.37, and its almost a game of how many synonyms can you use to produce 1.37. Forex writers have to write content again and again, and end up having to rehash the same old headline again and again and so they change the article heading. This can be extended into descriptions of chart patterns - EURUSD carves out higher high - EURUSD looks upward. EURUSD maintains momentum. EURUSD keeps on the pressure. EURUSD edges upwards. EURUSD 'heaves up' EURUSD bursts upwards. EURUSD advances, EURUSD strives for.. etc etc. All nonsense headlines.

All of this information can be gleaned from a brief 10 second look at a chart, but it is amazing how many descriptions and headlines can be attributed by the lay press to what is simply the price of the EURUSD being what it is and each description attributes a prediction when all they mean is that EURUSD has gone from 1.365 to 1.37. Do any of the descriptions mean anything? Is strengthens/pushes up/beach-head/encouraged have any meaning? I happen to think that it doesn't - to me it is a space filler. However, it does not elicit that type of emotion within me. When I read that the EURUSD 'forges ahead' or that the EURUSD technically bullish I have an emotional reaction - and that reaction is to think that because I see it in print, that there is a technical reason to be bullish on EURUSD.

Of course, this reaction is entirely NOT what you want to do, because those adjectives are used at random to make the article sound good – they are not well thought through headlines. So what does this have to do with chart patterns? Chart patterns are another fancy language which should be treated no differently than the random adjectives used to describe a 3 digit number.

I was reading an article on a popular forex blog (one of their writers has excellent summaries of overnight Australian speeches which I read) where one of their writers pointed out a double bottom. This was described as a beautiful double bottom that 'pointed' EURUSD higher. Naturally if there was not a double bottom, but a lower low, then it would have been described as a 'beautiful fakeout' that 'pointed' the EURUSD higher (there was an example of another pair where he described just this pattern. And if there was a higher low, then there naturally would have been an 'uptrend' that pointed the EURUSD higher. The common theme here is that chart patterns are basically adjectives that can be swapped in and out of descriptions just as 'pressured', 'forging,' 'drives' are adjectives swapped in and out to describe price. Pattern talk is just adjectives and talk – or language used to discuss prices. I do not consider it a predictive element, just as describing EURUSD has 'pressuring' is entirely meaningless though it still evokes an emotional response.

In many ways using patterns makes sense to communicate because offering technical jargon or sounding like you know what you are talking about is a good way to provoke an emotional response. And if you are trying to sell something or gain readership, provoking an emotional response is exactly what you need to do.

So I recommend considering media chart talk just the same as all the other talk – it should be ignored and you need to soend time working your own opinion - if this involves turning off forums then by all means do it.

I still use chart talk when describing charts and prices because it is an easy way to communicate. A double bottom immediately places a picture in your head, far better than – the price of EURUSD fell to 1.28, retraced to 1.32, then dropped again to 1.28, and then reversed – for example. But that is as far as you should take it. There will be those people who swear by patterns, However, I have tested several patterns including head and shoulder, double bottoms, and can find no particular edge that they give. They serve only as a colourful description, but somehow infomercials have pushed descriptive language into a far more prominent and predictive position

 

[freestyler39]

hey gold, it's been 5 & half months since you started this thread, during which time you've "debunked" pretty much every common trading tool out there. That's all fine and dandy, but don't you think it's about time you explained a bit about the principles you actually employ in your trading? I mean, I've been patiently waiting all this time, and almost half a year later, you're still going on and on about how every common tool out there sucks. Okay, we get your point. Stop teasing, enough with what you don't believe in, let's hear something you think actually works in the market. Oh wise one.

 

[bruce_loco]

hey gold, it's been 5 & half months since you started this thread, during which time you've "debunked" pretty much every common trading tool out there. That's all fine and dandy, but don't you think it's about time you explained a bit about the principles you actually employ in your trading? I mean, I've been patiently waiting all this time, and almost half a year later, you're still going on and on about how every common tool out there sucks. Okay, we get your point. Stop teasing, enough with what you don't believe in, let's hear something you think actually works in the market. Oh wise one.

I am pretty sure he laid out some basics. His is a fundamental trader that looks/focuses at supply and demand. From his trades you can see he does plays around supply and resistance(or supply and demand depending how you want to look at it as area instead of lines).
The lost trades look based on lack of confirmation of the supply/demand levels.

Goldenmember, even though you say you disagree with Sam Leiden's techniques(which do look a bit obscure when someone says ignore the news) yours are not too far off.

 

[NVP]

Hey Gold

I finally got to read this thread in my lunch break.........well written and I am sorry to hear you got flamed by PM........but you are still here so good for you...

I think most viewers will now be frustrated by your dismissal of most universally followed Trading methods and strategies ........as they impatiently wait for the punchline regarding what you DO do in your trading

dont get me wrong - dismissing a lot of these systems is fine with me (as I use none of them) .........but I think to satisfy the masses you need to come off the fence and declare a few ditty's on what you are looking for

Even if it is simply agreeing with Loco's previous assessment of your approach

Cheers
N

 

[goldmember1]

Yes, Bruce Loco is correct, I am looking at fundamental basis of supply and demand in the news (summating the total picture of 'news', not individual items of news or individual calendar events). I disagree with Sam Seiden because I don't think you can see supply and demand in the chart.

 

[bruce_loco]

Yes, Bruce Loco is correct, I am looking at fundamental basis of supply and demand in the news (summating the total picture of 'news', not individual items of news or individual calendar events). I disagree with Sam Seiden because I don't think you can see supply and demand in the chart.

I agree with what you say regarding the news, but haven't you thought about the news being manipulated at given price levels?
I looked at Sam Seiden's theory, followed by Alfonso Moreno's thread on the implementation.
Having an overall picture of the news is easy, even forex factory will allow you to filter that in a jiffy, however, the Supply and Demand(or price action depending on how you look at it) will give you good levels for entries and profit taking.
I looked at old webminars and the info given there was accurate and profitable if one would have followed the advice.
Even I let go of all indicators, etc..., spent 2 years programming approaches based on indicators, but price actually tells all and it is more predictive than lagging indicators.

But a higher nugget of info is more what people are looking at this stage.

 

[goldmember1]

I agree with what you say regarding the news, but haven't you thought about the news being manipulated at given price levels?
I looked at Sam Seiden's theory, followed by Alfonso Moreno's thread on the implementation.
Having an overall picture of the news is easy, even forex factory will allow you to filter that in a jiffy, however, the Supply and Demand(or price action depending on how you look at it) will give you good levels for entries and profit taking.
I looked at old webminars and the info given there was accurate and profitable if one would have followed the advice.
Even I let go of all indicators, etc..., spent 2 years programming approaches based on indicators, but price actually tells all and it is more predictive than lagging indicators.

Actually I don't think a quick look at forex factory will tell you anything about 'news.' And I really don't think 'price tells all' but I've already gone on about that at length.

 

[bruce_loco]

Actually I don't think a quick look at forex factory will tell you anything about 'news.' And I really don't think 'price tells all' but I've already gone on about that at length.

Really? I thought you were trading levels judging by some of your EUR/USD trades(after news results).

That and probably a decision matrix with news values and some extra magic to assess the fundamentals.