Sensible? Or not...

[bearface]

I have just started out with my reading and having read 'come into my trading room' and not being overly impressed with Elders system (or more the idea of sticking to one system), I decided to look a bit deeper and am reading TA of the financial markets by Murphy. This is due to the decision that using a prescribed strategy (like Elders) is unlikely to be profitable (in the long run at least) and so what I need is a broader understanding (or at least an attempt at one), so I am reading Murphy which seems a far more serious and rigorous book.

Is it realistic to expect to gain the ability to formulate my own strategy from this? Is it likely to be better than one I might find on this forum or in many of the 'do this to make millions' type of books? Or should I instead by learning and trialing as many different strategies as possible trying to find one that works?

I am fairly sure in what I am doing as I think there is dubious value in following another persons ideas with no real understanding of them yourself, although I might be off the mark in expecting to formulate my own profitable strategy from what I read. Interested to hear what you guys think.

 

[MrGecko]

Sounds pretty good to me... something along the lines of "Give a man a fish, and he'll eat for a day..."

 

[Claudia123]

Forget the books - you answered your own question 'formulate your own strategy'. Be prepared and it can take a long time and it can be expensive. Try the demo accounts.

 

[fibonelli]

One of the advantages of Murphy is his emphasis on intermarket analysis. It's a v. good book.

Read the book so that you become familiar with the theory of technical analysis. You can then practice on a demo account by applying what you've *learnt without risking a penny. When you practice on a demo, you'll find out quickly what works and what **doesn't.

*eg identifying support and resistance etc etc.
**eg using lots of (very similar) indicators etc etc.

 

[timsk]

Hi bearface,
Welcome to T2W.
Interesting post, not least because you're both very right and very wrong in various ways! I'll attempt to explain why.

I have just started out with my reading and having read 'come into my trading room' and not being overly impressed with Elders system (or more the idea of sticking to one system), I decided to look a bit deeper and am reading TA of the financial markets by Murphy. This is due to the decision that using a prescribed strategy (like Elders) is unlikely to be profitable (in the long run at least) and so what I need is a broader understanding (or at least an attempt at one), so I am reading Murphy which seems a far more serious and rigorous book.

1. Sticking to one system - be it Elder's, your own or someone elses, isn't such a bad idea to start with. Trading isn't easy, and starting off with more than one system is going to make it all the more harder.
2. If you want a deep understanding of TA, then Murphy is the bible, along with Steve Nison for candlesticks and Jeremy du Plessis for Point & Figure.
3. A prescribed strategy - be it Elder's, the famous 'Turtles' or one you read on T2W - would probably be fine, IF you could adhere to it exactly as prescribed. That's the really, REALLY tricky bit. As far as I'm aware, there's no real evidence to suggest that strat's like these no longer work just because they've been around for a long time and / or in the public domain.
4. Lot's of good stuff in Elders book too, IMO, especially his comments about moving averages and the greater fool theory.

Is it realistic to expect to gain the ability to formulate my own strategy from this? Is it likely to be better than one I might find on this forum or in many of the 'do this to make millions' type of books? Or should I instead by learning and trialing as many different strategies as possible trying to find one that works?

5. You don't need to read any books to formulate your own strategy. In fact, your comments about using a prescribed strat' are more relevant to books on TA than they are to strategies. That's because books will teach you about head & shoulder patterns, triangles and flags etc. and think 'aha, that's how you make money in this game'. Sorry, it's not quite so simple because these patterns are as old as the hills and the market makers will ambush you and sabbotage what you thought were well laid plans.
6. Your idea of doing your own thing will get a lot of support from many experienced members. The awful catch-22 of trading is that, as a newbie, you're only too aware of the fact that you don't know very much and, understandably, want to soak up the mountains of knowledge. Problem is, there's lots of dross out there and how do you separate the wheat from the chaff? The best traders always do their own research and ignore other people. The catch-22 is having the courage of your own convictions to go down the solitary maverick route at the outset. I failed miserably!

I am fairly sure in what I am doing as I think there is dubious value in following another persons ideas with no real understanding of them yourself, although I might be off the mark in expecting to formulate my own profitable strategy from what I read. Interested to hear what you guys think.

7. Someone elses ideas / strat' is, arguably, much easier to follow blindly when you know nothing. As you gain some knowledge, you'll be tempted to tinker and change a few settings, tweak some indicators or whatever. The result? The strat' doesn't work very well and may even lose money.
8. So, where does this leave you? Well, I'd say your choices are to learn, learn, learn and then build your own strategy. Likely as not, this is going to be similar - in part at least - to something that's already in existence as there really are only three TA based strategies anyway: breakouts, retracements and reversals. Alternatively, take something off the shelf and attempt to trade it exactly as the originator intended. It's a bit like choosing between the devil and the deep blue sea but, of the two, the second option is slightly easier for many people.
Good luck.
Tim.

 

[zupcon]

Although Elders system is unlikely to work as a purely mechanical implimentation, his triple screen approach does have considerable merit. Its been some time since I read Elder, but IIRC correctly, he also places considerable emphasis on money management and psychology which most books focused on systems or methods tend to gloss over.

 

[Claudia123]

tim - very good post. But is taking the second option the right one? (point 8) I think not. You have to have your own strategy as we are all different. Devleopimg your own trading plan is the the only way to go imo and, i reiterate, will take time.

 

[bbmac]

Some good points made already re answers to original post/question in this thread.

Elder calls his set-ups ' ...islands of order in a sea of chaos' and commends the triple time frame approach. He effectively analyses price on his main inttermediate time frame, looking for entries in the direction oh his longer time frame, timing entries on the shorter trigger time frame. From memory he tends to favour the daily chart as his intermediate.

I too commend the triple time frame approach and in technical trading, price action and support/resistance are a good basis to build a trading edge that suits your own needs/tolerances/personality on the time frame (s) you prefer with the tools you feel most comfortable with. Determining the trend via overall price action as well as the trigger for market entry via individual price action will serve you well, once mastered.

Continue to read widely and generally, it too is an investment in your future in this business.

Good luck.

 

[bearface]

Thanks for that reply Tim. To be honest with Elder his strategies for the most part seemed sensible, but it was obvious from the current volatility that they weren't going to get me far, or at the very least I didn't feel comfortable trying to apply them. So perhaps it was a decision to stay out of the game with only Elders strategy available to me and to read more until things become a bit more orderly or I feel I've come across something I can apply in the current conditions.

Its interesting you think that any single strategy such as Elders works fine if applied consistently. This seemed to me to be a lazy approach to things that could only fail eventually... you seriously think you can use the same (simple and prescribed) strategy continually (although I appreciate there is some flair or subjectivity involved in any final decision) and remain profitable? My thinking was more along the line that an overall understanding of the different patterns and formations and inter-relations was needed in order to start understanding what was going on. Or perhaps this is too grand or unrealistic an intention?!

I still feel reading deeply is the way forward, although perhaps supplementing that with some demo spread betting using Elders trend, channel, macd and stochastic type approach would be worthwhile. Its hard to decide whether I'm holding back out of fear of losing or being sensible and staying out until i feel I know what is going on. If I start getting profitable on demo it won't be long until my real money runs after those paper profits and I might be better off starting on demo when I'm a bit better prepared! Not too sure it will be interesting to see what people think. I'm certainly aware that if I start demo trading that will take a lot of time I could spend reading and I'm not convinced my time isn't best spent reading these so called 'bibles' for the time being, seems to be denying myself something if i don't, if the value of these books is not overstated. I think although things may never be crystal clear and the hopes for real understanding may be unrealistic I can still understand more than I do before i get caught up in 'the game' ... if that makes sense to people (or im being naive and should just get on learning with a simple strategy in the real world and give up on inflated goals of understanding the markets?!).

I think this basic dilemma is quite an interesting one at any rate, to read in the hope for greater theoretical understanding or get on with it and get practical understanding. At the moment I'm thinking the theory will pay dividends when i jump into the practice

 

[megamuel]

Hi Bearface,

Although its good that your keen on learning 'the theory', no amount of reading will make you a profitable trader. The only way to do that is practise.... and lots of it. I'd also suggest that you use a real account too and not a demo one. Why? Because you would not trade a demo account the same as you would trade a real one. This is down to emotions, which only exist when you have real money at stake. Having said that, a good understanding of what moves a stock (or whatever it is you want to trade) will help. I'm not yet a profitable trader but I have tried demo trading and lost interest after about 5 minutes. Just use a real account and trade small amounts. I have just started trading using Elder's Triple Screen technique with mixed results so far - too early to comment on its success. The only thing thats bugging me at the moment is that I have made some filters in Sharescope to quickly find stocks that match the criteria (Oversold weekly MACD and overbought daily stochastic for shorts and overbought weekly MACD and oversold daily stochastic for longs) and in the FTSE 350, I currently have 127 long candidates and 0 short candidates! A bit worrying when the markets are sinking like they are! Or maybe its a sign of things to come.... Shall I go long on all 127? Haha! Anyway, best of luck with your future trading success! We'll get there one day!

Sam.

 

[timsk]

Hi bearface,

Thanks for that reply Tim. To be honest with Elder his strategies for the most part seemed sensible, but it was obvious from the current volatility that they weren't going to get me far, or at the very least I didn't feel comfortable trying to apply them. So perhaps it was a decision to stay out of the game with only Elders strategy available to me and to read more until things become a bit more orderly or I feel I've come across something I can apply in the current conditions.

Just to be clear, I've no interest in pushing Elder, the Turtles or anyone else. Certainly, if you're not comfortable with something (book, post on here etc.) - then steer well clear. That includes posts by the likes of me: don't be duped into thinking I know what I'm on about just because I've got some pretty dots after my name! One of the eureka moments for me on my trading journey was when a number of individual observations actually complimented one another and started to make sense.
>>> In the early days, I was confounded and disappointed by the fact that the traders who seemed to have the most knowledge and experience on boards like T2W often disagreed with one another. Thinking that one of them must be right and one must be wrong, I couldn't decide between the two. Until the eureka moment, this caused endless constenation and confusion on my part.
>>> There are no real formal qualifications for becoming a trader. In theory, anyone can become one and, indeed, the industry is riddled with stories of east end barrow boys without a single academic qualification making millions. It's equally well known that successful professional people like architects, doctors and lawyers often struggle. It's a bizzare dichotemy and poses the the oft' asked questions of what makes a good trader and what should they learn and where should they learn it? For every online course, coach or book promising to teach you how to trade, there's someone else saying they're all a load of rubbish and a waste of money.
>>> Against this backdrop are the markets themselves which seem impossibly hard to make sense of, especially now in these crazy, volatile times. For every trader making a fortune, there's another trader losing one.
The eureka moment was the realisation that there is order amid the apparent chaos. The market HAS to be the way it is way because if there was only one 'right' way of trading (e.g. as taught in a book, or by a guru or university course even), then the markets would collapse because everyone would be trying trying to do the same thing at the same time. It's the difference of opinion and total lack of any one way of doing things that makes the market. The three 'negative' observations then made sense. This was very liberating for me because I realised that my view was as valid as that of the next person, irrespective of their skills and experience as a trader. Please note that I'm refering to abstract concepts like trading strategies here and not to concrete facts about the way the markets work. The latter can be learnt from all the aforementioned sources and, indeed, all serious traders must equip themselves with this knowledge.

Its interesting you think that any single strategy such as Elders works fine if applied consistently. This seemed to me to be a lazy approach to things that could only fail eventually... you seriously think you can use the same (simple and prescribed) strategy continually (although I appreciate there is some flair or subjectivity involved in any final decision) and remain profitable? My thinking was more along the line that an overall understanding of the different patterns and formations and inter-relations was needed in order to start understanding what was going on. Or perhaps this is too grand or unrealistic an intention?!

I've no idea whether or not Elder's strategy would work. My point was a general one and not specific to Elder or anyone else. As for your intentions - they are just fine. Grand - yes, unrealistic - no. If I had my time over again, I wouldn't read any books on TA as they condition you into looking at the markets in a prescribed way. You have a greater liklihood of spoting a tradable pattern than I have because you don't yet know what H&S patterns, flags and triangles are. It's much harder to unlearn than it is to learn from new.

I still feel reading deeply is the way forward, although perhaps supplementing that with some demo spread betting using Elders trend, channel, macd and stochastic type approach would be worthwhile. Its hard to decide whether I'm holding back out of fear of losing or being sensible and staying out until i feel I know what is going on. If I start getting profitable on demo it won't be long until my real money runs after those paper profits and I might be better off starting on demo when I'm a bit better prepared! Not too sure it will be interesting to see what people think. I'm certainly aware that if I start demo trading that will take a lot of time I could spend reading and I'm not convinced my time isn't best spent reading these so called 'bibles' for the time being, seems to be denying myself something if i don't, if the value of these books is not overstated. I think although things may never be crystal clear and the hopes for real understanding may be unrealistic I can still understand more than I do before i get caught up in 'the game' ... if that makes sense to people (or im being naive and should just get on learning with a simple strategy in the real world and give up on inflated goals of understanding the markets?!).

As mentioned above, understanding the markets and how they work is essential to a greater or lesser degree. That said, all the knowledge in the world won't make you a good trader. I bet there are loads of uni' professors out there who are experts on the markets but couldn't trade for toffee. Don't confuse market knowledge with having a trading strategy. For the most part, Murphy and Elder's books are concerned with TA in order to help you design a trading strategy. My eureka moment that I described above is to help give you the confidence to build your own strategy based upon your own market observations. As for demo trading Vs real trading - this debate rumbles on. I'm a hypocrite in that I recommend one and do the other. However, logic dictates that if you can't make a profit on paper then it's virtually guaranteed that you won't make one using real money.

I think this basic dilemma is quite an interesting one at any rate, to read in the hope for greater theoretical understanding or get on with it and get practical understanding. At the moment I'm thinking the theory will pay dividends when i jump into the practice

Why not do both? Endless reading is very boring to my mind and, for the most part, much of what you read won't make much sense until you trade. You can read the highway code and talk to drivers about driving but, to become a driver yourself, sooner or later you're going to have to get behind the wheel of a car.
Tim.
PS. Spell checker isn't working - sorry for the mistakes.

 

[dr.blix]

sticking my oar in, that's exactly what i was going to say!

have you maybe trapped yourself a little in a theory/practice choice, when you could just do both?

i would have thought a balance of practical theory application (a practice account) and reading would both compliment each other? or a week of theory, then a week of testing with a practice account, allowing you to test various TA charts and indicators.

practice accounts are obviously not like real accounts. the human emotions that effect trading (a huge obstacle) are not there to deal with when real money is not used.

the car driving analogy is a good one i think. you learn to drive in a car on quiet roads, or a trading estate...simulating roads, but not real driving conditions. practice accounts may give you the benefit of familiarising yourself with a trading environment. allowing you to practice the theory and see it work, or fail.

 

[bearface]

ok I think you are right in that I should be using demo trading and looking for some patterns myself... Although what you say about books almost makes me want to avoid them entirely as I had much the same feeling about Elder that it was leading me to look for something from the book rather than reach my own judgement. I think I'm fairly good about taking everything with a pinch of salt though and not reading too much faith into what a book says. Do you think I'm safe or should stop reading and just focus on charts for a while?

So if I'm going to have a go at demo trading what would you suggest for charting? I can't afford to pay for anything, I'm currently using IG Index spread betting platform to get the charts etc, but its a bit slow and won't display volume for some reason. This is in the basic chart, in the advanced chart I can't work out how to get it to display OLHC, candles, or anything other than a line, but everything else works. Still tho, a bit slow and not easy to look at a lot of charts quickly. I was planning to look at a few big UK shares like BP, glaxosmithkline, barlclays. Any other ideas/suggestions?

Thanks

 

[Paul71]

Hi bearface,

Just to be clear, I've no interest in pushing Elder, the Turtles or anyone else. Certainly, if you're not comfortable with something (book, post on here etc.) - then steer well clear. That includes posts by the likes of me: don't be duped into thinking I know what I'm on about just because I've got some pretty dots after my name! One of the eureka moments for me on my trading journey was when a number of individual observations actually complimented one another and started to make sense.
>>> In the early days, I was confounded and disappointed by the fact that the traders who seemed to have the most knowledge and experience on boards like T2W often disagreed with one another. Thinking that one of them must be right and one must be wrong, I couldn't decide between the two. Until the eureka moment, this caused endless constenation and confusion on my part.
>>> There are no real formal qualifications for becoming a trader. In theory, anyone can become one and, indeed, the industry is riddled with stories of east end barrow boys without a single academic qualification making millions. It's equally well known that successful professional people like architects, doctors and lawyers often struggle. It's a bizzare dichotemy and poses the the oft' asked questions of what makes a good trader and what should they learn and where should they learn it? For every online course, coach or book promising to teach you how to trade, there's someone else saying they're all a load of rubbish and a waste of money.
>>> Against this backdrop are the markets themselves which seem impossibly hard to make sense of, especially now in these crazy, volatile times. For every trader making a fortune, there's another trader losing one.
The eureka moment was the realisation that there is order amid the apparent chaos. The market HAS to be the way it is way because if there was only one 'right' way of trading (e.g. as taught in a book, or by a guru or university course even), then the markets would collapse because everyone would be trying trying to do the same thing at the same time. It's the difference of opinion and total lack of any one way of doing things that makes the market. The three 'negative' observations then made sense. This was very liberating for me because I realised that my view was as valid as that of the next person, irrespective of their skills and experience as a trader. Please note that I'm refering to abstract concepts like trading strategies here and not to concrete facts about the way the markets work. The latter can be learnt from all the aforementioned sources and, indeed, all serious traders must equip themselves with this knowledge.


I've no idea whether or not Elder's strategy would work. My point was a general one and not specific to Elder or anyone else. As for your intentions - they are just fine. Grand - yes, unrealistic - no. If I had my time over again, I wouldn't read any books on TA as they condition you into looking at the markets in a prescribed way. You have a greater liklihood of spoting a tradable pattern than I have because you don't yet know what H&S patterns, flags and triangles are. It's much harder to unlearn than it is to learn from new.

As mentioned above, understanding the markets and how they work is essential to a greater or lesser degree. That said, all the knowledge in the world won't make you a good trader. I bet there are loads of uni' professors out there who are experts on the markets but couldn't trade for toffee. Don't confuse market knowledge with having a trading strategy. For the most part, Murphy and Elder's books are concerned with TA in order to help you design a trading strategy. My eureka moment that I described above is to help give you the confidence to build your own strategy based upon your own market observations. As for demo trading Vs real trading - this debate rumbles on. I'm a hypocrite in that I recommend one and do the other. However, logic dictates that if you can't make a profit on paper then it's virtually guaranteed that you won't make one using real money.

Why not do both? Endless reading is very boring to my mind and, for the most part, much of what you read won't make much sense until you trade. You can read the highway code and talk to drivers about driving but, to become a driver yourself, sooner or later you're going to have to get behind the wheel of a car.
Tim.
PS. Spell checker isn't working - sorry for the mistakes.

Interesting stuff.


I notice most people are hell bent on finding 'something' they can call thier own, hahaha.