TA debunked?

[Atilla]

If I had to describe my trading style - I would call it purely text book TA.

Without the charts, support and resistance lines I'd have great difficulty assessing entry and exit points.

Picture paints a 1000 words. It really does. Nuff said.

 

[Shakone]

It's pretty simple to understand what is wrong with textbook technical analysis.

First, two important elementary school concepts:

Cause & Effect
Action & Reaction

No-one needs to look those up, right? Still - people will study price action (AKA Effect AKA Reaction) for years looking for the answers.

TA is the science of looking at effect hoping to find cause.

This is not to say market activity cannot tip your hand to what caused a move.

This is not to say the only effects are fundamental and are outside of what can be seen on a chart. Markets get out of balance for instance.

You just wont find cause in most TA textbooks. It has to be said that forums are improving nowadays, everyone tried pin bars already and are becoming more savvy.

Perhaps there is hope yet.

Since you mention cause and effect, it might be of interest to read

Cause and Effect (and) Levels and Rates

He's a little bit eccentric but I think he has a valid point here.

 

[ChocolateDigestive]

It's pretty simple to understand what is wrong with textbook technical analysis.

First, two important elementary school concepts:

Cause & Effect
Action & Reaction

No-one needs to look those up, right? Still - people will study price action (AKA Effect AKA Reaction) for years looking for the answers.

TA is the science of looking at effect hoping to find cause.

This is not to say market activity cannot tip your hand to what caused a move.

This is not to say the only effects are fundamental and are outside of what can be seen on a chart. Markets get out of balance for instance.

You just wont find cause in most TA textbooks. It has to be said that forums are improving nowadays, everyone tried pin bars already and are becoming more savvy.

Perhaps there is hope yet.

Absolute to5h with hidden agenda as per normal.

 

[iamnev]

Assume there is no TA, no charts, how does one determine;

1. which direction to enter a trade
2. where is the exit point
3. where is the stop

Say yesterday's closing price was £100

So we have no way of looking at previous data on charts.

If you were able to get a feel for the speed of the momentum maybe you could say to yourself , if the next 5 mins the price goes to the next level I put in 10 % of my capital.

I would assume then you would have a gut feel for how quick the price could move next and if it started to go against you with speed you'd auto get out. If however speed of the trades went in your direction, maybe you could say after a gain of 15% I''ll take some profit ,let the trade playout for a few more minutes. If price returned to your origial entry , auto get out. You'd have to have mental stops based on what you were willing to lose and mental limits on what you expected to gain from each trade.

Though for me , a chart and maybe (but not necessarily) a couple of handy indicators is better than trying to remember historical prices and also quicker than drawing it on graph paper.

 

[DionysusToast]

Absolute to5h with hidden agenda as per normal.

Which, as usual, you are unable to break down point by point.

This is a discussion forum and not a playground CD.

It is very simple. We can discuss, disagree, debate points that others make and have a healthy discussion. Or we can do what you do.

Why you resort to such tactics is beyond me. You seem to have your nose permanently out of joint.

 

[PATrader]

Can someone please tell me where everyone gets this ridiculous idea that TA is predictive ? Is it written in a book somewhere ?, is there a website where this nonsense is being promoted ?

Where did this ridiculous urban myth start, and why does an alleged trading forum allow it to continue ?

I could point you to thousands of books, articles, and websites where there is clear and definite proof provided that TA is non predictive. There's a mountain of evidence to support that view.

Despite all of the evidence to the contrary, trading forums are filled with people discussing the predictive capabilities of TA. What is it about forums that lead to such irrational behavior ?

when we talk about TA, it doesn't just mean using indicators etc. Once we open the chart and read off the prices, without plugging in indicators, it is also considered TA! And we should get the term "prediction" right. A prediction is just a prediction. The only outcome is just whether its accurate, or not. That's all. Whether we consider TA predictive or not, it depends. If we can understand and use our tools properly, we can "predict" the next move and act accordingly. That "predictive" property of TA derives from our minds!

Take another example, no indicators, no nothing. Only price chart (candles, bars etc). Even reading off the current price is "predicting" isn't it.? If you interpret a bunch of rising candles around a support as being bullish, then you are "predicting" the next one to be rising as well. Past price data is also "predictive" , why not? You read off support and resistance levels in the past as well , isn't it so? And then you "predict" that price is coming back to test those areas. Who says TA is not "predictive" ? The term "self fullfiling prophecy" comes to mind

 

[DionysusToast]

Can someone please tell me where everyone gets this ridiculous idea that TA is predictive ? Is it written in a book somewhere ?

Yes unfortunately, many of them.

 

[PATrader]

Yes unfortunately, many of them.

many things, ideas in trading are subjective. Only Mr Market is right.

 

[DionysusToast]

I think trading is mostly subjective and I think a lot of textbook TA promises an objective method of analysis.

Admittedly, it's been a number of years since I read a TA book. Mind you - I've just read Markets In Profile by James Dalton and I thought it was fantastic.

I think the biggest failing in all the most popular TA books - Alexander Elder and the like - is that they talk as if the charts are the market. They discuss indicators/candlesticks etc as if they are the market and as if understanding them is what makes you a good trader. It is as if you can learn the indicators and patterns and not really have any clue other than that in order to make money.

I think you can only make money from charts if you understand the market they represent. That gives you the context within which you can read something into the activity you see on the chart.

If you take concepts like "oversold" on an indicator - it's complete tosh. Oversold conditions do occur, they are fairly easy to spot, not so easy to trade though as you need large spheres. They have little relationship to the "oversold" in those 40 year old techniques you read in traditional TA journals though.

 

[Splitlink]

Yes unfortunately, many of them.

There is no way that a market can be predictive. Chart patterrns do reoccur, giving the trader an impression that they are predictive but it is my experience that they are only so in hindsight and what did happen should have been predicted-

I have ceased to be surprised by what happens. I do what I think is a probability and believe that the longer one is in a trade, the more likely it is to go wrong, in the end.

 

[PATrader]

I think the biggest failing in all the most popular TA books - Alexander Elder and the like - is that they talk as if the charts are the market. They discuss indicators/candlesticks etc as if they are the market and as if understanding them is what makes you a good trader.

yes the chart IS the market. If not, can you tell me what is?

 

[Splitlink]

yes the chart IS the market. If not, can you tell me what is?

The chart was the market. Are you telling me that you are predictive?

 

[iamnev]

Just because we all experience different things doesn't mean the other persons view of the world is eiteher wrong or flawed.

TECHNICAL =
1.
belonging or pertaining to an art, science, or the like: technical skill.
2.
peculiar to or characteristic of a particular art, science, profession, trade, etc.: technical details.
3.
using terminology or treating subject matter in a manner peculiar to a particular field, as a writer or a book: a technical report.
4.
skilled in or familiar in a practical way with a particular art, trade, etc., as a person.
5.
of, pertaining to, or showing technique.

ANALYSIS =
1.

the separating of any material or abstract entity into its constituent elements ( opposed to synthesis).
2.
this process as a method of studying the nature of something or of determining its essential features and their relations: the grammatical analysis of a sentence.
3.
a presentation, usually in writing, of the results of this process: The paper published an analysis of the political situation.
4.
a philosophical method of exhibiting complex concepts or propositions as compounds or functions of more basic ones.
5.
Mathematics .
a.
an investigation based on the properties of numbers.
b.
the discussion of a problem by algebra, as opposed to geometry.
c.
the branch of mathematics consisting of calculus and its higher developments.
d.
a system of calculation, as combinatorial analysis or vector analysis.
e.
a method of proving a proposition by assuming the result and working backward to something that is known to be true. Compare synthesis ( def. 4 ) .


I reckon we all do the above... How else do we decide where the majority of other traders think price is fair or unfair. ?

Whether you use a Japanese Candlestick, Point&Figure, Line, Average, 100 previous price points, we all have to study the price as of where it was and where it is in relation to it, on any time frame.

From our analysis or home work we shouldn't have to trade randomly, we can wait for price to come to a level and trade what we think is the next higher probability trade there. Otherwise you may as well flip a coin.

If a purely fundamental trader said they didn't use any technical analysis, they would only be allowed to know the current price of a company, the name of the company, the name of the directors and the country in which the company was based and worked in.

As soon as you start working out where the price of the companies share is in relation to the amount of cash they have, in relation to how many shares are in the market, where the overal market is in relation to itself and the company, you are basically talking numbers, historical and present. All of which can be neatly presented in a chart, spread sheet, or brokers note. Which from the above definitions in my opinion, is from as soon as you do any analysis, Technical Analysis.

 

[the hare]

Yes unfortunately, many of them.

you must be reading different books to me

 

[Splitlink]

I have told of my experience with Next PLC on previous occasions. This company was going through a bad period, with George Davis, his resignation etc. It was making tens of millions of pounds profit, had no debt and had a policy of organic growth ie. would not take over existing firms to increase expansion.

I read about this, at first, in Jim Slater's "The Zulu Principle". He said that, then, it was down to a few pence. When I read the book it was something over 1 pound, still. I did the numbers and bought the shares. Charts, in no way, gave a true indication of the value of this company. In fact, it looked like a basket case.

Lots of other companies today, are not priced at their true worth. Or are they? Charts represent the fear and hopes that investors have in that share. Most of the FT100 shares are not growth shares but they are safe havens. So they say. Charts, in the main, show what the investor thinks of their future prospects but, quite often, scandal will blind an investor's judgement adversely. Or the opposite can happen.

Slater's book cost me 19 pounds, by the way!

 

[PATrader]

The chart was the market. Are you telling me that you are predictive?

The chart is a footprint of the market. Everyone predicts, that's needless to say. Even if I am looking at the right most candle right now, I am also predicting. The market 10 days ago and now could be in an uptrend. So I am predicting that the trend will continue. Yes, i am predictive, so is everybody else reading charts or using fundamentals.

 

[ChocolateDigestive]

Which, as usual, you are unable to break down point by point.

This is a discussion forum and not a playground CD.

It is very simple. We can discuss, disagree, debate points that others make and have a healthy discussion. Or we can do what you do.

Why you resort to such tactics is beyond me. You seem to have your nose permanently out of joint.

I would more accurately say this is a forum and not a place for you to sell your products and come out with absolute nonsense. There is no point arguing with you point by point as you have a different agenda which is all about pushing people back to your tape reading tools.

By the way you dont seem to grasp that using your vendored tools for looking at tape reading patterns that have occurred in the past. oh look I have counted up 1000 contracts there against the bid, oh good I know the cause now. You can see different things from a chart but in principle they are no different, there is no more 'cause' analysis in what you are doing than in a chart.

nothing wrong with a pin bar, its just price beaten away from a level and closing below the start price in a set time period. problems with pin bars come when people make assumptions about them loaded with biases.

 

[DionysusToast]

yes the chart IS the market. If not, can you tell me what is?

Actually, the chart is just a visual representation of the result of trading in the market.

It's not the market itself.

 

[DionysusToast]

you must be reading different books to me

Well - it's pretty rare I read anything on trading any more, the amount of tripe that's out there.

 

[DionysusToast]

I would more accurately say this is a forum and not a place for you to sell your products and come out with absolute nonsense. There is no point arguing with you point by point as you have a different agenda which is all about pushing people back to your tape reading tools.

And the forum is not a place for you to go around insulting people and attempting to belittle them. Still, you seem to enjoy doing that, even though it usually ends up backfiring.

By the way you dont seem to grasp that using your vendored tools for looking at tape reading patterns that have occurred in the past. oh look I have counted up 1000 contracts there against the bid, oh good I know the cause now. You can see different things from a chart but in principle they are no different, there is no more 'cause' analysis in what you are doing than in a chart.

Correct & that is EXACTLY why I'm not mentioning that on the thread It is irrelevant to the conversation as it's not being discussed.

You just made assumptions loaded with biases as to why I posted here.

I understand why you follow me around here, I do actually take it as a compliment.

Thanks for mentioning that I sell products, it always ups the hit count on my site when someone points that out. Most people fail to notice

nothing wrong with a pin bar, its just price beaten away from a level and closing below the start price in a set time period. problems with pin bars come when people make assumptions about them loaded with biases.

Correct - although in agreeing with you, I guess I'm trying to push my products.