Where is the boundary between analysis and subjective conclusions?

[zaysev36]

The thing about technical analysis is its just a tool.

Say you need to do a task. there might be 1000 different ways to do said task. Some ways work well in one instance, but not well at other times.

A different technique might work well when the other one didn't and vice versa.

Its the same with TA. There are 1000's of profitable ways to trade. You just need to pick one and stick with it long enough, while managing risk in order to see the results.

If you keep changing, or adding different types of analysis you will end up confusing yourself with comflicting information, and you will never be able to realise the absolute edge you have over the market from executing said strategy.

A second example.

System one (analysis, tools, technique etc) might win the following.

1. Win
2. Win
3. Loss
4. Loss
5. Loss
6. Win

System 2, different tools, analysis taking the same trades might be something like this.

1. Loss
2. Loss
3. Win
4. Win
5. Win
6. Loss

If you switched from system 1 to 2 and back to one again randomly, you will most likely catch all the losers. You will never be able to pin-point what part of your trading is wrong, since you are never trading consistently.



edit: just wanted to add, this is why everybody says there is no golden rule or technique to trading which is always right, so stop searching for it.

It is human nature to want to be right all the time, after all that is what applies to everything else in your life, however its not the case in trading. You must accept that you don't always have to be right in order to make money. Just be as logic as possible about it and use a trading plan.

Make a trading plan utilising a strategy(s) and stick with it. Trail for a large number of trades, assess results, adjust plan if necessary by reviewing your trades until desired results are achieved.

But what if your result depends not on the instrument, but on the movement of the market? For example, if market moves the way it used to, your outcome is :

1. Win
2. Win
3. Loss
4. Loss
5. Loss
6. Win

You are happy, go on sticking with this instrument, but suddenly market goes all around and that same instrument now shows this:

1. Loss
2. Loss
3. Win
4. Win
5. Win
6. Loss

So what's the use in having an instrument if it depends on the market movement which is almost impossible to predict?

 

[barjon]

"...........So what's the use in having an instrument if it depends on the market movement which is almost impossible to predict?.........

So maybe you are left with the proposition that something is going to trigger you into a trade at a time when experience suggests that there is reasonable prospects of success. Your job is then to take adequate advantage when it goes your way and limit the damage when it doesn't. And this final sentence is the one that determines whether you put food on the table or not.

 

[Revorocks]

But what if your result depends not on the instrument, but on the movement of the market? For example, if market moves the way it used to, your outcome is :

1. Win
2. Win
3. Loss
4. Loss
5. Loss
6. Win

You are happy, go on sticking with this instrument, but suddenly market goes all around and that same instrument now shows this:

1. Loss
2. Loss
3. Win
4. Win
5. Win
6. Loss

So what's the use in having an instrument if it depends on the market movement which is almost impossible to predict?

Yes, I am happy to keep on using said instrument, and if the market conditions change then yes my wins and losses will change. But that isnt the point. You never know what the market will do, you can't control that part. We can only use the past data and try to apply that to the future. You do this by having a trading plan which you can replicate over and over.

Some systems work well in certain market conditions, and other systems work better in different conditions. The point is to stick one that on average, OVER TIME yields a profit. Theres nothing else to it. As long as you manage your downside, then in the bad times your account will survive, and the good times it will do great.


That does not mean that you must never change what you do.
some systems stop working all together over time, it does depend on the system you use. Thats a different topic though. It really depends how you like to trade. As I said before there are many different ways to trade and make money.

 

[tomorton]

You can't predict 100% what the market will do, but you must be able to predict 100% what you will do when it happens.

TA isn't an analytical science that will illuminate the one right answer in a situation. The classic demonstration of this when price is in a range and you want to catch either the up move or the down move. TA will show you where to put simultaneous buy and short orders and a stop for each so you just have to wait for the market to decide what it wants to do.

 

[Fugazsy]

The idea that following a plan rigidly will give you an edge over the market is amateur stuff.....market does not have to do anything......the variability are many......not any rigid or objective system will have any chances, as soon as you think you can define it she will kick you in your teeth.

The only chances you have is the hard way, learn what the market is doing and adapt to it, you need to accept it and flow with it.....Just as with life...

Technicality is a good tool, but if you are not nimble it will not be of any use....patterns fail and failure also fail....

Which is the direction of least resistance? Is the market trending? Is she making HH's and HL's? Was the previous day a bear trend? Is she making a 3 pushes up as retracement of the previous day bear? where did the price turn? at the previous day open?

Was the previous day a range day? Did prices broke and reverse above the previous day high? How strong is the reversal pattern? Where is the next level which could act as support?

If is not clear what she is doing? Go to make love with you love one, that is the best trade.

As I said market does not have to do anything.....the trader needs to get in the flow by having an understanding of the condition to enter in that flow...

A plan can be useful but only in controlling yourself in a sea of uncertainty.

 

[zaysev36]

The idea that following a plan rigidly will give you an edge over the market is amateur stuff.....market does not have to do anything......the variability are many......not any rigid or objective system will have any chances, as soon as you think you can define it she will kick you in your teeth.

The only chances you have is the hard way, learn what the market is doing and adapt to it, you need to accept it and flow with it.....Just as with life...

Technicality is a good tool, but if you are not nimble it will not be of any use....patterns fail and failure also fail....

Which is the direction of least resistance? Is the market trending? Is she making HH's and HL's? Was the previous day a bear trend? Is she making a 3 pushes up as retracement of the previous day bear? where did the price turn? at the previous day open?

Was the previous day a range day? Did prices broke and reverse above the previous day high? How strong is the reversal pattern? Where is the next level which could act as support?

If is not clear what she is doing? Go to make love with you love one, that is the best trade.

As I said market does not have to do anything.....the trader needs to get in the flow by having an understanding of the condition to enter in that flow...

A plan can be useful but only in controlling yourself in a sea of uncertainty.

That almost sounded philosophycal So what is the way to understand the flow and market if it has nothing to do with planning?

 

[Revorocks]

The idea that following a plan rigidly will give you an edge over the market is amateur stuff.....market does not have to do anything......the variability are many......not any rigid or objective system will have any chances, as soon as you think you can define it she will kick you in your teeth.

The only chances you have is the hard way, learn what the market is doing and adapt to it, you need to accept it and flow with it.....Just as with life...

Technicality is a good tool, but if you are not nimble it will not be of any use....patterns fail and failure also fail....

Which is the direction of least resistance? Is the market trending? Is she making HH's and HL's? Was the previous day a bear trend? Is she making a 3 pushes up as retracement of the previous day bear? where did the price turn? at the previous day open?

Was the previous day a range day? Did prices broke and reverse above the previous day high? How strong is the reversal pattern? Where is the next level which could act as support?

If is not clear what she is doing? Go to make love with you love one, that is the best trade.

As I said market does not have to do anything.....the trader needs to get in the flow by having an understanding of the condition to enter in that flow...

A plan can be useful but only in controlling yourself in a sea of uncertainty.

I do get what you say, however there are lots of different ways to trade. Mechanical, discretionary, high frequency, a mixture of discretionary and mechanical, different timeframes etc.

I do agree you need to be adaptable, but surely that does not apply to every single system. Maybe lower time frame stuff it does but look at charts historically on higher timeframes, they pretty much always trend or consolidate and breakout.
If you are using a trend following system on a higher timeframe, surely there isn't much you have to change. Just have to make sure to manage risk during sideways moves to ensure it doesn't wipe you out during chop.

I gather you are more experienced than me so interested to hear your say.

 

[dbphoenix]

Trading the auction market profitably requires more than a knowledge of how to draw a trend channel or box. One must also achieve some understanding of the participants. One of the more extreme examples is the scalper vs he who focuses on weekly charts. If the trader wants to hold something for more than a few minutes, much less a few hours or days, he must understand that focusing on a tick chart is a waste of time and effort in that those who are also focusing on that chart or T&S display have no interest in hours and days. The trader who hasn’t thought out his goals thoroughly is therefore out of synch with the market from the getgo. This is not a recipe for success.

There is also the matter of Who’s Got The Money to consider. Scalpers are undeniably busy, but they don’t move markets. They’re not the ones who are providing preliminary support to price as it falls. They are not the ones with the power to engineer sustained breakouts. They are not the ones who are creating those trend channels. If one then wants to trade with the flow of bigtime money, which is arguably a more efficient and profitable method of trading than swinging at shadows, then he needs to understand what bigtime money is looking at. If he can also acquire an understanding of what bigtime money is most likely to do with it, he’ll be in a far more secure position that just about every trader out there, including some of those who have bigtime money but manage it poorly.

One must remember that the more obvious the movement, however it is displayed, the more people there are who will see it. Therefore, if one trades EOD using daily bars, he's going to have an awful lot of company. Everybody sees that. Everybody. But if he's trading 5-second bars, not so much. Therefore, he's more likely to take quick profits because the trading crowd he hangs around with is generally not in this for the long haul. This is NOT to suggest that each and every trade should – much less must – be taken off a long-interval chart: daily, weekly, whatever. The point is that the trader should be aware of what all the various players are focusing on and use that awareness to his advantage. Whether one is trading off a 5m chart, or a 15m, or an hourly, it pays to know what everyone else is looking at and enter at those points and levels where the larger group or groups is/are mostly likely to join in and propel the trader into profit. Trading in a vacuum is not only inefficient but generally unprofitable. Taking one’s cues instead from the actions of those who are actually moving price is far more likely to lead to a satisfactory result than just plunging in and hoping for the best.

That not every group of traders is looking at the same thing is most easily understood by noting the level of trading activity: the fewer participants, the less activity; the more participants, the more activity. In other words, if everybody is looking at the same thing, such as a major parabolic move, then everybody is trading and there’s tons of activity. But if the money players aren’t paying attention, aren’t interested, then there’s much less activity. When the little players notice the big moves that are initiated and sustained by the big players, they join in (if they’re smart; the stupid ones will short the upmoves and buy the downmoves in the fond belief that they’re smarter than they really are, thus adding fuel to the moves they’re taking the opposite sides of).

It should come as no surprise that those who trade 1m intervals are interested in different bar intervals and different timeframes than those who trade off weekly charts and those who scalp, the latter likely not using charts at all. If one is unaware of what those who are interested in longer timeframes are doing, whether or not the latter use charts (even if they don’t, their actions will show up on the chart), he will in effect be trading blind. He may also find himself attempting to negotiate his way through a lot of chop, as a working definition of chop can be a lack of participation of those who are interested in longer timeframes. If, on the other hand, he is aware of those circumstances and conditions under which longer-term players are most likely to enter the market – new daily and weekly highs, climax highs and lows, breakouts from major ranges – then he is more likely to enter and profit from those trades that take off and never look back (the scalper can’t be depended on for these as he is out in minutes, if not seconds). The question of “Where Do I Enter?” becomes much less important, even trivial, depending on what ball one is keeping his eye on.

Db

 

[Fugazsy]

That almost sounded philosophycal So what is the way to understand the flow and market if it has nothing to do with planning?

Philosophical? I thought my post was pragmatic enough, I guess I suck at teaching....
Planning is rigid....market is fluid.....learn the various conditions of the market, use the classic technicality as a tool to trade others and inject your own creativity, which means bring yourself forward or trade in a way that make sense to you because trading at the end of the day needs to be effortless.

 

[Fugazsy]

I do get what you say, however there are lots of different ways to trade. Mechanical, discretionary, high frequency, a mixture of discretionary and mechanical, different timeframes etc.

I do agree you need to be adaptable, but surely that does not apply to every single system. Maybe lower time frame stuff it does but look at charts historically on higher timeframes, they pretty much always trend or consolidate and breakout.
If you are using a trend following system on a higher timeframe, surely there isn't much you have to change. Just have to make sure to manage risk during sideways moves to ensure it doesn't wipe you out during chop.

I gather you are more experienced than me so interested to hear your say.

What I am saying is do not impose a style to the market, yes it might work out for a while but market is not always the same, markets changes all the time, she is in constant motion. By imposing a style can reduce your edge.

Why do not take advantage of this it constant motion? If the market is ranging best is to fade the new extreme, if the market is trending enter with a pull back, if the market broke a major trendline and she is back at the new extreme testing the bears and there is a strong reversal bar take the trade.

If is not clear go to do something else or go back to the drawing board to learn the bits that you do not understand.

 

[Fugazsy]

Market here made LH's and LL's, then she makes HH's and HL's, soon after the Frankie Open (vertical line) she makes a new LL. What does it mean?

There is not direction, bulls and bears are agreeing on something, smart traders will initiate trades at one extreme and take profit at the opposite....they will read the conditions and trade accordingly.

I did not take this trade, I took a BO trade on UC.

 

[zaysev36]

Trading the auction market profitably requires more than a knowledge of how to draw a trend channel or box. One must also achieve some understanding of the participants.

I guess I get why you say. But this means adding another layer of subjectiveness to my initial question. Not only do I have to make some subjective conclusions based on market analysis, but I also need to take into consideration subjectivity of other traders... This doesn't make me feel any more confident about figures and analytics

 

[timsk]

I guess I get why you say. But this means adding another layer of subjectiveness to my initial question. Not only do I have to make some subjective conclusions based on market analysis, but I also need to take into consideration subjectivity of other traders... This doesn't make me feel any more confident about figures and analytics

Hi zaysev36,
It could be argued that being a discretionary trader involves applying 'figures and analysis' to human sentiment, principally fear and greed. Some might say these are mutually exclusive and that it's tough to characterize such powerful emotions with charts, spreadsheets and such like. Nonetheless, that's essentially what most traders who utilize some kind of technical analysis (TA) are trying to do. And TA is, broadly speaking, an art and not a science. Therefore, almost by definition, it is subjective. The trick is to remove as much of that subjectivity as you can, whilst remaining true to yourself and your beliefs about the way the markets function. That means, potentially, you'll end up with a methodology that makes perfect sense to you, but may make little or no sense to someone else. And even if they may understand it, they probably wouldn't be able to trade it. That's why the 'discussions' on this forum and numerous others like it are never ending. Pockets of traders/members here and there reach a consensus on certain aspects of the craft, but there are relatively few things about which everyone is in complete agreement all of the time. Hence, trading is a tough game and unlike (almost) any other endeavor you are ever likely to undertake.

If you're a computer geek and a wizard at writing code, then you can attempt to automate the whole process and remove human subjectivity altogether. Or pay someone to do it for you. Unfortunately, that brings a whole new set of problems which, arguably, are even harder to overcome than those faced by discretionary traders. Welcome to our world where the only certainty is uncertainty!
Tim.

 

[zaysev36]

Hi zaysev36,
It could be argued that being a discretionary trader involves applying 'figures and analysis' to human sentiment, principally fear and greed. Some might say these are mutually exclusive and that it's tough to characterize such powerful emotions with charts, spreadsheets and such like. Nonetheless, that's essentially what most traders who utilize some kind of technical analysis (TA) are trying to do. And TA is, broadly speaking, an art and not a science. Therefore, almost by definition, it is subjective. The trick is to remove as much of that subjectivity as you can, whilst remaining true to yourself and your beliefs about the way the markets function. That means, potentially, you'll end up with a methodology that makes perfect sense to you, but may make little or no sense to someone else. And even if they may understand it, they probably wouldn't be able to trade it. That's why the 'discussions' on this forum and numerous others like it are never ending. Pockets of traders/members here and there reach a consensus on certain aspects of the craft, but there are relatively few things about which everyone is in complete agreement all of the time. Hence, trading is a tough game and unlike (almost) any other endeavor you are ever likely to undertake.

If you're a computer geek and a wizard at writing code, then you can attempt to automate the whole process and remove human subjectivity altogether. Or pay someone to do it for you. Unfortunately, that brings a whole new set of problems which, arguably, are even harder to overcome than those faced by discretionary traders. Welcome to our world where the only certainty is uncertainty!
Tim.

And with all this randomness, subjectivity and uncertainty people keep denying similarity between trading and gambling

 

[dbphoenix]

And with all this randomness, subjectivity and uncertainty people keep denying similarity between trading and gambling

Unpredictability and randomness are not the same thing.

As for trading and gambling, there are amateur traders and professional traders just as there are amateur gamblers and professional gamblers. The amateur gambler enters a professional poker tournament having no idea whether or not a full house beats a straight. The amateur trader begins trading with professionals in much the same way.

Db

 

[piphoe]

Unpredictability and randomness are not the same thing.

As for trading and gambling, there are amateur traders and professional traders just as there are amateur gamblers and professional gamblers. The amateur gambler enters a professional poker tournament having no idea whether or not a full house beats a straight. The amateur trader begins trading with professionals in much the same way.

Db

I don't think you have the correct analogy. The amateur gambler enters a professional poker tournament under the false assumption knowing the odds in a perfunctory way is sufficient to succeed. Disregarding the role of hours upon hours upon hours of experience plays. The amateur trader may overly rely on TA and their straight lines for example.

 

[dbphoenix]

I don't think you have the correct analogy. The amateur gambler enters a professional poker tournament under the false assumption knowing the odds in a perfunctory way is sufficient to succeed. Disregarding the role of hours upon hours upon hours of experience plays. The amateur trader may overly rely on TA and their straight lines for example.

The amateur gambler likely doesn't know anything about odds, other than what he read in the casino's brochure.

As for the hours and hours, the number of hours is irrelevant if one keeps making the same mistakes over and over again.

If one has a thoroughly-tested and consistently-profitable trading plan, regardless of the basis of it, he is trading professionally. Otherwise, he's gambling.

Db

 

[Solas0077]

This is an impressive example of subjectivity-free analysis. The take is that you need to find some way of testing how potential setups perform when samples are increased.

 

[dbphoenix]

This is an impressive example of subjectivity-free analysis. The take is that you need to find some way of testing how potential setups perform when samples are increased.

You also need to determine performance in real-time forward-testing. Computer backtests are notorious for failing in real-time practice unless the real-time trades are made by computer.

Db

 

[piphoe]

That's experience I was referring too.

Is there any subjectivity to your "SLA";is every rule defined like a cake recipe? No judgement necessary it's all laid out for you?