I've made a game that can prove or disprove this theory, if anyone is interested in trying it out, pm me, not spamming, not even asking for your email and have a big link back to elitetrader, can settle this once and for all....
Can you trade by price action alone?
- Thread starter slipchamber
- Start date
no.
first, the price actions are quicker those days. when you see the trend, the trend disappears, when you see a range, the range becomes random or a trend. so you will be always late a step behind, how the heck can you make money consistently? you are chasing.
mathematically, chart patterns or the price actions are unlimited, that mean any particular price action's probaility is very low. in reality, also this is true. the chart pattern or the price action you want to trade is just one of them. most time the probality is far below most people think. it is below 10%. whether it is a typical classical textbook double bottom/top or other breakout patterns.
take an example this Friday Turrkey day. based on my reasoning, according to Thursday's brief trading/wesday's, I think it will jump, then drop at the closing. but my trading rule is sell the weak, not the rally. I want to trade in the least resistant direction. I know there are several patterns or price actions will make a reversal. I am trading NQ. when it hit 2180+, I know that is resistance. but I wait. when it first time drop to 2171+, I did not short it. then it went back, it dropped again. I did nit short either. the third time it dropped to 2175.75, I shorted it. but it bounced to 2181, from the price action, it seems to me it will go higher. but I ignore this little bounce and hold it uncomfortably about 15minutes!
so here the market tempts to drop three times, only the fourth time it really drops and no go back. the probability for this price action setup is just 1 in 4. (typical double topping play)
second, most price actions are just noises, impossible to follow. I always get puzzled what the heck of those buy/sell in so short of time.
if you want to be ahead of the game. you must be a step ahead of most others.
first, the price actions are quicker those days. when you see the trend, the trend disappears, when you see a range, the range becomes random or a trend. so you will be always late a step behind, how the heck can you make money consistently? you are chasing.
mathematically, chart patterns or the price actions are unlimited, that mean any particular price action's probaility is very low. in reality, also this is true. the chart pattern or the price action you want to trade is just one of them. most time the probality is far below most people think. it is below 10%. whether it is a typical classical textbook double bottom/top or other breakout patterns.
take an example this Friday Turrkey day. based on my reasoning, according to Thursday's brief trading/wesday's, I think it will jump, then drop at the closing. but my trading rule is sell the weak, not the rally. I want to trade in the least resistant direction. I know there are several patterns or price actions will make a reversal. I am trading NQ. when it hit 2180+, I know that is resistance. but I wait. when it first time drop to 2171+, I did not short it. then it went back, it dropped again. I did nit short either. the third time it dropped to 2175.75, I shorted it. but it bounced to 2181, from the price action, it seems to me it will go higher. but I ignore this little bounce and hold it uncomfortably about 15minutes!
so here the market tempts to drop three times, only the fourth time it really drops and no go back. the probability for this price action setup is just 1 in 4. (typical double topping play)
second, most price actions are just noises, impossible to follow. I always get puzzled what the heck of those buy/sell in so short of time.
if you want to be ahead of the game. you must be a step ahead of most others.
Hey guys!
This is my first post, I've been working on learning trading for about 6 months now so I'm still a newbie but I've put in hundreds of hours at this point into learning and finally feel like I can at least talk about the subject.
I started off with Technical Analysis and learned about all that for a bit, then I learned about something called Volume Spread Analysis which was a good introduction into understanding how to utilize volume and trying to understand "smart money." Somewhere in between there I learned how to code in Metastock to design and test systems and have been using something called Visual Strategy Trader (VST).
VST is essentially a backtester that you can code your systems into and it spits out everything in a visual no-nonsense format. I don't know if anyone here uses Metastock but to say the least it has some drawbacks. However, the great thing about using a program that looks and acts like it hasn't been updated since 1990 is that it forces you to be more efficient with your code. For example, Metastock only allows you to use up to 20 variables per indicator. Variables are a very nifty way to organize code and allow for customization, but Metastock forces you to basically find ways to make your code more efficient and elegant. There's also a maximum character limit for each indicator, no loops, etc, etc.
I use the free version of VST and have kind of made it a project to code in all of the VSTPro features. Also, while learning about TA, candlesticks, Volume Spread Analysis, etc, I would always try and code those ideas into indicators and use them as trading signals to see if they were any good.
My most recent area of focus has basically become to develop a system based on Price Action, and changing spreads. It wasn't until a few weeks ago that I finally came upon the beginnings of a system I plan to use. The system is based on EOD trading and where the price of a stock closes relative to the spread of the bar. So I can say something like, enter only when the close is in the to 95% and exit when it's in the bottom 3% and vice versa. Furthermore, I also look at the spreads of the bars to see whether or not they have increased or decreased for x number of days and if they have, it generates another signal.
That's the short just of it. It's based on the notion of supply & demand in the markets and the top down approach to system development.
I believe the relationship between price and volume are key to developing a good trading system and an overall understanding of the market. When you put it all together it kind of tells a story about what's going on with the economy, news, etc.
When I decided to start learning about trading I thought TA was the way to go and fundamental analysis was useless. Since, I don't believe in market efficiency fundamentals seemed irrelevant.
At first I thought TA was the holy grail to trading and learned about MACD, RSI, Stoch, OBV, etc, etc but slowly started to realize that it's mostly just horse shit. There are at least 23482390849023423 different types of indicators out there all promising to make you rich. Black Box systems sell like crazy which baffles me.
Presently, my mind set is that TA and FA both have their uses. You have to be able to understand financials if you want to hold any position long term. But you also have to be able to read a chart and analyze what the chart's telling you to know if you should enter or exit a trade. TA kind of helps with that, but the more complicated the indicator gets, the more useless it is in my opinion.
Anyways, I've attached 3 pictures, one of the NYSE Comp, NASDAQ Comp and S&P 500 (SPX). The green thing is the equity curve had the system been trading since 1996 through today. Red is the risk and drawdowns and there are some stats on the left.
Sorry for the long ass post.
This is my first post, I've been working on learning trading for about 6 months now so I'm still a newbie but I've put in hundreds of hours at this point into learning and finally feel like I can at least talk about the subject.
I started off with Technical Analysis and learned about all that for a bit, then I learned about something called Volume Spread Analysis which was a good introduction into understanding how to utilize volume and trying to understand "smart money." Somewhere in between there I learned how to code in Metastock to design and test systems and have been using something called Visual Strategy Trader (VST).
VST is essentially a backtester that you can code your systems into and it spits out everything in a visual no-nonsense format. I don't know if anyone here uses Metastock but to say the least it has some drawbacks. However, the great thing about using a program that looks and acts like it hasn't been updated since 1990 is that it forces you to be more efficient with your code. For example, Metastock only allows you to use up to 20 variables per indicator. Variables are a very nifty way to organize code and allow for customization, but Metastock forces you to basically find ways to make your code more efficient and elegant. There's also a maximum character limit for each indicator, no loops, etc, etc.
I use the free version of VST and have kind of made it a project to code in all of the VSTPro features. Also, while learning about TA, candlesticks, Volume Spread Analysis, etc, I would always try and code those ideas into indicators and use them as trading signals to see if they were any good.
My most recent area of focus has basically become to develop a system based on Price Action, and changing spreads. It wasn't until a few weeks ago that I finally came upon the beginnings of a system I plan to use. The system is based on EOD trading and where the price of a stock closes relative to the spread of the bar. So I can say something like, enter only when the close is in the to 95% and exit when it's in the bottom 3% and vice versa. Furthermore, I also look at the spreads of the bars to see whether or not they have increased or decreased for x number of days and if they have, it generates another signal.
That's the short just of it. It's based on the notion of supply & demand in the markets and the top down approach to system development.
I believe the relationship between price and volume are key to developing a good trading system and an overall understanding of the market. When you put it all together it kind of tells a story about what's going on with the economy, news, etc.
When I decided to start learning about trading I thought TA was the way to go and fundamental analysis was useless. Since, I don't believe in market efficiency fundamentals seemed irrelevant.
At first I thought TA was the holy grail to trading and learned about MACD, RSI, Stoch, OBV, etc, etc but slowly started to realize that it's mostly just horse shit. There are at least 23482390849023423 different types of indicators out there all promising to make you rich. Black Box systems sell like crazy which baffles me.
Presently, my mind set is that TA and FA both have their uses. You have to be able to understand financials if you want to hold any position long term. But you also have to be able to read a chart and analyze what the chart's telling you to know if you should enter or exit a trade. TA kind of helps with that, but the more complicated the indicator gets, the more useless it is in my opinion.
Anyways, I've attached 3 pictures, one of the NYSE Comp, NASDAQ Comp and S&P 500 (SPX). The green thing is the equity curve had the system been trading since 1996 through today. Red is the risk and drawdowns and there are some stats on the left.
Sorry for the long ass post.
Your mention of Heathkit put a smile on my face. You must be "oldtime" to remember that venerable company. When I was in high school, I built a Heathkit shortwave radio. After many hours and lots of solder connections, I surprised myself that it actually worked when I turned it on. Ah, those were the days before cheap electronics from Asia changed everything. Sorry for the nostalgic digression, now back to trading and price action...
My security is showing multiple threats at that link.
Price Moving Averages (simple, exponential, weighted et cetera) are indicators but most that use them are afraid to admit they're still using indicators. Thus, they prefer to call themselves "price action traders".
It's very simple, open up a chart and don't plot anything on it...you're a price action trader. Just the same, open up a bid/ask/time & sales screen and don't plot anything on it...you're a price action trader.
lol... love it, everyone that has said they can trade by price action alone just proved they couldn't, everyone is negative, and pretty much gave up already, too funny...