Distinguishing between retracements & reversals

Quote from Thunderdog:




I agree that I would treat price action differently depending on its character, but I would not assume it to be either a temporary retracement or a reversal based solely on that. Again, this is just my personal view.
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No reason to assume.
In my mind,you first need to determine the likelihood of a ret.
The only way I know how to do that is to find the areas where the potential trade is a failure.
But doing things this way will cause me to miss out on lots of trades because they will not meet all my criteria.
 
Quote from dbphoenix:



Why would I have to "go first"? I didn't make the challenge. In any case, reducing it all to whether or not some particular aspect of trade management "works" or not is oversimplification. There are no guarantees, only probabilities. Therefore, one must also develop a set of entry, management, exit, and stop rules in order to protect himself if he assesses the probabilities incorrectly.

The guidance I provided earlier is just that - guidance. Getting down to creating a detailed retracement/reversal strategy is something else. If arzoo wants to do that, I'll be happy to help.
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I think we may be going in circles. I can only counter a specific example if I am presented with it first. Therefore, I cannot go first. In any event, my "challenge" was more rhetorical than not. I trust that you are entirely capable of finding an instance where an indicator does not work for each instance that you find where it does work. My point is, that if you can indeed do so, then that indicator has no predictive value. This is not to suggest that your trading method does not work, just that this particular component of it is probably redundant and possibly even disruptive. Indeed, I agree with you that one must develop a set of entry, management, exit and stop rules. What I am suggesting is that most "indicators" are just incidental to that core set of tools.

As an aside, I think that trading has less to do with probabilities and more to do with uncertainty. That is because there is no defined probability distribution for the future. It only exists for past trades. Going forward is murkier and more uncertain. People who hang their hat on clearly defined probabilities tend to end up hanging themselves (i.e., LTCM).

Let us agree to disagree, shall we?
 
I don't want to get into example, counter-example, counter-counter-example, counter-counter-counter-example. Your opinions are your own, even though they may have no basis in fact.

In any case, the point of the thread is arzoo's original post. If he wants to pursue the development of a reversal/retracement strategy, that's fine. If he doesn't, that's also fine. If somebody wants to initiate a thread that claims that there is no difference between a reversal and a retracement except in hindsight, that's okay, too, though I can't promise I'd contribute to it.
 
Didnt mean to get cute. I'm talking about the day of 11/24.


Quote from dbphoenix:

The post you quote was written yesterday. The post you wrote was posted today. If you can stop being cute long enough to tell me what you want, we can go on from there.
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Reversal is caused by exhaustion. If one takes indicators typical "symptoms" will be divergence and abrupt angle between an indicator and its moving average (signal line). If one takes candlestick it will be reversal patterns, if one take my model it will be that the bottom of the model has been reached etc.

Quote from arzoo:

Hi guys,

i was wondering what chart tools (bars, candles, patterns, trendlines, etc) and/or indicators (or even strategies) provide reliable signals in distinguishing between:

1. when the nq/es is in a trend - retracements vs reversals

and

2. when the es/nq is in a base (possibly beginning a trend) - a pullback from breakout vs a failure of the breakout/base pattern.

thanks.
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