Quote from ljyoung:
If I might presume that what taowave meant when he said trendlines have no predictive value is that when a trendline is trending in a certain direction there is no reason whatsoever to believe that it will continue to do so. That would seem to be rather irrefutable.
On the otherhand when price approaches a trendline and does a certain thing (like bounce or cross it) then it may be that the trendline is serving as a litmus test for some aspect of price dynamics.
On the otherhand there is a school of thought that says if you look "to the left" of what appears to be a "trendline event" there is very frequently an older area of support or resistance, and that is what is "causing" the trendline reaction. But then how far back to the left should one look to find this S/R? And what constitutes "significant" S/R? And on and on.
What it boils down to then is making some choices for the market you are involved with and seeing whether those choices bear fruit. It is that simple or that complicated but it is apposite to appreciate that TA is a weight of evidence kind of thing, with probabilities assigned for this and that.
While possibly not strictly analogous to what we see as traders, the placebo effect is a potent force in many medical therapies - a sort of self-fulfilling prophesy. So even if you think all of this trendline stuff is crap (which I don't), it's probably worthwhile to acquaint yourself with the general tenets.
lj
Thank you Li,and you are correct.
One really needs to define the term "work" as in "do trendlines work".That is the first order of business.
If your definition of "work" is statistically outperform a buy and hold or some other relative performance measure,with some clever programming,the answer is clear and it would certainly refute my first response being called rubbish.
I have no interest in debating the obvious,but if one is going to employ trendlines as a "forecasting" tool,I would strongly suggest the use of other indicators that can be statistically backtested.In order to be successful,one needs to have a edge and at a bare minimum tilt the odds in ones favor.Backtesting,optimising( for robustness of backtest)monte carlo's are far more likely to provide that edge than subjectively interperting a trendline.
I do employ trendlines,but in more of a "breakout" mentaility.I have long ago stopped beleiving that an upward sloping trendline provides a measure of support.It is sheer folly and is analogous to traders beleiving that a moving average should provide support/resistance.
With that said,there are many moving average/breakouts systems that do quite well.But the majority of traders that employ them successfully certainly dont look at an MA as being predictive.In fact,I would venture to say that they employ trend following techniques due to the beleif that the market is unpredictable,but certain patterns/trends do occur over and over.
To each his own
