Does Some Technical Analysis Methods Go Overboard?

[kut2k2]

Quote from Opulence:

... wonder if some T/S methods go overboard.

In a word, yes. You should know upfront that at least 99% of published TA is garbage. There's an easy way to tell this for yourself: almost none of the TA books have any performance stats. If those methods were really any good, the authors would be publishing their stats to encourage you to buy their books, just like car makers are happy to publish the selling points of their cars to encourage you to buy. Instead, TA book writers and their publishers just load up their books with hundreds of indicators, almost all designed to do the same thing and almost none or exactly none of them doing it well.

The only good TA is the blackbox stuff, and the best TA is the stuff you design yourself, so you know it from the ground up and have tested it yourself for validity.

Quote from Opulence:

But what about you? What T/A methods do YOU use? Do you stick to the basics or do you use complex mathematical formulas to do your trading?

I have exactly three technical tools: an adaptive smoother I designed myself, a trend indicator I designed myself, and ye olde standard momentum indicator. That's it.

 

[Swan Noir]

Yes ... Gladwell is his name. The old adage -- "sticking to your last" -- has been known to cordwainers and cobblers for a millennium. While the profit from perfecting a trade is important your description of how much it can teach you illustrates a valuable by product.

It's hard to learn from what does not work until you have something quite similar that does. The presence of a doji just before the signal bar in certain setups can be enough to change a trade with a positive expectation to a crap shoot. It is much easier to see that in action if you have experience with the winning layout.

Quote from logic_man:

One minor correction to an otherwise very pertinent post. It was Malcolm Gladwell who wrote that book. I had also heard the idea before, starting in the late 1990's and I think it stemmed from some research that came out of the University of Chicago.

 

[mcteague]

Complex systems create to many ways to make mistakes. I am new to trading. But I know pros who have advised me.
They say; learn a small number of setups, trade a small number of positions, know and manage your risk, be patient, plan the trade, and trade the plan.
And they say that most traders lose because they don't.

 

[oraclewizard77]

Find a profitable setup and test it out. Reduce your indicators to only the ones that help you define the profitable setup.

Work on not trading until you see the setup, and work on remembering what conditions you are looking for to confirm the setup on the hard right side of the screen.

Then realize there is no holy grail. Then realize that a technical setup only gives you a probability of success called a win%. This is what people don't understand about TA. Say for example, you see a fib pullback work, and another time it does not work. However, the ability is to make stuff work for you. What conditions besides a fib pullback have to be in play for it to be alright to enter a trade.

Then trade a time frame where you are comfortable that you are not trading noise. The lower the time frame say 1 min equals more noise.

 

[Wide Tailz]

Quote from oraclewizard77:

Find a profitable setup and test it out. Reduce your indicators to only the ones that help you define the profitable setup.

Work on not trading until you see the setup, and work on remembering what conditions you are looking for to confirm the setup on the hard right side of the screen.

Then realize there is no holy grail. Then realize that a technical setup only gives you a probability of success called a win%. This is what people don't understand about TA. Say for example, you see a fib pullback work, and another time it does not work. However, the ability is to make stuff work for you. What conditions besides a fib pullback have to be in play for it to be alright to enter a trade.

Then trade a time frame where you are comfortable that you are not trading noise. The lower the time frame say 1 min equals more noise.

Agree with all this, although I do believe there is a "holy grail". It is a state of mind. It can be summarized by the following timeless wisdom from Jim Rogers:

"I wait until I can't lose money on an investment before buying"
"Do nothing, absolutely nothing, until there is something to do"
"I wait until there is money lying on the ground in the corner and all I have to do is go pick it up"
"Don't do anything until you know what you're doing"

The man is rich and does not use TA. I try to use TA with the above state of mind (and the great advice given by the above poster) and it works!

TA shows you where to put your stop. The Market can not be known in advance.

 

[Jestersofmalice]

Quote from Mysteron:

Like a lamb being led to the slaughter you are following a well trodden path, and are being encouraged to do so.

For daytrading stocks, straight lines are all thats needed, and preferably horizontal too

No need for TA on charts, learn to read price action.

http://www.elitetrader.com/vb/showthread.php?s=&threadid=197367

lol. 'The_Expert' was quite funny. Epic troll speaking in riddles with zero substance.