Does trendline work?
- Thread starter GloriaBrown
- Start date
You think large market participants pay no attention to major long term trend lines - what planet are your from?
Here is an example of Deutsche bank using trend lines on the 10-year, trying to forecast future yields and another for corporate bonds.
That would be a good way about going about to see if they work or not. It's more difficult to code up automated trendlines. I have done it, but there's still subjectivity as to where to place the lines. Support and resistance levels (trendlines with 0 slope) are a bit more straight-forward and less subjective to implement. That would be the place to start.
You can kind of do this...Tim Knight over at TastyTrade has a show every week day where he goes over some of his most promising charts. If you subscribe to his charting service (think it's like $40 / month with a free trial), you can also see his charts and past charts. Unfortunately, he does not (publicly) keep track of how his predictions have worked out. Since he's mostly been bearish during the entire bull market run over the past 10 years, if he's still able to make money, then his approach must be working as he's going against the trend. Either that or he makes his money off of subscriptions.
Either way, if anyone here has found an edge with chart patterns, unless they are selling a book or service, why would the disclose their edge?
So you believe in bank marketing team stuff
Because they could make a huge sum teaching it selectively or managing OPM. But I seriously doubt you'll see anyone make specific trade calls (entries, stops and profit taking levels). They'll be like the guy you mentioned, who points out potential trades, but leave it open-ended. Thanks for the response, BTW.
Define prove?
1. Prove mathematically: No, trendlines are subjective.
2. Prove empirically: Yes, I can gather enough data points to either confirm or deny a hypothesis works.
Proving this kind of thing is difficult. In fact, proving most types of strategies (quant or not) is difficult. The most evidence for trendlines lies in psychology. They work because they work. If this recursive definition confuses - it should. Trendlines work because other people use them.
There are some exceptions. Long term support and resistance effectively act like supply/demand limitations. They can be used as a very rough approximation to market elasticity.
Consider there are enough traders in the population of traders doing well with trendlines alone to exclude spurious correlation between success and any given trendline. Clearly, they are working for a statistically significant population of people. Whereas we cannot prove they work with any real rigor, there is undeniable evidence they do work in practice in a science vs. engineering sense.
You are simply stating that without a shred of evidence. And no, people on forums like this saying they "make money with trendlines" doesn't count as "a statistically significant population of people." Especially when there may be an even bigger population who lose money with the same techniques.
It'd adorable you thought I used this forum as my sample size.
I can walk into any prop shop and find a handful of veritably successful people using trendlines. I can roll these numbers up into a population average.
Your mental model of "statistically significant" is broken. Consider picking up a book on Experimental Design.
I won't post evidence because I haven't ran any experiments on the subject. Sorry.