forex and TA? why would it work?

[sjfan]

People here seem to like to use TA for trading forex. I don't understand the basic logic of why TA would work for forex (or anything else, but let's keep the focus on TA).

I understand the usual defense for TA is "it's all in the price". Okay. I can sort of accept that for the pre-1990 timeframe. But these days, we have a very different market - with larger amount of hedging motivated trades (for both cross-country investments as well as hedging other derivatives) and algorithmic executions that are primed to hide itself. Why would the same basic patterns from the pre-automation days still hold?

(I'm not looking for seeing a chart of some pattern along with a "look! it worked". That sort of reasoning is useless unless you can you show all the times that particular pattern has popped up, and then tally how often it actually worked).

 

[killthesunshine]

TA works for Forex but only with longer timeframes (weekly on up)

forex is not for intradday trading

does not obey day trading

real intraday trading are futures traders

 

[ARealGannTrader]

Quote from killthesunshine:

TA works for Forex but only with longer timeframes (weekly on up)

forex is not for intradday trading

does not obey day trading

real intraday trading are futures traders

Agree, FX is to gauge geopolitical events, which unfold over time.

To the OP, if indicators are what ur curious about, I would suggest no more than a technical package to clearly mark meaningful tops and bottoms. There are many ways to do this.

 

[intradaybill]

Quote from sjfan:

I understand the usual defense for TA is "it's all in the price".

That is no defence for TA, Actually, it's an argument againt TA and any other type of analysis. If eveything is in the price, price moves are random and no method can provide an edge. It is only when NOT everything is priced in that some type of analysis can give you an edge to overcome transaction costs.

The only defence for TA one could think of is that many people use it and in doing so they assign some significance to certain price levels where they place limit and stop orders. But again, some other people try to fade these levels and it is hard to say whether there is a significant winning bias either way.

FYI, I have been actively trading forex for 25 years. I have made money overall but I have not become rich from doing it.

 

[TraderZones]

Quote from intradaybill:

That is no defence for TA, Actually, it's an argument againt TA and any other type of analysis. If eveything is in the price, price moves are random and no method can provide an edge. It is only when NOT everything is priced in that some type of analysis can give you an edge to overcome transaction costs.

The only defence for TA one could think of is that many people use it and in doing so they assign some significance to certain price levels where they place limit and stop orders. But again, some other people try to fade these levels and it is hard to say whether there is a significant winning bias either way.

FYI, I have been actively trading forex for 25 years. I have made money overall but I have not become rich from doing it.

TA is what sells books, systems and drives new trader wannabes like lemmings. It even has a powerful effect on many here on ET. But ask for serious proof or show evidence it doesn't work, and the wails are loud and the beliefs die hard.

And try to point out that 90% plus people usually use TA indicators/Gann/Elliott Wave/Fib and 90% of people lose and they cannot see the connection.

What do the 1-10% use? Probably pure price action and a few other methods (I know a couple of other general methods that have worked for a long time as do some other experienced traders, but newbies are still going to have to do their own learning. Sorry).

 

[Eric215]

All of the information is in the price, or more accurately, in how the price moves in relation to the losing majorities opinion of where it will move. There are ultimately many factors which determine how and where the price moves but, on average or better yet the majority of the time, price WILL move in the opposite direction of where the majority of losing traders have placed their positions. So, then the question becomes, how do we determine where the losing majority is positioned? This comes from experience, knowing how the average retail trader analysis the market, and being able to frame the markets in a way in which it allows you to take advantage of the losing majority. To the trader who understands this concept and has developed a way to exploit it, there are at least 2-4+ opportunities everyday to profit from. I can go into this more later, as I am walking out the door to go play poker. I can get back to this topic later.

 

[kiwi_trader]

I am getting cynical - I hesitate to reply to this thread!

TA is anything where you trade not based on some fundamental style of expectation but because of what is seen in the action of prices and volumes.

It is the interpretation of price (and for some volume) over time to generate a reason for a trade - one might think of it as an asymmetry between the risk reward most perceive and the real risk reward.

And it doesn't come from the action of prices. It comes from the action of men and of machines programmed by men. Good TA (yes, I'm making a value judgement so maybe its "much of good") comes from studying the market one is choosing to participate in and observing the way that price changes let you see the action of other participants to find asymmetric risk reward.

So it works in forex too. Just like in stocks you have players on different time-frames. So if you're short term you can ride the longer term players actions. Or you can see how some group of short term players actions move the market in a way that gives you some advantage. Or you can observe that potential double bottoms or trader vic 2bs give you a tradable risk reward on forex. Or that trends persist for long enough to give you a worthwhile reward vs risk and probability of loss. Or. Or. Or.

Enough from me.

 

[OddTrader]

Quote from sjfan:

People here seem to like to use TA for trading forex. I don't understand the basic logic of why TA would work for forex (or anything else, but let's keep the focus on TA).

I understand the usual defense for TA is "it's all in the price". Okay. I can sort of accept that for the pre-1990 timeframe. But these days, we have a very different market - with larger amount of hedging motivated trades (for both cross-country investments as well as hedging other derivatives) and algorithmic executions that are primed to hide itself. Why would the same basic patterns from the pre-automation days still hold?

(I'm not looking for seeing a chart of some pattern along with a "look! it worked". That sort of reasoning is useless unless you can you show all the times that particular pattern has popped up, and then tally how often it actually worked).

It seems you are implying some other non-ta methods work better than ta. Do you know why?

 

[cabletrader]

This issue must have been debated a million times before on pretty much every trading forum and it never results in anything conclusive (or constructive most of the time!).

Personally I don't think some elements of TA are any more or less effective than anything else, it simply provides parameters within which to trade is all.

Some people prefer TA as opposed to say fundamentals as it tends to be less discretionary and ambiguous.

At the end of the day does it really matter what you use to trigger a trade, it's all just probability anyway. How you manage the trade once you're in it is more important in my opinion, that's what determines profitability.

 

[TraderGreg]

Quote from sjfan:

People here seem to like to use TA for trading forex. I don't understand the basic logic of why TA would work for forex (or anything else, but let's keep the focus on TA).

I understand the usual defense for TA is "it's all in the price". Okay. I can sort of accept that for the pre-1990 timeframe. But these days, we have a very different market - with larger amount of hedging motivated trades (for both cross-country investments as well as hedging other derivatives) and algorithmic executions that are primed to hide itself. Why would the same basic patterns from the pre-automation days still hold?

(I'm not looking for seeing a chart of some pattern along with a "look! it worked". That sort of reasoning is useless unless you can you show all the times that particular pattern has popped up, and then tally how often it actually worked).

sjfan,

I could give you a thousand perfectly logical reasons why the world exists as it is, and another thousand that completely refute it. All that matters is what works in practice.

There is one thing you should realize, though: if an automated system buys on the break of an inside bar, the inside bar still forms and buying pressure is still there when it breaks.

As for showing "all the times that particular pattern has popped up, and then tally how often it actually worked," it sounds like you need more time watching the markets and/or learning how to program and backtest.

Best of luck, man.