Market Psychology

[Aetey]

I'm currently reading Elder's Trading for a Living (again :eek: ) and yesterday I stumbled over his definition of the market: he claims, rightly so and in a nutshell, that the "market" is a huge bunch of people that follow a similar goal and that TA, in it's most simplistic form, is nothing more than applied mass psychology. But: is that statement still valid in a time where more and more volume is generated by robots and other fully automated systems? Do Elder's indicators (esp. Force Index) still represent, today, the same information they represented 25 years ago, when he wrote the book?

If you base your trading system, your edge, on signals that are generated by a panicky human mob, is that system not doomed to fail if more and more volume is generated by machines?

Or am I too far into wonderland here and those bots are only relevant in the VERY short timeframe?

Your thoughts please

 

[failed_trad3r]

Quote from Aetey:

I'm currently reading Elder's Trading for a Living (again :eek: ) and yesterday I stumbled over his definition of the market: he claims, rightly so and in a nutshell, that the "market" is a huge bunch of people that follow a similar goal and that TA, in it's most simplistic form, is nothing more than applied mass psychology. But: is that statement still valid in a time where more and more volume is generated by robots and other fully automated systems? Do Elder's indicators (esp. Force Index) still represent, today, the same information they represented 25 years ago, when he wrote the book?

If you base your trading system, your edge, on signals that are generated by a panicky human mob, is that system not doomed to fail if more and more volume is generated by machines?

Or am I too far into wonderland here and those bots are only relevant in the VERY short timeframe?

Your thoughts please

TA doesn't work and has never worked.

 

[efficiency]

Quote from failed_trad3r:

TA doesn't work and has never worked.

Probably hasn't for a self-professed failed trader. Sour grapes. Or is it trolling?


Ask any carpenter or mechanic about the right tool for the job

The T&A (not to be confused with tits & ass) for a trending market is different than in an oscillating or choppy market. Shifting gears.

So mister failed_trad3r, rather than your one line broadbrush negative comment, WHAT does work?

Fundamentals?

WHAT fundamentals?

I've yet to have an accountant explain why a pre-paid expense is a line item in current assets whereas that category is considered to covert to cash within a year (but pre-paids are sunk costs). Puffs up the current ratio like a padded bra. Couple that with accelerated depreciation of fixed assets and so much for a balance sheet.

Income statement? COGS can be altered by LIFO or FIFO, I could go on but will sum it up with EPS hinges upon 1. What's counted. 2. What's not counted. 3. HOW what's counted is counted.

Don't forget the smoke, mirrors, and bullshit commonly referred to as footnotes. And............it's the past.

So what works?

A very basic moving average, won't catch bottoms or tops but will will keep you on the correct side of the trend for its respective timeframe. Add a filter or two and you've got a simple system.

That aside, too much focus upon entry when exits (both profitable and at a loss) are what separates the men from the boys. Appropriate positiion size doesn't hurt either.


For the OP, price movement is to a degree a reflection of mood (in some cases induced by Wall Street and/or news media) which I suppose could be construed as mob psychology.

Program trading is most likely based upon price point triggers. In turn filtered by something. Volume would be a good guess. Seasonality, particularly around both expiration and the beginning ot the month.

Never used Elder's Force Index (or rays) so I can't comment.

 

[nutmeg]

It would seem that robots would be based on the past, hence the mass psychology of the past which powers todays robots (backtesting) will live on.

As far as volume, I think it's a non starter, just a matter of more or less people doing the same thing.

 

[Blotto]

Quote from failed_trad3r:

TA doesn't work and has never worked.

Since they've obviously missed it I'll try rephrasing:


Mainstream thought and canned systems, indicators ,etc will not give you an advantage over other traders to the extent that you can consistently take money from them.

You need to be able to predict future market direction. All the textbook stuff will not help you to do that- most of it will tell you it cannot be done.

 

[Wallace]

ta is based on price bars
a price bar is the OHLC of the prices during that given time period, a vertical line
represents the H and L with the O and C indicated on the line
collectively the bars form a historical chart of the PriceTime Movement of that financial
instrument - exceptions - point&figure charts and etc

all financial instruments trade via an exchange - exceptions - spot fx and etc

regardless of how and why trades occur they're all included in that price bar for that tp
including algorithms in whatever form generated by whatever means including boxes

all 'indicators' lag and some will change/update after-the-fact, do not project forward and
are then lagging; indicators that do project forward are various trendlines including s&r
and fibo lines

i don't follow Jack Hershey since he's mostly incomprehensibly to me but he has a
somewhat useful and appropriate i think comment in this thread relating to psyche:
http://www.elitetrader.com/vb/showthread.php?s=&threadid=196631


in some respects, trading based on ta/charting is similar to playing billiards/pool - in a
strictly theoretical sense in that there's an absolute science of physics involved in being
able to make a cannon, pot a ball, clear the table, But, the skill of doing so remains with

the player's ability to execute, and, — 'see the table'

 

[TrueProp]

Quote from Blotto:

Since they've obviously missed it I'll try rephrasing:

Mainstream thought and canned systems, indicators ,etc will not give you an advantage over other traders to the extent that you can consistently take money from them.

You need to be able to predict future market direction. All the textbook stuff will not help you to do that- most of it will tell you it cannot be done.

It's not about taking money from other people. I don't understand that approach to markets -- I do understand it but I don't understand the benefit of approaching trading in that manner is a better way to say it. Anyways....

You do not need to be able to predict the future or prognosticate. You need an edge. For some people that edge is reading T&S/Prints or order flow or open book or TA (which does work btw but actionable real-life TA differs greatly from textbook situations where price bounces exactly off of S/R) or fundamental analysis or planetary alignment or Elliot Wave or whatever.

You need an edge defined by a particular setup or particular setups. After that it's risk-to-reward.

If you know what you're looking for, you don't have to predict anything because when you see it you have an idea of the odds and you take a position with good R/R in mind and sometimes you're right and sometimes you're wrong. If you have a reliable edge you'll make money in the long run.

 

[TrueProp]

Quote from efficiency:

That aside, too much focus upon entry when exits (both profitable and at a loss) are what separates the men from the boys. Appropriate positiion size doesn't hurt either.

Those damn exits. You're so right. I think I'm a teenager when it comes to my exits (on winners that is --- I'm good at taking losers) --- sometimes I show flashes of becoming a mature adult and other times I'm just an immature brat. Lol. I guess slow progress is better than no progress.