Patterns that don't work anymore

Quote from ScaleOut:

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MACD DOES NOT PRODUCE CONSISTENT PROFITS ON A MECHANICAL BASIS.

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MACD has been tested over all reasonable parameters. None held up long term.
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If a mechanical application of MACD - by itself or even with the addition of some simple but credible profit-taking/loss-limiting system - did "hold up long term," then I'd have to think there was something very strange about the financial markets. Why would anyone think that the use of a simple set of mathematical formulae producing a plot or plots available to anyone capable of running a basic charting program would, all by itself, guarantee a tradable edge? If that could happen, we would rename the MACD "Money Tree," and EVERYONE would plant it. Or maybe we'd rename our country the United States of MACD, and we'd all go to the Church of MACD, or at least name our kids and dogs "Mac" or maybe "Gerald" or "Gerrie-Mac." At the very least, CNBC would cancel Maria Bartiromo's show, and replace it with "MACD Tonight," possibly hosted by Bert and some Hedge Fund manager who'd MACD'd his or her way to fame and glory.

That said, I have no doubt that there are traders who find MACD to be a useful tool. There appear to be traders who successfully incorporate MACD into profitable systems or methods, just as there appear to be a larger number of traders who get nowhere (or worse) with it. The same can be said for virtually every other pattern or indicator (or non-"technical" approach) that's actively traded.
 
Quote from skeptic123:


I guess it makes John Murphy a rookie, right?
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No, but that's only one definition of "technical analysis", and he's entitled to follow it if it works for him.

There are, however, three general types of technical analysis. The first focuses on price action and how that price action illuminates the demand-supply dynamic. This sort of TA doesn't even require charts, though either bar/candlestick or P&F charts are often used to provide a visual display (some technicians - I'm not one of them - can work with the tape alone). Richard Wyckoff is one example of this breed.

The second type focuses on patterns. Many of these were codified by Richard Schabacker. These focus on support and resistance, price:volume relationships, and various geometric patterns such as coils, wedges, flags, pennants, and so on.

The third and most recent focuses on "indicators" and their mathematical manipulation of price and/or volume data to provide a visual display other than what is found in a simple bar/candlestick plot.

To the extent that any of these can predict future price action, they can do so only to the extent that future human behavior can be predicted. The talent of the successful trader is most likely to show itself in his abilities regarding the latter than in the supposed superiority of this or that indicator and his selection of it.

--Db
 
Quote from Jordan:
Okay, here is the answer. All of the patterns and indicators continue to work. Here is proof. A triangle and flag and chart patterns of this nature form because of indecision. Neither fear nor greed is overwhelming the other. At least since Edwards and Magee these patterns have been manifested time and again. They represented indecision then, they represent indecision now.
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The original question is too general such that any response that tries to add structure will be dismissed by Jordan as too rigid, so I may as well not even bother, except to say this...

Many traders have claimed success trading flags & pennants as one of the most successful TA patterns. However, have you ever seen one 100% objective implementation of flags & pennants that can be backtested and proven to work? Some of you may remember "super trader" Curtis Arnold. He was the king of using strictly TA patterns (flags, pennants, triangles, etc.) using 100% mechanical methods. He got in trouble with the CTFC & NFA for false claims. His CTA funds lost money. If all traders claiming success with this pattern are all discretionary, how do we know it's not the trader (using discretion) and not the pattern?
 
Quote from Funster:

"I guess it makes John Murphy a rookie, right?"

No, just another CNBC pundit. And how many of those do you listen to anyway to make money?

You need to be more skeptical, skeptic123 ! :)
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John Murphy CNBC pundit, what are you talking about?

John Murphy is an author of a book which is considered to be TA classic. The definition of TA provided by db contradicted John Murphy's definition in the book. Excuse me, but in this case I will go with Murphy.

I personally do not believe in TA and patterns never in my posts did I indicate I believed that they worked. How can I get any more skeptical than that?
 
Ok, I'll give the crowd a chance that thinks you can combine MACD with another indicator and make the combination profitable on a mechanical basis.

John Murphy hasn't done it; neither has any of the other gurus or dot com websites mentioned in this thread.

Show me boys and girls that it works consistently on a mechanical basis even when combined with another indicator.

Make me eat MACD for dinner tonight!
 
Quote from KymarFye:

...That said, I have no doubt that there are traders who find MACD to be a useful tool. There appear to be traders who successfully incorporate MACD into profitable systems or methods, just as there appear to be a larger number of traders who get nowhere (or worse) with it. The same can be said for virtually every other pattern or indicator (or non-"technical" approach) that's actively traded.
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I strongly agree.

KymarFye...well said.

It leads to one thing...why do some traders succeed with a particular pattern or indicator while others are failing with the same pattern or indicator?

It's something I have been spending more time in the past few years contemplating about.

My conclusion...so far...is that it's traders THEMSELVES are the deciding factor and not the pattern nor indicator.

When was the last time here at ET a trader said something didn't work or was useless...

then backed up their statements with specifics (date, price entry/exit and time) about their failed trades?

If they did do such for open review...

you'll most likely see a trader applying something incorrectly, not using stops properly, hesitating and getting late entries, letting profitable positions turn into losers and so many other self-sabotaging factors that many traders can write volumes of books about such problems...

resulting in that usual but easy statement...

That pattern or indicator doesn't work.

Easier to blame the pattern or indicator instead of blaming ourselves.

P.S. I know the discussion is about MACD application in mechanical systems...my message post was in reference to that as a discretionary trader.

NihabaAshi
 
Patterns don't work...

LOL... your brain stopped working long ago... I can see...

There's a balance between being mechanical(static) and flexible(dynamic)...

So...

How often do you actually study the market???

How often do you actually stay home work on a mechanical system???

LOL... keep up the good work... you guys help me make more money!!!
 
Quote from skeptic123:



I personally do not believe in TA and patterns never in my posts did I indicate I believed that they worked. How can I get any more skeptical than that?
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You could try a more skeptical approach to your own language, for one thing.

I personally do not believe that there is any trading approach that is not in some sense "technical" and that does not in some respect rely on the recognition of certain patterns - such as the "pattern" of so-called "undervalued" stocks tending to rise in price. The most strident critics of TA (and FA, too) are probably the followers of the Efficient Market Hypothesis and so-called Random Walk Theory, but to my mind they're the most ardent "market technicians" of them all, in that they base their approach entirely on a set of abstract theories as justified by peculiar forms of mathematical "back-testing."
 
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