Patterns that don't work anymore
- Thread starter Jordan
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skeptic123
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DB,
In your original post you stated that the purpose of TA is not to predict the future and whoever disagrees with it is a rookie. I am glad you spared John Murphy though.
Other then that:
Richard Wyckoff is a tape reader I may be wrong, but I never before heard his name mentioned in any TA context.
Patterns and indicators are indeed what constitutes TA, I agree with you on that. But it does not contradict Murphy's definition, his whole book is about indicators, patterns etc.
The thing is if you open any book on patterns you will find that all of them are qualified as either bullish or bearish patterns. If this is not an attempt to predict the future I do not know what is.
PS. Personally I do not believe in TA/Patterns, so I am not trying to prove that they work. I do believe that the original purpose of TA was to predict the future trends (according to Murphy's definition) and that IMO it does not do it.
skeptic123
Guest
Gee, I did not even live in this country and speak English then.
Anyway, his book is considered to be a TA classic is it not? Once again this is not to say that I believe in TA but if we discuss TA's definition I am quite justified to take it from the book.
Quote from skeptic123:
DB,
(a)In your original post you stated that the purpose of TA is not to predict the future and whoever disagrees with it is a rookie. I am glad you spared John Murphy though.
(b)Other then that:
Richard Wyckoff is a tape reader I may be wrong, but I never before heard his name mentioned in any TA context.
(c)Patterns and indicators are indeed what constitutes TA, I agree with you on that. But it does not contradict Murphy's definition, his whole book is about indicators, patterns etc.
(d)The thing is if you open any book on patterns you will find that all of them are qualified as either bullish or bearish patterns. If this is not an attempt to predict the future I do not know what is.
(e)PS. Personally I do not believe in TA/Patterns, so I am not trying to prove that they work. I do believe that the original purpose of TA was to predict the future trends (according to Murphy's definition) and that IMO it does not do it.
For those of you who already read my response, I changed my mind. Sorry.
--Db
Great point of view Scaleout-- makes more sense than anything I've read on this thread. Some traders are just destined to screw it up no matter how good the TA setup is.
The thing that I concentrate on is WHAT WORKS FOR ME. Every trader is different and needs to refine a strategy that works for his or her trading style and personality. Get a system that works for YOU, don't tell anyone about it, and bleed it for all it's worth. That's where your edge lies.
Excellent insight dbphoenix. I was (am) the rookie that wanted a pattern that told me what was going to happen. I ain't found it yet..
Your earlier post talked about a robot driving a car. It also said that there were other factors that influenced market behavior, but you did not specify those other factors.
Your view is incorrect dottom because you fail to realize that every piece of information out there, every factor, every number, every rumor, every reversal pattern, every dot and tittle is reflected in the price.
What motivates a buy... a good P/E? The buyer says, "this is a good P/E so I am buying.... because I want to make money." The seller says this P/E is not good, I am selling... because I fear I will lose money if I don't. The P/E motivated the emotion, the emotion resulted in the transaction. It is that simple.
That the markets are driven by the two emotions fear and greed is well-studied and published. Trying to re-invent the wheel will not add credibility to your argument.
Otherwise, please provide specific factors that you mention are a part of the market, and that support your position.
And the question is not too general; again, you are not specific enough. Every single one of the answers refuting patterns and indicators speak to their profitablility as standalone methods of trading. That was not the original topic. Like Jeopardy, the question to those answers would be, "which pattern or indicator is profitable as a standalone method?"
Which of these questions can you intelligently answer false:
the flag demonstrates indecision;
the macd (or ROC) demonstrates momentum?
If you can answer either with false, then do so and support it. But you cannot because they do what they say they do. To extend the point beyond that to profitability was not the intent of this discussion.
However, if you would like to propose anything about Technical Analysis methodology that is not driven by fear and greed then do so, and I am sure I can show otherwise.
Not true, and there is also a lag associated with observing only price. This is a fundamental flaw of TA. E.g. inside information, order flow, nonlinear dynamics of intermarket relationships, etc. are not obtainable by observing only price & volume of a single market.
Have you read any papers on complexity theory as applied to stock market behavior?
Once upon a time it was there was a widely held belief that if a witch were to be tossed into a pool of deep water, that proof could be determined as to whether or not the person in question, was truly a witch, by whether they sunk to the bottom of the pool (presumed innocent), or floated (presumed guilty) In either case the outcome was death to the suspect.
Now let's say that generally human emotion does not change and that reactions to fear or greed can be predicted, (suspect a witch, throw the witch in a pool) which can produce short term, higher probability (>than 50% for sake of simplicity) price movements.
Price movement probability can be predicted by reading the tape, by technical indicators and by chart patterns which are based on past human behavior, with the presumption being that if 'X' happens then 'Y' will more likely than not become the result.(this witch suspect, was seen stirring chickenfeet a big iron caldron so this suspect will most likely float, because the last 3 suspects that we saw stirring chickenfeet floated)
Well good, that seems to be an accurate indicator of higher probabilty.
Now what I want to keep an open mind to, is at what point in time do we cease to believe in witches !!!
While human emotions may not change over time, human beliefs do. So I think it is fair to say that we cannot accurately predict what will happen to price movement based on what happened in 1930 etc.
We cannot accurately say that 2003 will be a year of rising stock prices because it has been so every 3 rd year of the presidency since 1939 etc. We can play it on probabilities of history repeating itself.
Over time we have seen, tape reading, techical indicators, chart patterns, predict higher probabilities in price movement direction to varying degrees in varying market conditions and continue to work.
But when patterns fail and price moves against technical indicators and I am left with a stop loss, I figure that the majority of the money took a look at the suspect and said, "why this isn't a witch at all."
Will the time come when a certain witches (price pattern - indicator, etc) cease to be believed in at all ?
My guess is yes - but it will probably be quickly replaced by a warlocks.
And on goes the game, with the predictable emotions remaining constant.
plumlazy
Now let's say that generally human emotion does not change and that reactions to fear or greed can be predicted, (suspect a witch, throw the witch in a pool) which can produce short term, higher probability (>than 50% for sake of simplicity) price movements.
Price movement probability can be predicted by reading the tape, by technical indicators and by chart patterns which are based on past human behavior, with the presumption being that if 'X' happens then 'Y' will more likely than not become the result.(this witch suspect, was seen stirring chickenfeet a big iron caldron so this suspect will most likely float, because the last 3 suspects that we saw stirring chickenfeet floated)
Well good, that seems to be an accurate indicator of higher probabilty.
Now what I want to keep an open mind to, is at what point in time do we cease to believe in witches !!!
While human emotions may not change over time, human beliefs do. So I think it is fair to say that we cannot accurately predict what will happen to price movement based on what happened in 1930 etc.
We cannot accurately say that 2003 will be a year of rising stock prices because it has been so every 3 rd year of the presidency since 1939 etc. We can play it on probabilities of history repeating itself.
Over time we have seen, tape reading, techical indicators, chart patterns, predict higher probabilities in price movement direction to varying degrees in varying market conditions and continue to work.
But when patterns fail and price moves against technical indicators and I am left with a stop loss, I figure that the majority of the money took a look at the suspect and said, "why this isn't a witch at all."
Will the time come when a certain witches (price pattern - indicator, etc) cease to be believed in at all ?
My guess is yes - but it will probably be quickly replaced by a warlocks.
And on goes the game, with the predictable emotions remaining constant.plumlazy
Quote from plumlazy:
Once upon a time it was there was a widely held belief that if a witch were to be tossed into a pool of deep water, that proof could be determined as to whether or not the person in question, was truly a witch, by whether they sunk to the bottom of the pool (presumed innocent), or floated (presumed guilty) In either case the outcome was death to the suspect.
Now let's say that generally human emotion does not change and that reactions to fear or greed can be predicted, (suspect a witch, throw the witch in a pool) which can produce short term, higher probability (>than 50% for sake of simplicity) price movements.
Price movement probability can be predicted by reading the tape, by technical indicators and by chart patterns which are based on past human behavior, with the presumption being that if 'X' happens then 'Y' will more likely than not become the result.(this witch suspect, was seen stirring chickenfeet a big iron caldron so this suspect will most likely float, because the last 3 suspects that we saw stirring chickenfeet floated)
Well good, that seems to be an accurate indicator of higher probabilty.
Now what I want to keep an open mind to, is at what point in time do we cease to believe in witches !!!
While human emotions may not change over time, human beliefs do. So I think it is fair to say that we cannot accurately predict what will happen to price movement based on what happened in 1930 etc.
We cannot accurately say that 2003 will be a year of rising stock prices because it has been so every 3 rd year of the presidency since 1939 etc. We can play it on probabilities of history repeating itself.
Over time we have seen, tape reading, techical indicators, chart patterns, predict higher probabilities in price movement direction to varying degrees in varying market conditions and continue to work.
But when patterns fail and price moves against technical indicators and I am left with a stop loss, I figure that the majority of the money took a look at the suspect and said, "why this isn't a witch at all."
Will the time come when a certain witches (price pattern - indicator, etc) cease to be believed in at all ?
My guess is yes - but it will probably be quickly replaced by a warlocks.
plumlazy
Interesting analogy, plumlazy; I bet you just loved Harry Potter.