Why not? All the information you need is on the chart
please share your thought process when you are looking at charts
- Thread starter mute9003
- Start date
I think that he is saying, if all you have is the chart, then all you have is price movement... you might be able to trade only using price movement, but your profits would be better if you added other factors in your decision making.
Which I agree with 100%, but that's not what he said. He said explicitly that there's no way you can trade profitably with charts alone.
Do you ever wander if "all that information on the chart" is only visible to you after years of accumulating everything that @MrMuppet said? Like @Scataphagos always says "KISS" but it probably took him a decade to get to that.
I spent years accumulating all that information. I checked the annual reports, looked at analyst reports, listened to the financial broadcasts and all it did was bias my decision making and caused me to ignore what the charts were telling me.
I'm not saying I don't take a quick peek at the fundamentals,(It's easier to sell if the fundys are good) but I make my decisions based on what the charts tell me.
Look: If price alone is all you have as sourche of information then the only thing you can do is bet on the return distribution of price itself as well as the return distribution of inflection points.
Meaning:
If you draw lines and count how many times the line was rejected or pierced by price and by how much, that is your return distribution of that particular line. For almost all lines you draw there is zero positiove expectancy, hence you just waste commissions in the long run.
Second, if you are trading against a move, you bet on mean reversion and if you trade break outs you bet on continuation. You can sum that up by looking if a time series is autocorrelated (Hurst). If you play breakouts in the S&P your chances are lower, because it has low autocorrelation.
BUT: that is also already additional information that a chart trader doesn't even know. For example, if I know that there is a big buyer in a stock at 100$ I can attribute more significance to a line at 100$. That's another puzzle piece that gives you edge.
Perhaps you have a lucky year and buy dips in 2020. You think that is because your charting is so good...instead you took signals without knowing the underlying force of that move -> you got lucky. On the other hand you could have bet on a further collapse of the S&P right after Covid hit and blew up, because every "resistance" got busted. You beat yourself up because you "don't read charts well"-> no...you just didn't understand the driving force of the market.
Some guys pride themselves for making 10-20% p.a. on charts...well, ok, but that's nowhere efficient capital/time allocation. If a billion$ fund makes 20% p.a. you should be making tripple digits with your 100k because you can find so much more edge the fund can't exploit because they're too large.
That said, you can use charts for entries&exits but in no way they give good alpha. There are thousands of resources available about patterns, candlesticks, indicators but this stuff just does not work. Turtle traders/trendfollowers...they just bet on positive autocorrelation with a simple ruleset.
Think about it like this: When information advantage, research advantage and speed provides edge, why would anything that is openly available to everybody hand out free money?
Most of retail trades what? S&P, FX, Oil because they are liquid and cheap in commissions and market access. And they use charts. If you ask one of them how the crack spread influences outright markets, they don't even know what a crack spread is.
I remember when I was starting out, there was a squawk box for the S&P pit. We always hit the bid once the guy said that basis traders were selling because this was a sign that the futures overshot the cash market. I had a price ladder and the squawk and nothing else and doubled my account in a month even with retail commissions.
Is that information readily available to the retail trader?
There is level 2 or better, but what I found is that bids and offers can get pulled quickly. Time and sales gave me a better look at what was actually happening but I can get the same info off a chart.
you even get that from IB. And what you don't get from a chart is the transaction size, direction and which side the agression was. Times&Sales better
I'm one of them. I'm happy with 20% consistently. What I pride myself for is keeping drawdowns to a minimum.
I suggest volume profile instead of level2. Why no read the print of this day this week concrete in one place?