please share your thought process when you are looking at charts

[Laissez Faire]

I'll counter this argument with asking you why not every student in school is a top student? After all - the resources are equally available to everyone?

Just because everyone have access to the same information does not mean they process / utilize it the same way.

I bet it's common in trading firms too that certain traders outperform the rest - even if they have the same resources at hand.

I suppose this could be extrapolated to every other performance based activity as well. Chess, poker, etc.

 

[Laissez Faire]

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.

Respectfully, I have to disagree with this.

If you identify a pattern you can exploit for profit - what difference does it make if you know why or not?

Jim Simons explicitly said that in their research they found many recurring patterns where they didn't understand the reason behind them and they didn't focus on that either as long as it was profitable.

As for last year's recovery in the stock market - I would argue that those who did worst was those who thought too much, i.e., "There's no way the market can recover from this in the middle of a pandemic." But if you were a chartist who simply recognized a very strong reversal and up trend you'd do very well just following the trend.

I belong to the crowd who did not expect such a strong recovery.

 

[MrMuppet]

Respectfully, I have to disagree with this.

If you identify a pattern you can exploit for profit - what difference does it make if you know why or not?

Jim Simons explicitly said that in their research they found many recurring patterns where they didn't understand the reason behind them and they didn't focus on that either as long as it was profitable.

As for last year's recovery in the stock market - I would argue that those who did worst was those who thought too much, i.e., "There's no way the market can recover from this in the middle of a pandemic." But if you were a chartist who simply recognized a very strong reversal and up trend you'd do very well just following the trend.

I belong to the crowd who did not expect such a strong recovery.

A statistic can also be an underlying force. The chart does not create price, orders do. If you have an edge and you don't know why it's fine really. But you have to be able to define and quantify your edge. Try that with chart patterns...

 

[Leob]

chart does not create price, orders do

 

[Laissez Faire]

A statistic can also be an underlying force. The chart does not create price, orders do. If you have an edge and you don't know why it's fine really. But you have to be able to define and quantify your edge.

Sure, but you do have market players submitting orders based on technical levels which can be found on a chart.

For example today's current Low of Day on ES which was yesterday's closing price. Also known as a gap fill. These levels clearly matter and it's typical with orders clustered around these levels.

Try that with chart patterns...

There was a poster on this board, NoDoji, who did exactly that, i.e., back-tested chart patterns manually and logged the data. It's perfectly possible.

I've done it myself in the past.

I bet most discretionary traders don't bother to do that, though, and mostly "trade" blindly on what they've read and believe to be true.

As you mention statistical patterns you acknowledge that patterns do exist. These can (but certainly don't need to) be based on data/patterns found on charts as well. I don't see why a pure chartist can not be able to identify and exploit such patterns with a certain degree of success. Those who are good with pattern recognition I'm sure can learn it by osmosis as well if they have enough experience.

 

[MrMuppet]

Sure, but you do have market players submitting orders based on technical levels which can be found on a chart.

For example today's current Low of Day on ES which was yesterday's closing price. Also known as a gap fill. These levels clearly matter and it's typical with orders clustered around these levels.



There was a poster on this board, NoDoji, who did exactly that, i.e., back-tested chart patterns manually and logged the data. It's perfectly possible.

I've done it myself in the past.

I bet most discretionary traders don't bother to do that, though, and mostly "trade" blindly on what they've read and believe to be true.

As you mention statistical patterns you acknowledge that patterns do exist. These can (but certainly don't need to) be based on data/patterns found on charts as well. I don't see why a pure chartist can not be able to identify and exploit such patterns with a certain degree of success. Those who are good with pattern recognition I'm sure can learn it by osmosis as well if they have enough experience.

how do you define something that is completely subjective to the eye. I mean, there might be a way with candles but trendlines?
I'm not arguing, not at all. I just don't know any trader who carres significant size and trades with charts. Most of them either use a ladder, excel sheet or python code

 

[Laissez Faire]

how do you define something that is completely subjective to the eye. I mean, there might be a way with candles but trendlines?

What do you refer to which is completely subjective?

Even trend lines can be drawn objectively if you have rules put in place to do so. I don't really use them myself as they don't seem to hold any special significance for the market I'm trading (ES). Usually they have to be redrawn and frequently overshoot/undershoot. I've spoken with others that seems to use them with good effect, though. So maybe I'm just not proficient using them.

Candles can be objectively defined, too. I don't really use them myself except for what I call 'tail bars'.

Swing sizes are more interesting, IMO.

For my own purposes - I have all levels I consider significant plotted automatically by my trading software. IMO, it's important to reduce the subjective element as much as possible.

In addition to that - I have a statistical model which I spent a great deal of time and $$$ to put together, so I fully agree that there's more to be seen and understood than which simply meets the eye on a chart.

But can someone trade profitably from a chart alone?

My belief is yes - even if I don't do so myself.

I'm not arguing, not at all. I just don't know any trader who carres significant size and trades with charts. Most of them either use a ladder, excel sheet or python code

I've talked to a few over the years. They don't seem to have an institutional background.

 

[deaddog]

I just don't know any trader who carres significant size and trades with charts. Most of them either use a ladder, excel sheet or python code

Isn't that just a different way to manipulate price data? Charts just make the same data visually pleasing.

I don't think either the technician or the fundamentalist can tell you where the market will be next week. All they can do is tell you where they expect it to be based on the data they have.

 

[Laissez Faire]

Charts just make the same data visually pleasing.

There's a lot of questions that can't be answered efficiently (and probably not at all) if you only use charts.

 

[deaddog]

There's a lot of questions that can't be answered efficiently (and probably not at all) if you only use charts.

Such as?