Price Action based Analysis
- Thread starter bearmountain
- Start date
Only via price action analysis one can get high probability setups. I tried almost everything else and it doesn't work. Indicators after optimization get up to 65% unless one overoptimizes the system. I won't trade unless I have a large sample with more than 75% win rate and R:R >> 1. Forget about trend-following, it is for the big money.
It is okay to read the probabilities.
That era of making those determinations is long gone.
Unfortunately the people paid to do the work, believed their results and a myth was created. It may continue to this day since no effort was made to "fix" what they busted.
More than just those you listed are dealt with in the following: "Foundations of Technical Analysis: Computational Algorithms, Statisitical Inference, and Empirical Implementation", by Lo, Mamaysky, and Wang. (See Jounal of Finance Vol LV, No. 4, AUG 2000, pages 1706 through 1765)
The highest probability trades you omitted from your list.
The cup and handle was beyond the research level of these guys above. A bio of the inventor on page 173 of "24 Essential Lessons....." by W. J O'Neill, narrates how he took 500 bucks to a seat on the NYSE in 27 months.
W J O'N really didn't get fixated of probailities.
Harris points out the range of what are possible successful trading approaches on page 199 of his work. Speculative parasitic technical trading is the box to use.
I agree that execution logs* are terrific documents for verifying how TA works at advanced expertise levels. The opportunity to take the market's offer fully is founded on TA and the action of the market variables. An outline of going from beginner (5k) to millionaire in about 60 to 72 days days of using TA is posted as a 5 drill review in another thread. Normal results exceed the outline in the Excel. See, for examp[le, the trades shown on the posted chart just above. Volume patterns are used exclusively since they lead the price profit segments.
The current market yield is running at about 100 points per ES contract. 30 points, fully leveraged, is required to double margin by compounding.
Good luck to you. It takes a lot of personal confidence to go about learning how to trade effctively and efficiently. By "working" continually from 2 contracts on up to 40 or 50 contracts in less than a quarter of a year changes one's life completely. We spent about 5 years trying to cover those 90 days. What seems to stretch out the learning curve is not doing the work.
It is like approaching an "impossible dream"; it really can't be possible but it is.
When you read Lo, et al, you won't believe how these guys went about spending the National Science Foundation money. And they got away with it, too.
*It was my procedure to hand out 10 to 14 email attachments per day, every day. These included the logs, the annotated charts and a synopsis of the day including a carryover to the next day and the significant up coming news announcements.
Yes Jack, it's okay and let us just stick to that. The rest makes no difference. Everything in life is probability. The reason you do not see your glass flying off your desk is because the probability of all its molecules getting aligned against gravity is extremely small.
Everything is probability Jack.
Choosing to go probabilistic or non probabilistic is everyone's choice. It is a major fork in the road.
I looked at the glass on my desk and chose non probabilistic.
For trading, I decided to not use induction. The Lo paper respesents to me (in my opinion) something that should not have made it through the gauntlet and appear in the Journal of Finance.
For me, there is only one pattern in markets. It came as a deduction based on market operation as determined from the granularity characterisitc found in markets. The proof is akin to the basis of the Periodic Chart in science.
You are a molecule and gravity oriented guy; my orientation is to the granularity of the markets.
Molecules have many distinct components; and the market only has one. All instruments in markets are unitized and their value is NOT continuous.
The conclusion I reach is that logic and paradigm theory may be applied. Only one pattern emerges.
Certainly there is a gap in most people's understanding when departing from the seminal beginning and leaping to your type conclusions.
This gap, for your your type of person, is "filled' with your belief that guessing is okay if it has some "probability" tag associated with it that gives you enough substance to overcome your ambient fear and anxiety.
I chose the world of "time rate of change", instead, since that is how money is made as time passes.
I reduced my considerations further to just the "sign" of the time rate of change.
there is no system of numeration for "signs" so I adapted to a numeration system that stood in place of the signs.
You chose to deal with all the fractions between 0 and 1 while I chose to only use 0 and 1 as the only two alternatives.
Binary logic for me is a vector simply because I assign time rate of change to a binary value.
At anytime in the Present, I know whether the market is continuing or changing as the future moves into the Present.
For you, reading this doesn't make sense because my statements have a lot of implicit non explicit, to you, content. I am speaking in a shorthand that is well undrstood by people who know the language in which I speak. It is gibberish to the foreigner as usual. You do not have a dictionary to translate and so there is gap after gap in your understanding. That is certainly as expested.
I know your language, vocabulary and inductive mathematics. I am trained in it and was an Adjunct Prof in the top tier MBA and MFE academics. Most know that academics can't trade, except for those who arrive on the doorstep via Theoretical Physics (In which I am formally trained) or from practical science application in the finance industry (my pragmatic trader route).
Building, from the ground up and seminal basis of markets, bridges the gap you jumped across. As the building blocks are put in place deductively a nifty nested fractal arena appears. Using three contiguous fractals make it possible to never turn to your device called probability.
While you cannot critically think through this development, it may be possible for your to conclude that many others have done so. Use the Periodic Chart as a parallel reference.
Finding all the pieces and putting then together was the problem to be solved by scientists who defined the operation of the markets. They did not come up with the likes of Black-Scholes or Kelly type "formulas" for use at big sales and marketing financial organizations. Instead, they turned to "extracting" the market's offer as it was continually offered in profit segments. Each segment has one or another "sign". For me + is long and - is short for price. For the leading indicator of price, called volume, the + is increasing and the - is decreasing.
Resolving these things into the hypotheses set for the paradigm results in two hypotheses which are orthogonal and NOT opposites.
As seen in the Prologue of Behavioral Finance, these two orthogonal are applied to price and just how people behave with respect to being presented with such a challenge.
All timing of markets stems from the two price conditions: continuation or change. they are NOT opposites but are orthogonal. A good example from physics is Electrical Field Theory. the electric and the magnetic fields are orthogonal and the combined energy in the fields is conserved at all times (no leaks).
How does the market's energy go from one status to another.? Marginally as you would expect. The sign of the marginal change is important in the same manner as you speak about your probability you use for your guessing.
I chose to to go to digital immediately (1957) in develping a market trading system. You are operating in the analog world of probability. Notice that the analog to digital (16 bit) was completed for music in the '80's (Burr-Brown, see IEEE Milestone in Electrical Engineering Award)
The highest probability patterns CW uses are the FTP and TBP. What is the signal? It is volume sign going from - to + (time rate of change measured). What is the price signal? Continuation of sign called NO SIGNAL. For FTP it is + + and for FBP it is - -.
For all patterns (10) examined by Lo, et al, five price points and no volume considerations were used. After a pattern was determined to have occurred the time was divided by 2 and the fisrt half av volume was compared to the second half. then the pattern "predicitve probability was judged. all patterns could them be ranked. Depending upon the fear and anxiety, the patterns could be used for prediction. None of the patterns would fit into "high probability" in my opinion of how CW trading is done.
A HS is 6 trades for me. FTP's and FBP's are three trades each for me.
After I saw your earlier post, I spent about an hour reading up on Tom Williams+ vsa + tradeguider.
Tom Williams book 'master the markets' is a gem. Will go back and read it in its entirety. vsa and tradeguider I will pass for now.