"Price Action Only" traders - More likely to be successful?

[logic_man]

Quote from Laissez Faire:

Technical analysis is the study of price action. Thus, all analysis of price action is technical analysis. Even if it`s at the bid/ask level without a chart. At the most fundamental level we can say that technical analysis is built on concepts such as support and resistance, trends (identifying and trading them), trading ranges, breakouts and identifying oversold/overbought conditions.

Now, there are certain people who believe that adding indicators may help them better identify trends or trend reversals and oversold/overbought conditions. Most people who are new to trading are drawn to these indicators, since it gives an impression of a 100% win rate and free money. After all, it does look pretty cool and impressive, right?

Then you have a different group of people who believe that adding indicators only distort the price action, especially since most of those indicators are derived from price and volume itself. They know that indicators are lagging and that there is no indicator that works all the time. For example, in a strong trend, an oscillating indicator may say that the market is overbought while the trend still has lots of potential. These people believe that the solution to this problem is to drop indicators altogether and simply study pure price action without any indicators, except for volume.

Both group use the basic concepts from technical analysis, they only differ in that one group uses indicators to help analyze price while the other drops them altogether.

Thus, the real distinction should be trading without indicators versus trading with indicators Those who don`t use indicators have commonly been called price action traders.

Personally, I am of the opinion that price derived indicators adds nothing of value to a discretionary chart trader. Actually, they are more likely to hurt your trading. For a system trader it would be a different story.

Does that make sense?

What you say does make sense, although it is interesting that, historically, charts without any indicators were the norm (simply because indicators hadn't been invented yet) and if those are actually better, why did indicators come into existence? Was it just pure snake oil right from the get go? Believe me, I know that it's impossible to be too cynical when dealing with the trading world, so if your answer is yes, I won't be surprised.

So, though, to go back to my original question, is there any statistical evidence to indicate different levels or likelihoods of profitability among your two groups? Again, we've all seen "method wars" where one school of traders shits all over another, but in a field where 90% of traders fail, is there really any approach which makes you likely to succeed or is it simply the case that individuals, using their own unique approaches, find a way to succeed despite the fact that other individuals using approaches which would broadly be classed as being similar in kind fail?

To repeat what I said above, if it were documented that only 50% of PA traders (or, in your terms, traders not using indicators) failed, while 95% of other traders fail, that would be a major research finding, in my opinion. Maybe I'm off in thinking that, though, but it seems to me it would be analogous to saying, "Only 5% of people who want to play a pro sport make it to the pros, but 50% of the people who want to play pro sports who use Brand X sports drink make it". Who in their right mind wouldn't use Brand X sports drink in that context?

 

[bigsnack]

Quote from Zr1Trader:

Here is another price action only method that works very well.

http://www.youtube.com/user/SimpleAndHard

I was going to post the same link but forgot to by the end of my posts. Here's a guy that has a solid feel for what volume means compared to certain market "structure". He doesn't seem to have any bonafide trading setups, but has watched the price chart of the CL long enough to have a good idea what it's trying to do. He's also cool as a cucumber it would seem.

 

[rew]

Quote from Zr1Trader:

Here is another price action only method that works very well.

http://www.youtube.com/user/SimpleAndHard

Well, it worked well in that case. It was the typical "go long when the price breaks out of congestion on the long side" trade, which works sometimes and sometimes not. But in any case that type of pattern is certainly what I would classify under TA. The issue of whether indicators are used or not is a red herring -- certainly that trader has the indicators "in his head", but it wouldn't be hard to write a program that flashes "buy" when this chart pattern is established.

 

[crazyAtrader]

Quote from logic_man:

At the end of such a course of training, what probability would you give to that person's success? 50%? 75%? 90%?

Based on personal experience approximately 5% after 3 years of mentorship. Do not underestimate the rare quality of proper psych required for this hard task.

Crazy A

 

[Zr1Trader]

Quote from rew:

Well, it worked well in that case. It was the typical "go long when the price breaks out of congestion on the long side" trade, which works sometimes and sometimes not. But in any case that type of pattern is certainly what I would classify under TA. The issue of whether indicators are used or not is a red herring -- certainly that trader has the indicators "in his head", but it wouldn't be hard to write a program that flashes "buy" when this chart pattern is established.

I beg to differ that you could write a program to look at the market through his eyes of context and experience to decide when to trade and when not to trade. Also the trade management is not cut and dry where you could program it to trail the right distance in every condition. His success is a combo of experience reading price, trade management , position sizing,scaling technique, temperament, and discipline. Sure he buys the break of some recent tops in consolidation after a run down. But you cannot program something to read the context of the market more effectively than the brain

 

[athlonmank8]

Yes

 

[RCG Trader]

Quote from rew:

I fail to see any real distinction between "price action" and TA. I define TA as any trading method that's driven solely by the price and volume charts. People using "price action" are using *some* sort of pattern matching to decide when to enter a trade, and some purely chart based rule to exit, so how is that not TA?

Exactly correct, as soon as someone says price action then by definition they are a chartist. All chartists are by definition TA traders.

 

[Ghost of Cutten]

Quote from rew:

I fail to see any real distinction between "price action" and TA. I define TA as any trading method that's driven solely by the price and volume charts. People using "price action" are using *some* sort of pattern matching to decide when to enter a trade, and some purely chart based rule to exit, so how is that not TA?

Price action doesn't need charts, that's why it's not the same as TA (although obviously most non-fundamental traders overlap and use some of each).

When I used to scalp intraday, I generally didn't use charts.

 

[Fireplace]

TA does not need a chart, TA is ANY market data analysis that leads to trade decisions. Charts are market data but so is just looking at PA.

Quote from Ghost of Cutten:

Price action doesn't need charts, that's why it's not the same as TA (although obviously most non-fundamental traders overlap and use some of each).

When I used to scalp intraday, I generally didn't use charts.

 

[logic_man]

Quote from bearmountain:



After interacting with many many pa traders and exploring price action trading. I have found absoutly NO evidence that success rate of price action traders is any higher than of the general trader population. ie 9 out of 10 or 90% of traders who study price action fail and move on to other approaches.

price action trading is hard work, it requires one to have the thinking hat on all day, rather than being spoon fed by indicators or systems.

So you say the claim that simply by using PA to trade, a trader increases the odds of success is false and they fail at the same rates as other traders.

I'm curious to know what other approaches these traders then move on to. Is it kind of random what they end up choosing to do or is there a common theme?

I do think of my approach, although price-based, as a system, though. It took a lot of thinking to develop it (at least it was a lot by my standards), but now that it's developed, it works more or less on autopilot.