I was away from the mkts for many years after a lot of hard study of technical analysis - which I'm pretty good at - followed by a miserable failure at actual trading. I think one of the first things you realize if you approach trading from that background - intense study of TA - is that interpreting the hard right edge of a live mkt - price action - is a very different animal from analysis of a background chart where you look at static mkt structure. My problem at the time was that I could not reconcile the two.
Which I've realized was really a matter of perspective (and knowledge, of course). I've come to understand, mostly because of Adam Grimes and FT71, that the foundation of analysis of the hre of the chart is probability. (I know this is probably the most obvious thing in the world to so many of you, but I'm speaking to those for whom it is not.) The thing about interpreting past price action - market structure - is that (if we're genuinely competent) we can always be sure. Trading live, we can never ever be sure. In fact that simple little truism addresses one of the psychological barriers to good trading, the whole "being right" thing. Which is where perspective and probability come in; if instead of wanting to be right, one can instead simply want to be on the side of the most probable outcome - with the full realization that a "probable outcome is only that, probable - then it kind of lets you off the hook emotionally. (Here we could get into the whole "Plan Your Trade, Trade Your Plan" thing - probably the greatest truism in trading - but that's for another day.) It also gives you the only viable perspective for approaching TA analysis of a live market.
There are lots of different ways to consider probabilities; there are statistical studies of inside bars and what-have-you bars and volume and indicators and so on and so on, to infinitude; there are the statistics of trading journals such as trading setups and stops and expectancy and so on and so on... All very important, especially the journal. (Don't trade without it.)
But there's also another kind of probability, in my mind anyway, which is both somewhat intuitive and somewhat quantifiable, and is why study of TA and mkt structure is so beneficial. Adam Grimes is very big on probability and statistics but one of the things I like most about him, if I understand him correctly, is that he acknowledges that even if something cannot be statistically quantified that doesn't mean it isn't valid, because that particular "pattern" (for want of a better description, maybe more accurate to say "price behavior"?) is so dependent on context. There are simply too many subtleties and too much noise in the mkts to quantify certain price action. However, if one understands price structure and how the various components interact - accumulation/distribution, consolidation, trend, pullback, swings, support/resistance, springs/upthrusts, momentum, volatility (expansion/contraction), bar interpretation (open, close, high, low, spread), etc. - one can find certain criteria that define a "setup", respective to the context of the current price action and past mkt structure, which one can intuit to have a positive (for your position) probable outcome. (And again, journaling is essential here.) Basically, what we're doing is looking for signals within the noise, something that stands out, a change in price behavior that is telling us something significant may be occurring. This is why we're called "discretionary traders", because everything must be interpreted via the ever-evolving context of that hard right edge. Traders talk about the mkt telling a story, which it most certainly does, but it's a story being written in real time and every next bar is a cliffhanger. You will never, ever have enough information, because if you do, it's too damn late. Because of this, we can only trade via TA according to probabilities.
