Reverse engineering why indicators don't work

themickey · Nov 30, 2017

lovethetrade said:
Not in the context of trading with variable market conditions.

Do you have an alternative?

themickey · Nov 30, 2017

lcranston said:
And that was a fine answer for the question. However, someone who trades price would want to know why it was/is necessary to mathematically calculate a rising trend. Computerized backtesting would most likely be one reason, but those who trade price don't do that. Or one might not know how to recognize higher highs and lower lows. But, again, those who trade price have no difficulty with that. The more pertinent question in the context of the thread, then, would be why seek to mathematically calculate a rising trend in the first place?

Price behaviour.
Sometimes its pertinent to know how price is behaving on a rising trend rather than falling trend.
Doesn't work obviously in chop or speculative stocks jumping around.
One may wish to find stocks with long historical trend legs...
One may wish to use in in terms of volatility.

lcranston · Nov 30, 2017

themickey said:
Price behaviour.
Sometimes its pertinent to know how price is behaving on a rising trend rather than falling trend.
Doesn't work obviously in chop or speculative stocks jumping around.
One may wish to find stocks with long historical trend legs...
One may wish to use in in terms of volatility.

Depends on what one means by "work". Knowing and understanding how price behaves in a range -- what some call "chop" -- works to alert the price trader to know that he's going to have to decide whether to attempt to trade this range, and how, or back away from it until traders move out of it and price begins trending again. I find nearly every day that while many traders are taking small loss after small loss, I'm waiting. As for the jumping around in speculative stocks, that is also worth knowing, and the price trader will most likely stay away if the participants appear to be throwing darts in the dark.

In any case, it isn't necessary to mathematically calculate anything to know how price is behaving on a rising trend rather than a falling trend; just draw a line.

themickey · Nov 30, 2017

lcranston said:
...In any case, it isn't necessary to mathematically calculate anything to know how price is behaving on a rising trend rather than a falling trend; just draw a line.

Some algos require a calculation on trends.
Try calculating a rising trend line in an algo and get back to us on that.

lcranston · Nov 30, 2017

themickey said:
Some algos require a calculation on trends.
Try calculating a rising trend line in an algo and get back to us on that.

True. But not everyone is interested in trading with algos.

Trading price -- or trading without indicators -- requires a certain way of thinking. As does scalping. Or mechanical trading. Or any kind of absentee trading. When one who sees no need for indicators attempts a discussion with one who can't live without them, any sort of information exchange will be limited.

tomorton · Nov 30, 2017

lcranston said:
............ why seek to mathematically calculate a rising trend in the first place?

To quantify it against other trends, to select the best?

lcranston · Nov 30, 2017

tomorton said:
To quantify it against other trends, to select the best?

Depends on how one defines "best". An MA tells the trader nothing about whether or not price is trending; it tells the trader whether or not price has been trending. And that makes a great deal of difference with regard to what the trader is to do next. And trading is all about what the trader is to do next.

MAs follow price movement. The price trader does the same thing. But the price trader -- generally -- has a brain. The MA does not. Therefore the price trader can reach a decision based on what price is doing in real time, not guess based on what price has done.

bone · Nov 30, 2017

lcranston said:
The more pertinent question in the context of the thread, then, would be why seek to mathematically calculate a rising trend in the first place?

I personally know of a quantitative Hedge Fund in Silicon Valley that in part does precisely that - they mathematically quantify and model for price action trend characteristics. Safe to say that they are not the only ones. You have to keep in mind that each market participant has a their own trade holding duration approach. Scalpers deal in seconds or minutes, others in hours days months even years.

lcranston · Nov 30, 2017

bone said:
I personally know of a quantitative Hedge Fund in Silicon Valley that in part does precisely that - they mathematically quantify and model for price action trend characteristics. Safe to say that they are not the only ones. You have to keep in mind that each market participant has a their own trade holding duration approach. Scalpers deal in seconds or minutes, others in hours days months even years.

True, as I pointed out earlier. But, again, the quantification tells one only what price has done, not what it's doing, much less what it's going to do. Which takes us back to my previous post, and post #1.

learner2007 · Nov 30, 2017

lcranston said:
Therefore the price trader can reach a decision based on what price is doing in real time,

Yep!

If a trader can make money using indicators, more power to him.
But I look at indicators as being the pulse, and the PA as being the heart. And I'd go with the doctor who listened to my heart, rather than the one who just felt my pulse!

And why does one need a buffer? But then again, if the trader can't read the price movement, I guess indicators are what he must depend on.