While I wait for the millions of eager TA adherents to send me their hundred bucks and teach me to make billions? The most reliable secret method of all. I hesitate to share it here in public, so lean close and I'll whisper it...
(Dice, my friend. I have a pair that came to me from the Roman times, and had been - I have an authentication scroll somewhere around here - touched by Nero himself... they whisper to me. Sometimes even when I'm miles away from them. Amazingly precise in Forex - but only when trading the Roman denarius against the Persian siglos. The volume's been pretty low for some reason...)
Hahahahahahaha absolutely loved this. Sadly enough tough, this is some pretty accurate characterization of the mystical traders out there. I don't know where these people get the idea that, for whatever reason, the markets move based on magic numbers or lunar cycles but well, it's their money to spend.
A bit more seriously: I'm a short-volatility guy who is trying to lean a bit more into his quant background (once I have the time to clean up my rusty and long-neglected core skills.) For now, I do the wheel plus some ICs and things like that, but I'm always long the market (while keeping my ear to the ground to the best degree I can.) I'm also carefully exploring a bunch of other things including futures, but options are my first love.
I keep a journal here, where I detail my wrestling with them.
I assume you work with longer(
ish) holding periods? I don't think I've ever even read into options trading, nor stocks in general. Since I mostly to day trading, I tend to stick to a single market (USDBRL futures) and a bit of spot forex. I find it easier to track the institutional money flows within them (I do a lot of macro analysis as well), since major players are constantly balancing their positions in reaction to fundamental news, etc.
I do have quite a bit of TA in my background - that is, in fact, how I came into investing in the first place. The guy that taught me the basics is an ex-hedge fund CMT plus a whole bunch of other related abbreviations. 30+ years of experience. So I understand the TA perspective perfectly well, and know the arguments for and against it. That's why I don't believe in it.
I'll caveat it to this extent, though: I think some aspects of it can be useful as an influence in trading (although I don't know to what degree.) Things like extreme highs and lows, standard deviation boundaries, and catching current trends can be of use. Market/volume profile, which, to my mind, doesn't fit the TA mindset - it's based on distribution analysis a lot more than on graphical interpretation - seems to offer a fair amount of benefit. I'm planning on putting a bunch of time into investigating the latter.
I find it extremely odd that people in TA often disregard volume, when Charles Dow himself was adamant about the role it played in confirming a potential move. Somehow, people insist on analyzing markets as if price was some sort of metaphysical force rather than the material result of supply and demand -- which are obviously related to volume. Maybe that'll explain the abundance of failure in this field. Graphical interpretation without volume, to me, is just as good as watching a football game based on statistical data/cold numbers rather than, well, the players and the game itself.
With regard to volume as a tool for distribution analysis, I think you should definitely look into that. In particular, the relationship between volume and volatility (standard deviation boundaries) is something I find very powerful (it's actually what I use to trade, but on a graphical/interpretative approach). If you're interested, we can discuss these things inbox, I'd be glad to be of any help and since you're into quant, I can share the mechanical system I developed/backtested (manually). No need for the thousand dollars, of course. Hahahaha.
The basic idea when it comes to volume, for me, is this:
if volume confirms price, whoever controls volume (supply/demand) controls price. That's why I try to keep track of where volume is taking price (e.g.: lower, albeit on low volume, to what was previously an accumulation area which may now act as a re-accumulation area for big players).
To my mind, discretionary trading always has an element of art to it - and it is almost never visible to the "artist". It's never "just" S/R (or whatever); there's all this market knowledge/experience/personal history/risk aversion/screen size/lunch quality/girlfriend interaction/etc. STUFF wrapped up in every one of those trades. If the sum total of THAT is positive enough... then I believe you could throw dice and trade well. If your system works well for yo u, then - please - don't ever let anyone dissuade you from using it.
I definitely agree it has an element of art, since you're basically dealing with humans doing business with one another. However, the art is not in reading price action but rather in reading
the market. Anyone can see if price is going up or down, but if you want to make money you gotta focus on what does this imply: are big players making a move? Is there significant volume involved? Who's negotiating here? Could we be clearing lower supply levels? If so, will there be demand in higher levels? And so on...
