Quote from illiquid:
It would have been nice not to have this thread to devolve into another "does TA work?" debate, but it seems to have gone into this direction. What I'm going to write may sound harsh to some, but if one cannot be honest here then I see no other reason to come to this site at all.
I don't think the OP meant to target TA and chart pattern traders specifically, but I think they were the first to take offense to the idea that consistency in markets was impossible over the long run. Folks, let's face it, identifying technical setups is not hard. I picked up my first book on chart patterns 20 years ago and as a freshman in college knew all the major formations like the back of my hand. Sure, back when there were no computers and everyone needed to draw daily charts by hand, there was something to be said for chart reading, divining patterns in price that revealed underlying demand or supply. But these days, how long does it take any novice to spot a head and shoulders, an ascending triangle, basic lines of support and resistance? How difficult is it with today's software to generate an alert when one moving average crossed another? There's just very little real work involved these days with the usual pre-canned indicators and chart patterns first outlined in Edwards and McGee. And as anything else, you get out what you put in.
Technical trading is IMHO, trading on incidentals. It's what many of us dyi individual traders with nothing to rely on but the tape resort to. But often what they are looking at as the impetus to open a position just isn't related to the primary force behind price movement. What succesful trading can be, even for us at home, is far more than that. Why can jpmorgan and goldman have quarters with no losing days? Because they don't need to make stabs in the dark or read tea leaves; they are institutions with a direct line on the pulse of what moves a market. They know the fundamentals, they know the news and the reactions to news, they know the expectations; they know who's likely gotten long where and the levels at where they'd get stopped out. Etcetera. They are light-years ahead of the part-timer who believes a 30-second perusal of a 5, 15, and 60-minute chart should net this month's mortgage. Sorry if this post has morphed into a diatribe on TA, but it's honest and comes from my own experience. I used to trade like many others here, collecting and filing away all my "ideal" model trade results to show any doubting thomases, while the whole time not really noticing or quickly forgetting about the number of identical setups that failed miserably.
Getting back to the original topic, I never broke through as a trader until I applied context to just about everything I saw. There are times you will see the exact same setup, the exact same tape, but just know because of context, that this time it will go the other way. Nowadays when I see a countervailing technical formation or indicator in a position I want to be in, I actually feel even more enthused about the potential momentum of the trade. Because in today's thin trading, WE have become the targets, the easy meat -- the mom-and-pop retail money has been out of the markets for a while now. The hedge funds, the HFT robots, they know exactly who they are making money from, and they know all the "classic" setups that we do.
So my advice is, know your technicals, but don't rely on them completely. Don't count on consistency in the markets; rather, realize that attaining consistent results as a trader involves constantly adapting to situations, constantly pushing yourself, constantly able to wear different hats at different times. Don't let yourselves become easy static targets, fight the temptation for taking the easy way out every time, think one or more steps ahead. The day you start to notice that a failed signal becomes more profitable than the original setup is the day you take a big step forwards.
