Quote from luckybastard:
Just want to add to the thread, that I've never seen somebody make money with TA. I know a guy who was the prof analyst for a firm that writes TA reports for clients of certain bank, he tried to become trader at the firm I worked. He knew pretty much all there is to know about TA, yet, couldn' t make money as a trader....
I figured, if even he can't make money using TA, who can ... Besides him, I watched several people fail miserably, using TA and like said, I've *never* seen somebody succeed, with TA as a basis for his trading ...
If you are trading directionally, I would submit that the best way to make money is to understand the topping and bottoming PROCESSES the market goes through on the timeframe of relevance to you and trade according to the logic of those processes. Your trading will always be somewhat contrarian because you'll be looking for topping signals to get short and bottoming signals to get long, but you will also understand that any time you happen to get short or long with an actual top or bottom in place is pure coincidence because you're not actually trying to pick tops or bottoms, you're looking for signs that a top or bottom is coming "soon". I take heat on almost every trade, sometimes for hours. But that's OK because I understand that on the timeframe I'm trading (Hourly swings), that's part of the game. I once had a trade go against me for about 3 days, come within a few pennies of my stop and then reverse for a nice profit. Was it fun? No, but you have to let the process play out, otherwise you're just another guy throwing nickels into the slot machine hoping for a payout.
Of course, none of these processes can be condensed into an indicator or pattern because they are logical, not necessarily quantitative, although the logic itself has quantitative elements. Sometimes the market bottoms with the RSI not even halfway to "oversold" or reverses before any MACD crossover is even a gleam a trader's eye. Sometimes the reversals looks like a "bullish pennant" or a "ascending triangle" or a "zigzag" or an "outside bar" or a "hammer". And sometimes it doesn't. No visual or quantitative representation can codify the infinite number of ways these processes can play out, only pure logic can encompass them.
Then, even with knowledge of the processes, you are still playing a game of probabilities every time you enter a trade. Only, because the processes are quite consistent, you are on the right side of the probabilities and can be profitable. Think of trading as a manufacturing process with a 40-70% "defect rate", but where the processes' product is so valuable, you can still make money at those percentages.
My experience has been that most people (including myself, at an earlier level of development) cannot handle this level of uncertainty for any amount of time and just want to try picking absolute tops and bottoms and fading them using whatever crutch they find easiest to justify their decision-making at the time. Ain't gonna work. If you show me a chart of anything, I can tell you with about 90% certainty what won't happen. I build my plan for what I hope will happen from there and more often than not, something positive results. Which is completely backwards, but that just might be why it works.
To be honest, I don't even know if what I do is "TA" and I'm not on this thread to defend "TA" as anyone else practices it because I frankly don't care about other people's trading all that much. My two variables are price (volatility-adjusted) and time and time hardly even shows up in any discussions of TA, where it's all about visuals or indicators. I spend 95% of my time in Excel, not some charting package and when I look at a chart, it's only to find the right numbers to enter into my Excel calculations. I had to build every element of my methodology from scratch, with the exception of 1 thing, which I took from a book that I otherwise thought was interesting, but not something I found consistent enough to be viable.
Same thing at the office, I've seen so many people come and go, some of the smartest individuals, who had all kinds of TA bells and whistles in which they believed ... none of them succeeded. The succesful ones didn't use TA.