tecnical trading, why it works, and why not

D

drasfs

Man, I've been arguing with someone who says it doesnt work. His arguments and my answers:

He:You can't predict the future based on historical data

Me: It's not about predicting the future, but rather having the odds on your side, by making more informed decisions.

He: there have been thorough research that show that tecnical trading is useless

Me: well, these researchers are certainly not real traders with lots experience. Furthermore, no single indicator can generate profits by their own, since there is no such thing as a holy grail. And using tecnical indicator is not just about applying them and then try to see price correlations, but rather, a big part is using the right combination of indicators, but most importantly, trying to interpret the results/signals from tecnical indicators in the right way, and the skill to judge them correctly usually takes years of experience. Therefore, it doesnt surprise me if amateurish scholars havent found statistical evidence that proves that tecnical trading work. Being a trader is about creating an overview, and get a feeling for the situation most of the time, and in the process of getting an overview of the market, these tecnical indicators are usually only a part of the tools a trader use.


Lots of tecnical indicators also work because they become self fulfilling prophesis. If lots of people believe in pivot points, lots of people will place their stops at 60(if that is the pivot point), and therefore stops will be triggered, and prices decrease, not being able to penetrate the support at 60.

He: In that case, Tecnical analysis wouldn't work in the beginning.

Me: well Tecnical analysis has become popular because people want something to look for, which give them confidence to do something, whether or not Tecnical analysis work or not.

This guy drives me crazy.
 
2 questions...

Does arguing with your buddy make you money?

Why do you care to convince someone else of something when it is you that has to trade you rmoney not them?

That should stop the argument.
 
Quote from optioncoach:

2 questions...

Does arguing with your buddy make you money?

Why do you care to convince someone else of something when it is you that has to trade you rmoney not them?

That should stop the argument.
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It's just stupid how some people never understand things. I was also wondering if my arguments are correct, and if there is something else that should be added? This guy doesn't even trade, but he has read numerous books on why tecnical analysis don't work.


He is a friend of mine, and I would just want him to believe in the truth.
 
Indicator works just as well as any thing but not very well with futures, it’s the reason why you hear so many doubtful objections here on ET. I find it very valuable for some of the trades but 50% of the time it can be so muddy that you have to rely on PA instead. TA has it’s use as well as FA and PA… In fact I like to use all of them in any ways I can.

sg20
 
Quote from drasfs:

He is a friend of mine, and I would just want him to believe in the truth.
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Give it up and don't even bother trying to convince him. It is like persuading someone to switch from PC to Mac. He has to be open-minded enough to see and try it for himself.
 
Quote from drasfs:

It's just stupid how some people never understand things. I was also wondering if my arguments are correct, and if there is something else that should be added? This guy doesn't even trade, but he has read numerous books on why tecnical analysis don't work.


He is a friend of mine, and I would just want him to believe in the truth.
More...

Idiots make our job much easier. Keep 'em all in the dark: ignorance is bliss for them and profit for me.


pneuma
 
Quote from drasfs:

Man, I've been arguing with someone who says it doesnt work. His arguments and my answers:

He:You can't predict the future based on historical data

Me: It's not about predicting the future, but rather having the odds on your side, by making more informed decisions.

He: there have been thorough research that show that tecnical trading is useless

Me: well, these researchers are certainly not real traders with lots experience. Furthermore, no single indicator can generate profits by their own, since there is no such thing as a holy grail. And using tecnical indicator is not just about applying them and then try to see price correlations, but rather, a big part is using the right combination of indicators, but most importantly, trying to interpret the results/signals from tecnical indicators in the right way, and the skill to judge them correctly usually takes years of experience. Therefore, it doesnt surprise me if amateurish scholars havent found statistical evidence that proves that tecnical trading work. Being a trader is about creating an overview, and get a feeling for the situation most of the time, and in the process of getting an overview of the market, these tecnical indicators are usually only a part of the tools a trader use.


Lots of tecnical indicators also work because they become self fulfilling prophesis. If lots of people believe in pivot points, lots of people will place their stops at 60(if that is the pivot point), and therefore stops will be triggered, and prices decrease, not being able to penetrate the support at 60.

He: In that case, Tecnical analysis wouldn't work in the beginning.

Me: well Tecnical analysis has become popular because people want something to look for, which give them confidence to do something, whether or not Tecnical analysis work or not.

This guy drives me crazy.
More...

Your friend is making a favor. He is right in some of his points, and you probably have a different interpretation of his points. But you are in the right direction in your search to be a profitable trader.

Here are my conclusions:

1. I think you are under-estimating what you are getting into if you have not traded for a long period of time.
2. At each transaction a buyer thinks he is right, and a seller thinks he is right. One of the two has to be wrong on that transaction if both individuals are traders, or none of them is right if price does not move when they close their trades.
3. It is true that prices can be adequately represented by a random process. If anyone tells you otherwise, he is making you a disservice.

Your job:

To filter out of the random price sequence, a price series that is either increasing (if you are long) or decreasing (if you are short).

The above is not an easy task (but not impossible). Why? Because you will need to be in the top 20% of all traders. Do not argue with mathematical proofs and statistical results. I read just two days ago a paper (published recently) that shows that maximizing entropy of systems (such as a set of traders) implies that 20% of the group will be on one side and 80% on the other side.

Trade for sometime and you will understand. If you and your friend are average people in terms of trading, there is an 80% chance that he is right, and a 20% chance that you are right. If your results in trading prove otherwise then you have a great future in trading.

Re-read my comments sometime after you have traded long enough. You would understand the meaning of the above, and the meaning of your friends comments. Do not under-estimate what he told you.

Many of the comments you received so far, are in my view dangerous to you, as they may lead you to develop a false sense of security.
 
Quote from pneuma:

Idiots make our job much easier. Keep 'em all in the dark: ignorance is bliss for them and profit for me.


pneuma
More...

Someone else in this world (it is not me) may be saying the same thing about someone like you. What makes you think that that someone is not right, and that you are right? I am not saying that you are wrong, I am just asking what proof do you have that guarantees to you that you are right and that others are not right.
 
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