Testing the Engulfing Candle Pattern - Daily

game said:
I don't believe that is the basic argument for TA - at least the kind I have been practicing through DB's guidance.

Just as Fundamental Analysis is much more than PE ratios, TA is much more than generic patterns. A good FA analyst will see how 'cash' moves through the system. He will visualize what is happening on the factory floor. He will understand the business model and the inherent optionality in it, etc.

Similarly, TA is much more than lines and patterns. It is getting a handle on the behavioral dynamics of traders.

Indeed! Quality stuff. Those are the guys who led me to read Peter Brandt's book and stoked my interest in TA. That got me here and look where that got me.
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To paraphrase Hamilton in The Stock Market Barometer; the market represents everything everyone knows, hopes, believes, anticipates, and all that knowledge is sifted down to the bloodless verdict of the marketplace. I guess that is the way I have approached TA. Everything that could possibly be known shows in up in the price, including irrationality and bias... what do you think?
 
game said:
BTW - MT's founder used to post here as 'darkhorse'

Here is an excellent post from him:

Originally posted by darkhorse
Since I haven't seen your trades and don't know your psychology, I can't tell you what's wrong, though I assume something is or you would not be struggling. I wasn't trying to be flip in offering analogies and riddles, but rather trying to encourage you to .....
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Wow... that post should be etched in stone at the top of some remote mountain somewhere.... excellent stuff. Thanks for sharing that. Damn consistent with everything that has came out of MCT lately, the trading Psych field guide, etc.
 
dasenbrj said:
To paraphrase Hamilton in The Stock Market Barometer; the market represents everything everyone knows, hopes, believes, anticipates, and all that knowledge is sifted down to the bloodless verdict of the marketplace. I guess that is the way I have approached TA. Everything that could possibly be known shows in up in the price, including irrationality and bias... what do you think?
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I agree. But price cannot reflect all 'potentiality'. Which is why the great Buffet quote of the Market being a voting machine in the short term and a weighing machine in the long term is so powerful. The transitions between voting and weighing are not always smooth. They are often tumultuous cascades. FA can help in improving the probability of identifying these critical points and thus betting big when the time is right (TA).
 
game said:
I agree. But price cannot reflect all 'potentiality'. Which is why the great Buffet quote of the Market being a voting machine in the short term and a weighing machine in the long term is so powerful. The transitions between voting and weighing are not always smooth. They are often tumultuous cascades. FA can help in improving the probability of identifying these critical points and thus betting big when the time is right (TA).
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An interaction between TA and FA. Good stuff.

Do you think a purely mechanical approach to TA is the best approach, or does a trader develop a useful intuition after years of studying charts, leading to a more discretionary approach?
 
dasenbrj said:
An interaction between TA and FA. Good stuff.

Do you think a purely mechanical approach to TA is the best approach, or does a trader develop a useful intuition after years of studying charts, leading to a more discretionary approach?
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Dude I am a beginner. I am sure other more experienced traders can guide you there. However, I would re-iterate my earlier suggestion to approach this through the lens of trader behavior. Then, you can choose to make it as mechanical as the market permits you to make it.

But permit me to share one more quote since you have been so receptive :)

"You must be able to imitate nature before you have the right to interpret it"

Antoine Bourdelle
 
game said:
Dude I am a beginner. I am sure other more experienced traders can guide you there. However, I would re-iterate my earlier suggestion to approach this through the lens of trader behavior. Then, you can choose to make it as mechanical as the market permits you to make it.

But permit me to share one more quote since you have been so receptive :)

"You must be able to imitate nature before you have the right to interpret it"

Antoine Bourdelle
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I like that quote. Sometimes I feel like a poser for talking like I know things, but I think a person has to have some thoughts to progress. If I perpetually tell myself "I don't know anything," that might just continue to be the truth. Admit that I could be wrong, and change my mind in an instant when I find out that I am wrong, but don't let that deter me from learning.
 
dasenbrj said:
I am working on a little project here. The basic issue is: how useful are these patterns?

Overview: I am defining a bearish engulfing reversal as the current open being greater than the previous close, and the current close less than the previous open. I am only considering these in markets where current prices are in a trend higher, and the......
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I was thinking about last night, and I think I overstated the case a little bit. This means that the engulfing bearish reversal as I have defined it here is not very useful, empirically. But it may be more useful in context of other factors; the major/primary trend, the trend of the averages, and fundamental factors.

I think if I had some reason to be bearish on a market, and this pattern developed it would give me a good point to consider entering or adding to a position.
 
dasenbrj said:
No, I have not. How do you define failure exactly? There is more than one way to define it.
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You could study the following:

- Pivotal breach by 1 tick

- A close below/above the pivot

- 2 LLs below the pivot/2 HHs above the pivot

Obviously, the old conflict of lesser confirmation better fill or more confirmation worse fill will haunt you.

If you want empirical data, this is where I would begin.
 
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