the basic flaws in TA

I'm in Buy1Sell2's camp. As more of a swing / position trader, I rarely consider patterns and only use indicators. Still, the way I use an indicator is typically much different than what's taught in the textbooks.

In my opinion, the bottom line is that TA is subjective. The skill lies in being able to know when to use certain information and when to ignore it.

Nevertheless with TA, you have system traders and discretionary traders -- and John Henry has shown that you can be successful with system trading.
 
Surfer,

After running the Indicator gaunlet and FINALLY undestanding what they really are and how they really work, I have come to the conclusion that they are useless UNLESS used in the right context.

That being said the problem is now defining the context in which we are currently in.

It's kind of a paradox isn't it... :D

Bottom line is sometime they work like clockwork and other times they don't.

I think that's the carrot and I what does that make me.?

:D :D :D
 
In my opinion it is almost impossible to be consistently successful in trading without considering the larger time frames' context. At the same time looking at lower time frames than your trading time frame in most cases is counterproductive.

Also, when you're using indicators that you understand you'll probably have to adapt them to each time frame. This is different from curve fitting, it says that i.e. MACD 12,26,9 is ok in one time frame, but 6,19 or 19,39 will fit better in another. You have to know what you're looking for and which tool will help you see it.

The "market's noise" as well as the "price velocity" are different over time frames. Understanding them and using this knowledge in your trading provide you with an edge.
Quote from Buy1Sell2:

the other difference in our trading is the timeframe. I hold positions for days , weeks or months, so I would not be paying attention to first hour reversals. I might pay attention to indicators in those time frames if the longer term charts have shown that I may need to get out or initiate new positions. I think if I remember correctly --hourly charts on the Globex Wed night started hinting of a sell off using the indicators that I mentioned. I was already short, so I left it alone.
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Here are some of my thoughts on the flaws of traders when using TA. But for the record, let me say that I believe that TA is very effective in assessing crowd behavior and works well most of the time when used correctly. It isn't perfect and trading is a probabilities game. I am a discretionary trader. I have tried to come up with a trading system, because it would make trading a lot easier IMO, but it is too difficult to program my thought process for taking a trade.

I believe that many traders do not have an edge with TA because they rely on indicators alone, which always lags the market, and on top of that, they wait for price to turn to trigger a trade (i.e., buy the offer when going long and sell the bid when going short). By this time, the trader would have lost most, if not all, of their edge because of commissions and slippage. Then there are many traders that do not have discipline and let their losses get too large.

Seondly, I think all traders should learn to read the price action and then use indicators just as an aid to see what is already in the chart. If you learn to read price action, you will always be faster than most who rely on indicators alone. For example, one of the few indicators I use is a modified MACD to indicate momentum. In general, I do not need this indicator, because I can see that if the last up swing is greater than the last up and down swing I can tell you that momentum is increasing and that price highs are yet to come. Secondly, I can gauge trend by looking at price as well. The MACD will show me momentum and trend but I will see it first on the chart. Another example, is that a long consolidation pattern will usually lead to a powerful move in the direction of the breakout, why does any trader need an indicator to see this? I do use 3 indicators in all of my charts and they are the same regardless of timeframe. Again, I use indicators as an aid, but I also know when not to use these indicator. Each indicator tells me something different about the market, so I do not have more than one momentum/oscillator on my chart, for example. MACD, CCI, Stochastics, RSI, etc. they all tell you the same thing.

The other problem that I've noticed with traders is that they do not know when to use strategies for trading in a trading range or in a trending market. I've read many posts on ET where the trader says that they made good money on 19 out of 20 days and on the 20th day they give most or all of it back. Key is to learn when a trend day is unfolding and change your strategy or stand aside, because using a countertrend strategy in a trend day is detrimental to your bottom line!

Sorry for the long post.
 
post length ok--- I would disagree that all indicators are laggard. Most are but not all specifically the MACD histogram. When that is used with RSI and Bollinger , you will catch the turn.
 
Quote from Buy1Sell2:

post length ok--- I would disagree that all indicators are laggard. Most are but not all specifically the MACD histogram. When that is used with RSI and Bollinger , you will catch the turn.
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Actually, you will likely catch 10 out of the last 3 turns. :)

There is nothing macd, rsi, bollinger etc will tell you that memory and experience with price action cannot, and much sooner at that.
 
Quote from illiquid:

Actually, you will likely catch 10 out of the last 3 turns. :)

There is nothing macd, rsi, bollinger etc will tell you that memory and experience with price action cannot, and much sooner at that.
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it's ok--this is what makes a market. One person has one way and one has another way. Memory and experience with the indicators is my way and is a very good way. Your way is probably good too. Nothing wrong with that.
 
There are several points we see things differently, but your bottom line is what matters. Only a couple of points:
-MACD is not a momentum oscillator, and it was not designed with this purpose in mind; it is a band pass filter so it will extract price action waves.
-Using an indicator with the same parameters over different time frames will most likely reduce its efficiency, and it is either an indication that you don't really need it so you don't take the time to optimize it, or that you don't fully understand it.
Quote from HispaTrader:

Here are some of my thoughts on the flaws of traders when using TA. ...
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cnms2, thanks for your reponse. MACD can and is used by many as a momentum indicator, here is an excerpt from stockcharts.com describing MACD:

"...MACD uses moving averages, which are lagging indicators, to include some trend-following characteristics. These lagging indicators are turned into a momentum oscillator by subtracting the longer moving average from the shorter moving average..."

I don't spend much time tweaking indicator parameters, I focus more on concepts (i.e., is market making higher highs and higher lows, is the market trending or is it in a consolidation pattern, is there a sign of impulse, is the price action clean to me...) and reading the tape. I guess if your entries/exits are based on indicator values, then it might be tempting to optimize.
 
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