The Point of Charting and TA?!

[Wallace]

Charting becomes 'unnecessary' if one has a dependable mechanical trading system, excepting it needs charts or at least prices in order for the B/S signals to trigger.

Charting for me is about predicting price movement just as any B/S order is in a sense a prediction, the assumption one's correct that the price will rise/fall, whatever method is used to determine the B/S.

My continual recommendation is read: ‘Elliott Wave Principle : Key to Market Behavior' by Frost and Prechter, 1970s/1990. This text provides a theory of price movement that applies to any financial instrument/chart plus provides the basis for use of the fibonacci levels tool.

Very useful is the channel tool and/or Pitchfork.

Examples of the above can be found in some of my posts in the forex forum.

The idea of charts for my use is to begin with the longest timeframe, Monthly and Weekly, to determine what the price movement is doing, and what it's going to do. Most important is the Daily with the 60 min used to determine trend changes etc. Depending how one is trading, Day-to-Days or Intraday, one has a choice of charts to trade from/with since price movements often last several hours; a 5 or 15 min chart could be used to trade from, the 5 usually displaying a 24 period and the 15 several days, though the Daily and 60 remain most important for price movement analysis.

Since I started TA using fibo levels rather than S/R levels, my preference is fibos. Volume has never been of interest or use to me though I do use the Donchian Channel with CC rather than HL, and find a Relative Momentum and Stochastic Indicators dependable.

As to backtesting, I don't use it though it's widely used by stock traders and for testing trading systems.

 

[pctech]

Quote from BSAM:

Buy a book.

Any particular book(s) you recommend? I'm very new to TA myself, and don't have enough knowledge of the subject to ask intelligent questions at this point. Any suggestions would be appreciated. Thanks!

 

[CharlesTrader]

Quote from mytwocents:

I suppose it goes without saying that I'm new to trading....OK, now here's what I'm not understanding. I realize that the point of the various charts and graphs is to predict trends...and to find resistance and support levels...right? And as far as it appears to me that's the ONLY point...to find resistance and support levels...I must be wrong and totally missing something but is that what all these charts are for? All have the same purpose which is to find those levels?

As a trader, you must find whatever tool that helps you the most to be able to perceive what the most probable future market direction is going to be.

Charting is simply one of those tools that most people use. Others have a sense of future market direction simply by looking at a table of numbers or a rolling ticker. Others use the volume of trading activity on the trading floor, or observe what high volume traders are doing to determine market directiion.

As a new trader, you will have to experiment and find what best works for you. Everyone perceives the world a little different.

In the end, you must always remember that trading is nothing more than a numbers game of probabilities. Your job is to find a way to determine the highest probability of future events. If charting is the tool the best helps you to do that, then use charting. Otherwise, use something else that best works for you.

Charles

 

[harrytrader]

When you say "That's a failure
to successfully penetrate a potential resistance level which I view as a sell signal. I would sell short at the open of the next bar."

you are making a prediction because a trendline test of only a sample of one bar would be considered as insignificant statistically speaking. In fact official theory doesn't recognise the existence of trendlines because you can have trendlines even in a random walk. They don't recognise trendlines because that would admit that the market is predictable precisely and so violates efficiency theory. That's why TA based on chartism (trendlines, patterns,...) are considered officially as charlatanism.

Quote from TL Trader:

IMO Bundle is right. Forget about trying to predict the unpredictable. And although some do successfully use them I'd also try not tp get too caught up in all those lagging indicators and oscillators. All they "indicate" is what has already happened, not necessarily what's going to happen.

BSAM also has a point in his "buy a book" comment. There are some, including myself, that don't mind trying to help people who ask but trying to describe how to read and use price charts in the relatively small space of a post would be like trying to describe how to ride a bike in the same space.

Here is a look at a chart and one of my favorite "setups". Keep in mind there are many different methods.

Notice the third bar (green) after the 9:30 open on the 6th.
Notice how it pokes above the trend line ( TL ) from below then drops back down and closes below the TL. That's a failure
to successfully penetrate a potential resistance level which I view as a sell signal. I would sell short at the open of the next bar.
I would place a buy stop order (stop loss) just above the green bar that penetrated the TL and either choose a profit target ( PT ) or use any of several trailing stop price methods in an attempt to milk the trade for all it's worth, often using a shorter time frame chart.

 

[harrytrader]

Apart from that, I agree that the concept of failure is useful. In fact on my old (abandoned) site there is a summary of classical TA with MSH, MSL and Failed MSH and Failed MSL:

- MSH (Market Structure High): A very common pattern composed of 3 candlestick marking a potential reversal. The trigger occurs when the 4th candlestick breaks the low of the 3rd one. MSH failed when prices turn back to the high of the 2nd one. FMSH is also a pattern giving an opposite signal.

- MSL (Market Structure Low): A very common pattern composed of 3 candlestick marking a potential reversal. The trigger occurs when the 4th candlestick breaks the high of the 3rd one. MSH failed when prices turn back to the low of the 2nd one. FMSL is also a pattern giving an opposite signal.

(illustration here : )
http://perso.wanadoo.fr/harrytrader/_sgt/m1m2s2_1.htm

Quote from harrytrader:

When you say "That's a failure
to successfully penetrate a potential resistance level which I view as a sell signal. I would sell short at the open of the next bar."

you are making a prediction because a trendline test of only a sample of one bar would be considered as insignificant statistically speaking. In fact official theory doesn't recognise the existence of trendlines because you can have trendlines even in a random walk. They don't recognise trendlines because that would admit that the market is predictable precisely and so violates efficiency theory. That's why TA based on chartism (trendlines, patterns,...) are considered officially as charlatanism.

 

[BSAM]

Quote from pctech:

Any particular book(s) you recommend? I'm very new to TA myself, and don't have enough knowledge of the subject to ask intelligent questions at this point. Any suggestions would be appreciated. Thanks!

pctech.....

Check your inbox (private messaging).

 

[ER9]

http://www.elitetrader.com/vb/showt...1&perpage=6&highlight=nopmplease&pagenumber=1

 

[dbphoenix]

Quote from mytwocents:

Perhaps I should have stated before, but I'm interested in FOREX so while I really found db's info incredibly helpful, I find that I'm somewhat stuck because as far as I know, there aren't any volume indicators that take into account any trades OTHER than each firms OWN volume..... I'd love to apply the D & S methods but what do I substitute for the volume indicators?

The volume bar isn't an indicator; it's data. If you're trading real-time, however, it's not necessary. You can sense buying and selling pressure by focusing on range, pace, and time.