Quote from TheBlackHand:
Yes I believe it can. The trader in your instance is fooling himself the success was down to TA.
The big issue with trading is what psychologists call 'addiction to random rewards'. You're a clever chap, so I know the meaning needs no further explanation.
So when the new trader loses, he may put it down to the fact hes still learning and the magic line was in the wrong place. When he wins, he puts it down to the fact he had the trendline in the right place. He must be progressing. Then the next series of losses make him go back to the drawing board, relearn how to draw magic lines, use someone elses magic lines (Gann, Fib, Elliot etc).
The line isnt the issue. The issue is that by chance he managed to get in on order flow, the other time order flow failed to materialise where his magic line said it would.
Given the big money order flow cares not for where some retail traders draw their lines, whats the point?
Sit next to a swap dealer for a few days and see if hes looking at magic lines. He may have a chart up, but there will be no magic lines. Sure his objectives/function are a world apart from a day traders, but when he comes in, he comes in with size. Youd better be watching out for that, because it wont come at a magic line - unless by coincidence - back to the random rewards thing.
Well... I'm MA in psychology, but thanks for explanation anyway, it may be useful for others too.
You're right, addiction to random rewards indeed happens in trading, but this is one of general mental traps of this business I would say, not TA.
As for the matter of fooling himself... I would argue for two reasons:
1) I watch markets for 7 years already and generally don't tend to believe anything but my own eyes. I would unlikely believe in TA if I didn't see myself how amazingly often (too often for a random event) price reacts in a certain way to obvious TA points (the key is them to be as obvious for as much of market participants as possible). You would probably say I am fooling myself too, but I tend to check my theories with hard and heartless statistics... which proves my observations.
2) Some elements of TA (such as indicators) probably do not have predictive value of self-fulfilling prophecy indeed, but they certainly act as perception filters in a way, which makes one who practices this kind of analysis to see typical behaviour patterns of market participants quite effectively.
Again, it could be called "fooling oneself" if only results were much the same as in the case of random entries, but random entries can't explain say 65% win rate with R/R close to 1:1... I have seen others doing it, I have done it myself... It simply doesn't fit in random entry logic...
That's great about trading: it is absolutely ruthless to self-delusion. One can deceive himself for some time, but P&L statement slaps in his face pretty soon. Either you make profits overall or losses, no other options (with exception of lucky gambling maybe, but even that becomes obvious if one looks at his/her statements objectively enough).
P. S. Nobody still replied to my question about Vic Sperandeo, who claims to attribute significant role in his trading success (proven and documented profit of millions of dollars, not too bad at all back in 70's-80's, when he traded actively) to TA (among other tools).
