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The Science of Technical Analysis
- Thread starter TraderSystem
- Start date
Quote from hypostomus:
Well, CD, this post is good news and bad news. The good is that I am the only person really paying attention to you. The bad is that you took the bait and said something subject to analysis:
"It is my opinion that the specific place to hypothesize is with Boolean statements and nothing else. The advantage that comes to the fore immediately is that you have eliminated probability as part of the effort. Building a set of TA tools, all of which are Boolean algebra based, allows one to have a comprehensive system for trading."
I won't waste my time on a detailed reply, because there can't be more than a footfull of people here with math skills higher than toe-counting to appreciate it. Suffice it to say that a Boolean statement implies a binary decision. And a binary decision is purely probabilistic. Evidently you never took any communication theory courses, perhaps a bit before your time. You can get a quickie education by doing your homework on Binary Decision Theory.
Also, you totally dodged my critique as to your lack of quantification. You prefer bitching and name calling to a fact-based debate.
Here is the quote which I failed to respond to:
"One tiny point, and I shall cease. For someone who espouses the scientific method, your writings are remarkably devoid of mensuration. The scientific method is not qualitative, that is for the unsocial sciences. The scientific method is quantitative. For example, one would be amazed to see you make a statement like this:
"For instrument X, and for the most astonishing imaginable news, the population of active market order traders in that instrument cannot sustain a volume velocity greater than Y units per second for more than Z seconds without a retrace.""
My view is that you are correct about how the scientific method is described. I am glad that you provided an example of the quantitative emphasis that most scientists place upon the scientific method.
I have attached what I believe to be a quantitative expression that, if used, will make any stock position trader forever wealthy by the use of this single tool. I regard this as a tool that is consumate for making money.
It is a go/no go tool as you can see. Also note that this binary expression is "normalized" in order that it be usable for any stock in a specific prescribed universe.
The equivalent X is a stock in a universe that has come to a status that is defined. This defined status is equivalent to the "news" you describe. I have, in fact, on a go/no go basis in the cells of the table placed the values to which you refer. They are unsustainable as time passes. That time is also listed in the table and is associated directly (quantitatively) with a volume value. QED.
The OP of this thread has capitalized the word "INDICATORS" to tell all that he is not interested in the topic of the thread "the Science of Technical Analysis" but instead he is interested in the science of indicators primarily.
One of the first and expansive collections on TA and indicators was done by Christopher Lott when the web was first emerging. I participated in that for years. My name appears, as you know, as a credit in several places. The effortsmade there were quantitative and it may be possible that the present defaults came to be used by many platforms and well known people (Pring among others) as a consequence of this effort.
As has been stated, there are all kinds of TA. The central key of TA is how it is used. IF a person tests TA using a non application, then he will get statistically insignificant results or statistictally significant results demonstrating he has made a non application.
If a person wants to trade gaps, for example, he may do so by buying the stock before it gaps. This is done by using a TA indicator in a correct application. If the person used the very same indicator improperly, then he would not be able to buy a stock in advance of a gap. Using the scientific method quantitatively allows a person to get to a go/ no go assessment of that indicator's time series expression with respect to just where the go/ no go measurement lies in the indicator's time series.
For me, as in the attached example, all common indicators can be tabulated for critical go/ no go usage to make money. The book cited by the OP states that TA falls into two classes: objective and subjective. He has a test. It is quantitative. The test is where the TA can be reduced to software language. What I present meets and passes that test. By implication and inference, all software, one way of another in the purest sense, reduces objective TA to 1's and O's. you may be able to see that the attached, expressed as software, does just that. Go/ no go means the same to a computer as 1's or 0's.
I want to stand aside here and let the OP's discussion proceed. What he is questing about is not the science of TA. Profoundly, there is a science of TA and, for all practical purposes, it is not going to be put on the table for a while. When it finally is, then a lot of people are going to be empowered.
Attachments
Quote from JackR:
I found the book Evidence-Based Technical Analysis: Applying the Scientific Method and Statistical Inference to Trading Signals to be interesting and germane to this thread.
It is a very nice amalgamation of the disciplines needed to understand and evaluate a system based on technical analysis.
It is not a"cook book", indeed in almost every instance, the technical analysis techniques discussed or tested fail. But, all are tested on an individual basis, not in conjunction with other "rules."
If you go to the link below read the reviews of the book. Most are well thought out and not trite.
http://www.amazon.com/Evidence-Base...bs_sr_1?ie=UTF8&s=books&qid=1197126454&sr=8-1
Jack
i recommend this book as well. at the very least you can learn how to test your TA systems instead of just setting some params in a software package you paid too much for to get magic stock/futures picks.
Quote from hypostomus:
Well, CD, this post is good news and bad news. The good is that I am the only person really paying attention to you. The bad is that you took the bait and said something subject to analysis:
"It is my opinion that the specific place to hypothesize is with Boolean statements and nothing else. The advantage that comes to the fore immediately is that you have eliminated probability as part of the effort. Building a set of TA tools, all of which are Boolean algebra based, allows one to have a comprehensive system for trading."
I won't waste my time on a detailed reply, because there can't be more than a footfull of people here with math skills higher than toe-counting to appreciate it. Suffice it to say that a Boolean statement implies a binary decision. And a binary decision is purely probabilistic. Evidently you never took any communication theory courses, perhaps a bit before your time. You can get a quickie education by doing your homework on Binary Decision Theory.
Also, you totally dodged my critique as to your lack of quantification. You prefer bitching and name calling to a fact-based debate.
You can do some backtesting for yourself here:
http://www.wealth-lab.com/cgi-bin/WealthLab.DLL/editsystem?id=47311
Attachments
Well, I thank you for the advice, but it seems as though you were addressing ET at large through me. I don't trade stocks, just NQ. I am with you on process, got lots of process results in my codes. Also migration, very important to recognize that the market intraday is like a pinball machine. Glad to see you are standing aside as well, or so I presume, otherwise you wouldn't be composing long posts during RMH. I am still listening, not sure ET is, though. Remember your NLP: "The meaning of your communication is the response you get." They might pay more attention if you explained C D 2 3. Have to appreciate your sense of humor over the years persisting in mis-spelling "holistically" after I have reminded you so many times. Dr. Deco's decidedly deterministic dictum that "Those who can't spell, can't trade" comes to mind. Best regards.
Gonna take a moment to say something nice about you for a change. Enjoy the rare moment. Often during the day I compare my trade-tested perception of how smart I am against how smart you claim you are. An example is your ability to "sweep", as I believe you say, a huge number of parameters/conditions quickly. And to form an evolving market gestalt based on that. I flat out can't match that. So I have upwards of 30 S/R warnings printed on my screen at any one time, and a rolling alert stream of perhaps 100 different conditional price and volume tests. All backed up by bar background color codes and audibles. I want the fucking gestalt without all the fucking mental effort and eyestrain. Just a helpful housekeeping hint for when you get as old and stupid as me.
Quote from hypostomus:
Gonna take a moment to say something nice about you for a change. Enjoy the rare moment. Often during the day I compare my trade-tested perception of how smart I am against how smart you claim you are. An example is your ability to "sweep", as I believe you say, a huge number of parameters/conditions quickly. And to form an evolving market gestalt based on that. I flat out can't match that. So I have upwards of 30 S/R warnings printed on my screen at any one time, and a rolling alert stream of perhaps 100 different conditional price and volume tests. All backed up by bar background color codes and audibles. I want the fucking gestalt without all the fucking mental effort and eyestrain. Just a helpful housekeeping hint for when you get as old and stupid as me.
Busy little thing arent you H.
It left me quite exhausted just reading your post.
regards
f9
Quote from TraderSystem:
Everyone says that Technical analysis not valid, silly tool. In this thread let us discuss a scientific view of the subject.
Please, no off-point posts. Please just stick to facts of different Technical Methods. Please, just simply discuss about Technical methods.
TA is a tool in an overall system. It has to be combined with an exit strategy, money management and position sizing to be effective.
You only use it when it works. Get out of the trade when it doesnât.
If you use a moving average cross and take every signal, then let the trade run you will find TA to have no advantage.
However if you take every signal and cut your losses and let your winners run then you may find that TA is useful.
I have no scientific proof other than anecdotal that this is so, but I believe that using TA to find entry signals will give you better results than random entry.
Boib, there are many long-running theological arguments here that border on the ontological. At the risk of starting another, I will tell you what I believe. Take any well-known TA idea and backtest it. It doesn't work. Pivots. MA crossovers. MA rainbows. MA reversals. The high of the third previous upmove on the daily. Liberace levels. Whatever.
But somewhere, sometimes, SOMEBODIES believe that it does work. So when a Liberace level corresponds with yesterday's midpoint corresponds with tomorrow's projected open corresponds with the previous minute's pivot (or any combination of such idiocies), price will stop dead and reverse. If enough people believe simultaneously for whatever outrageous reasons, price reverses. That's why I keep them all on my screen and look for them to stack up. But as you say, a stop is a wonderful antidote to error. Years ago Jack described a delightful exercise he used with mentees to overcome fear of entries and exits. Highly recommended. If you can get Jack to mentor you.
But somewhere, sometimes, SOMEBODIES believe that it does work. So when a Liberace level corresponds with yesterday's midpoint corresponds with tomorrow's projected open corresponds with the previous minute's pivot (or any combination of such idiocies), price will stop dead and reverse. If enough people believe simultaneously for whatever outrageous reasons, price reverses. That's why I keep them all on my screen and look for them to stack up. But as you say, a stop is a wonderful antidote to error. Years ago Jack described a delightful exercise he used with mentees to overcome fear of entries and exits. Highly recommended. If you can get Jack to mentor you.