Trading using with candlesticks only and nothing else

[longandshort]

He's one of several former CBOT guys who now teaches. Either they're all complete frauds or they actually know what they're talking about. I'm leaning towards the latter. At the end of the day, you have to believe something and have someone to learn from, even if it's some guy on investopedia. What would be examples of some good traders from whom you've learned?

And as a side question, since you've worked on the hedge fund side and focus mainly on macros and fundamental catalysts, what's your idea of "technical analysis," and its role in a trader's playbook? Do you side with Anton Kriel that technical analysis is for suckers?

I don’t really know Anton much, but can say that professional traders do not use technical analysis as retail traders do.

CBOT and market making on exchanges was all about understanding flow and that strategy is not replicable or available for retail traders. I’m not convinced that it ever was a viable model outside of the pit/exchange, given that the edge was due to proximity and client flow. I worked with many people who were ex-exchange or pit traders, and they were almost entirely in operations roles because they hadn’t been able to adapt to electronification and trading upstairs.

There was some value in technical analysis before the late 90s, because it was expensive to calculate something like moving averages, volume analysis, and standard deviation in real time.

Since the late 90s and early 00s, billions were thrown at recruiting quants to build upon technical studies. This is now what you’d call trend following and quantitative analysis. Those strategies are designed to capture momentum or the spread. It’s still possible for retail to trade momentum, but retail can’t compete with spread because that’s domain of HFT.

There really is not a lot you can learn from a trader with that background, except perhaps risk management or behavior. You want to emulate the kinds of traders that are profiting in the existing regime — look at how Citadel, Balyasny, MLP, P72, Tiger Global, Brevan Howard, etc. make money and trade. Try to learn from their PMs and traders (very hard because they don’t want to lose their edge — lol).

tl;dr unless you’re purely hft/quant, you cannot trade profitably with skill using just technical data. Learn how the hedge funds that dominate make money and try to replicate their approach.

By the way, does it help to look at a chart? Sure. Will I sometimes pull up an indicator? Yes. But it does not lead my idea generation or even drive my view on what’s going on with a stock. I would never say something like “the stock hit its 50dma which is why it’s down today”. That would be obtuse. I would say something like “the company missed earnings and lowered guidance last month, which has driven the price lower” — a MA line is not very indicative of anything.

 

[ThinkOrSwim Ranger]

I know a trader who trades only by candlesticks (ekshin price). But on intraday futures. Timeframe 30 minutes. Entrance for 5 minutes. He tried to explain to me, but it was difficult for me to apply these rules to stock trading. And still, he always looked for and drew support / resistance lines.

 

[spectastic]

I don’t really know Anton much, but can say that professional traders do not use technical analysis as retail traders do.

CBOT and market making on exchanges was all about understanding flow and that strategy is not replicable or available for retail traders. I’m not convinced that it ever was a viable model outside of the pit/exchange, given that the edge was due to proximity and client flow. I worked with many people who were ex-exchange or pit traders, and they were almost entirely in operations roles because they hadn’t been able to adapt to electronification and trading upstairs.

There was some value in technical analysis before the late 90s, because it was expensive to calculate something like moving averages, volume analysis, and standard deviation in real time.

Since the late 90s and early 00s, billions were thrown at recruiting quants to build upon technical studies. This is now what you’d call trend following and quantitative analysis. Those strategies are designed to capture momentum or the spread. It’s still possible for retail to trade momentum, but retail can’t compete with spread because that’s domain of HFT.

There really is not a lot you can learn from a trader with that background, except perhaps risk management or behavior. You want to emulate the kinds of traders that are profiting in the existing regime — look at how Citadel, Balyasny, MLP, P72, Tiger Global, Brevan Howard, etc. make money and trade. Try to learn from their PMs and traders (very hard because they don’t want to lose their edge — lol).

tl;dr unless you’re purely hft/quant, you cannot trade profitably with skill using just technical data. Learn how the hedge funds that dominate make money and try to replicate their approach.

By the way, does it help to look at a chart? Sure. Will I sometimes pull up an indicator? Yes. But it does not lead my idea generation or even drive my view on what’s going on with a stock. I would never say something like “the stock hit its 50dma which is why it’s down today”. That would be obtuse. I would say something like “the company missed earnings and lowered guidance last month, which has driven the price lower” — a MA line is not very indicative of anything.

I understand what you mean, and afaik the aforementioned CBOT traders were able to adapt to electronic trading. They now focus mostly on supply/demand and structure trades around where prices are more likely to react, and where it might go to next if a trend continues or reverses. Isn't this what you refer to as trading momentum?

There really is not a lot you can learn from a trader with that background, except perhaps risk management or behavior. You want to emulate the kinds of traders that are profiting in the existing regime — look at how Citadel, Balyasny, MLP, P72, Tiger Global, Brevan Howard, etc. make money and trade. Try to learn from their PMs and traders (very hard because they don’t want to lose their edge — lol).

tl;dr unless you’re purely hft/quant, you cannot trade profitably with skill using just technical data. Learn how the hedge funds that dominate make money and try to replicate their approach.

By the way, does it help to look at a chart? Sure. Will I sometimes pull up an indicator? Yes. But it does not lead my idea generation or even drive my view on what’s going on with a stock. I would never say something like “the stock hit its 50dma which is why it’s down today”. That would be obtuse. I would say something like “the company missed earnings and lowered guidance last month, which has driven the price lower” — a MA line is not very indicative of anything.

I think you are biased towards hedge funds because it's your background, but of course that framework isn't the only way to profit from the markets, right? And I agree that trading can't purely be focused on candlesticks and patterns. There has to be some context relative to the overall market, which sectors are showing strength, which stocks in that sector are strong, where the volumes are in price and time. retail guys generally don't have the time to worry about why the market moves the way it does. I guess that's where we have difference in opinion and beliefs. Institution guys have resources and are in the business to be right. Meanwhile, people who trade off of technicals don't burden themselves with being right or wrong, just so long as the losers are small and winners are big.

 

[longandshort]

I understand what you mean, and afaik the aforementioned CBOT traders were able to adapt to electronic trading. They now focus mostly on supply/demand and structure trades around where prices are more likely to react, and where it might go to next if a trend continues or reverses. Isn't this what you refer to as trading momentum?

Momentum is the autocorrelation present in the time series data of securities prices. Because it's simply focused on harvesting autocorrelation, to trade momentum all you technically need is the price. Analyzing "supply/demand levels" in the day is not super helpful because the frequency that trades occur is too quick for human fingers to click on lol. In fact, there is a lot of research showing that even though momentum exists, traders struggle to capture it.

If you are a sophisticated investor, you might be analyzing supply/demand of the actual product (comparing oil demand/supply through 2021, what production looks like, whether ports are opened, how trade flow looks like) -- and as you can see this is well beyond the data reflected in price and volume.

I think you are biased towards hedge funds because it's your background, but of course that framework isn't the only way to profit from the markets, right?

Hedge funds are just a vehicle. The way to see it is that traders who are highly profitable form entities that most people call "hedge funds" in order to run "alternative" strategies. A hedge fund vehicle allows a profitable trader to take in more capital and establish relationships with brokers and counterparties at an institutional level. If you care about making money, which is the raison d'etre of trading, and have a profitable strategy, then you will eventually form a hedge fund (or family office with an internal hedge fund unit).

And I agree that trading can't purely be focused on candlesticks and patterns. There has to be some context relative to the overall market, which sectors are showing strength, which stocks in that sector are strong, where the volumes are in price and time. retail guys generally don't have the time to worry about why the market moves the way it does. I guess that's where we have difference in opinion and beliefs. Institution guys have resources and are in the business to be right. Meanwhile, people who trade off of technicals don't burden themselves with being right or wrong, just so long as the losers are small and winners are big.

What I'm trying to get at is that there is not sufficient information in technicals, outside of autocorrelation, for you to actually generate a positive return. It doesn't matter if you have tight stops and limit losses -- the trades just don't work.

If you go back over the past 5 years and backtest any technical strategy, I seriously doubt you will find any that generate excess returns. In fact, there's a lot of research on this topic, and you can google search to find the same result. Amazon.com: Evidence-Based Technical Analysis: Applying the Scientific Method and Statistical Inference to Trading Signals (9780470008744): Aronson, David: Books

I can practically guarantee that most, if not all, trading educators are underqualified (they are as clueless as the average retail trader) and either are lying to their customers or are just ignorant. I can tell you that I get people in real life (who know what I do for a living) that have ZERO qualifications (think: 20-something-year-old living with parents) asking me if I can fund their "trading education" or "FX systems" website lol. The brokerage industry is fine with these folks because they induce people to trade -- driving commission revenue and order flow. It's a toxic system, kind of like vitamin supplements lol.

 

[spectastic]

Momentum is the autocorrelation present in the time series data of securities prices. Because it's simply focused on harvesting autocorrelation, to trade momentum all you technically need is the price. Analyzing "supply/demand levels" in the day is not super helpful because the frequency that trades occur is too quick for human fingers to click on lol. In fact, there is a lot of research showing that even though momentum exists, traders struggle to capture it.

I was referring to supply/demand on the longer time frames, 1h/1d/1w. I know better now than to mess around with intraday noise.

If you are a sophisticated investor, you might be analyzing supply/demand of the actual product (comparing oil demand/supply through 2021, what production looks like, whether ports are opened, how trade flow looks like) -- and as you can see this is well beyond the data reflected in price and volume.

but as you said, the reason why we're trading is to make money, so why would I really care about actual oil supply/demand when that is already reflected on the charts, and it's the ticker price that ultimately decides the p/l? granted, fundamentals always catch up, but markets are frequently irrational and manipulated. I'd rather spend time worrying about how to mange those trading challenges that has a direct impact to my p/l than reading about specific supply chain issues or who's getting what from where.

Hedge funds are just a vehicle. The way to see it is that traders who are highly profitable form entities that most people call "hedge funds" in order to run "alternative" strategies. A hedge fund vehicle allows a profitable trader to take in more capital and establish relationships with brokers and counterparties at an institutional level. If you care about making money, which is the raison d'etre of trading, and have a profitable strategy, then you will eventually form a hedge fund (or family office with an internal hedge fund unit).

What i meant was you seem to come from a professional background and therefore your way of thinking and framework is that of a professional trader managing big money, trying to beat spx. Meanwhile, I come from stupid money, and my goal is to beat 90-95% of my peers. And I don't really agree that all successful trading leads to hedge funds, unless you're referring to forming business entities for tax reasons. I think plenty of people would happily remain small.

What I'm trying to get at is that there is not sufficient information in technicals, outside of autocorrelation, for you to actually generate a positive return. It doesn't matter if you have tight stops and limit losses -- the trades just don't work.

If you go back over the past 5 years and backtest any technical strategy, I seriously doubt you will find any that generate excess returns. In fact, there's a lot of research on this topic, and you can google search to find the same result. Amazon.com: Evidence-Based Technical Analysis: Applying the Scientific Method and Statistical Inference to Trading Signals (9780470008744): Aronson, David: Books

you're describing systematic trading, and I'm talking about discretionary trading. No, it's not backed by science, and yes it does seem like snake oil. But there's more to discretionary trading than just the trading strategy. The edge isn't in the strategy, but in the trader, who has put in endless amount of hours looking at charts, analyzing trades/execution, building his neuro network that unless someone has figured out artificial super intelligence or whatever, cannot be programmed into an algo for rule based trade identification, execution and management.

I can practically guarantee that most, if not all, trading educators are underqualified (they are as clueless as the average retail trader) and either are lying to their customers or are just ignorant. I can tell you that I get people in real life (who know what I do for a living) that have ZERO qualifications (think: 20-something-year-old living with parents) asking me if I can fund their "trading education" or "FX systems" website lol. The brokerage industry is fine with these folks because they induce people to trade -- driving commission revenue and order flow. It's a toxic system, kind of like vitamin supplements lol.

I agree trading education in general is sketchy as hell. and most of the chat rooms I've been a part of are filled with morons who want someone to tell them what to buy. Mind you, I've been through the moron phase. I also believe that trading can't be taught by someone else. They can show you the way, but it's a personal journey, because no 2 traders are alike. It's really easy to dismiss stupid money, but evidently ~5% of them do pretty well. And I've seen some of them trade live, and am quite certain they're the real deal. And no, they don't always have something to sell.

fwiw, I have watched this guy trade. My initial impression of him was that he was incredibly arrogant, and had to be a scam. He was talking about how much he was making and buying houses with cash, etc. Good traders don't talk about profits, they talk about good trades. But evidently, he's done pretty well too, and didn't let it get to his head and give it all back like most do.
https://www.elitetrader.com/et/thre...fits-now-verified-by-business-insider.360101/

 

[spectastic]

feel free to call me out if I sound like I'm talking out of my ass. you clearly know more than I do, but I can't get over the notion that everyone in discretionary trading is full of shit, when I've seen evidence otherwise (and they don't sell courses).

 

[longandshort]

but as you said, the reason why we're trading is to make money, so why would I really care about actual oil supply/demand when that is already reflected on the charts

This is an implicit acknowledgment of the efficient market hypothesis, which also states that past prices can’t be used to create profitable trading strategies…

Also, this is the wrong way to view information. Price is constantly fluctuating, indicating 1) some element of randomness and 2) some variance in the equilibrium price of oil (in this example). But what is your estimate of the equilibrium price of oil? How do you know what level of production/demand the market is pricing at price $65 vs $70? With just the price, you cannot know, there’s simply not enough information. Smart traders will analyze supply/demand, and understand price as reflecting the “average view” in the market. This is how a trader can spot a dislocation or value play; e.g. “the market is mispricing production levels next year, so oil should be trading closer to $60 than $70,

I'd rather spend time worrying about how to mange those trading challenges that has a direct impact to my p/l than reading about specific supply chain issues or who's getting what from where.

But those supply chain issues will impact your pnl lol. If you randomly bought a stock and don’t know it has exposure to China, and suddenly China is in the news, you’re pnl will get hit.

What i meant was you seem to come from a professional background and therefore your way of thinking and framework is that of a professional trader managing big money, trying to beat spx.

imo the difference between a professional and retail trader is the application of the scientific method to each step in the process. I’m a discretionary trader. I test each thing I do to make sure it is all accretive to alpha.

I think plenty of people would happily remain small.

If you’re a good trader you will realize that you can make a fortune ($10MM+) if you had more capital and leverage. Unless you’re a stoic and don’t care about making money (which indicates you’re in the wrong profession in the first place), I doubt anyone would not take it.

you're describing systematic trading, and I'm talking about discretionary trading. No, it's not backed by science, and yes it does seem like snake oil. But there's more to discretionary trading than just the trading strategy.

I’m a discretionary trader.

Let’s compare two traders with the same behavioral edge. One also has more information than the other. Who has the advantage?

The edge isn't in the strategy, but in the trader, who has put in endless amount of hours looking at charts, analyzing trades/execution, building his neuro network that unless someone has figured out artificial super intelligence or whatever, cannot be programmed into an algo for rule based trade identification and management.

I guess what I’m getting at is that this doesn’t exist. There are incredibly smart people that spot patterns and connections but they’re not looking at price and volume lol. They’re reading research on Asia and are realizing storms over China will impact factory production, resulting in higher prices and fewer deliveries for manufactures, causing margin compression, which will cause earnings to miss causing guidance to lower as well because they were already elevated/optimistic coming out of last quarter. The trader then puts positions on companies most exposed to that theme.

I agree trading education in general is sketchy as hell. and most of the chat rooms I've been a part of are filled with morons who want someone to tell them what to buy. Mind you, I've been through the moron phase. I also believe that trading can't be taught by someone else. They can show you the way, but it's a personal journey, because no 2 traders are alike. It's really easy to dismiss stupid money, but evidently ~5% of them do pretty well. And I've seen some of them trade live, and am quite certain they're the real deal. And no, they don't always have something to sell.

I’d say successful retail traders are more like a 1% figure, and are mainly lucky and not skillful.

fwiw, I have watched this guy trade. My initial impression of him was that he was incredibly arrogant, and had to be a scam. He was talking about how much he was making and buying houses with cash, etc. Good traders don't talk about profits, they talk about good trades. But evidently, he's done pretty well too, and didn't let it get to his head and give it all back like most do.
https://www.elitetrader.com/et/thre...fits-now-verified-by-business-insider.360101/

I’m a little skeptical. Last year was a very good year for trading, and everyone looks like a genius in a bull market. I’d want to analyze his trading results (sharpe ratio and other stats) before I have an opinion of him.

 

[spectastic]

This is an implicit acknowledgment of the efficient market hypothesis, which also states that past prices can’t be used to create profitable trading strategies…

Also, this is the wrong way to view information. Price is constantly fluctuating, indicating 1) some element of randomness and 2) some variance in the equilibrium price of oil (in this example). But what is your estimate of the equilibrium price of oil? How do you know what level of production/demand the market is pricing at price $65 vs $70? With just the price, you cannot know, there’s simply not enough information. Smart traders will analyze supply/demand, and understand price as reflecting the “average view” in the market. This is how a trader can spot a dislocation or value play; e.g. “the market is mispricing production levels next year, so oil should be trading closer to $60 than $70,


But those supply chain issues will impact your pnl lol. If you randomly bought a stock and don’t know it has exposure to China, and suddenly China is in the news, you’re pnl will get hit.


imo the difference between a professional and retail trader is the application of the scientific method to each step in the process. I’m a discretionary trader. I test each thing I do to make sure it is all accretive to alpha.


If you’re a good trader you will realize that you can make a fortune ($10MM+) if you had more capital and leverage. Unless you’re a stoic and don’t care about making money (which indicates you’re in the wrong profession in the first place), I doubt anyone would not take it.


I’m a discretionary trader.

Let’s compare two traders with the same behavioral edge. One also has more information than the other. Who has the advantage?

I guess what I’m getting at is that this doesn’t exist. There are incredibly smart people that spot patterns and connections but they’re not looking at price and volume lol. They’re reading research on Asia and are realizing storms over China will impact factory production, resulting in higher prices and fewer deliveries for manufactures, causing margin compression, which will cause earnings to miss causing guidance to lower as well because they were already elevated/optimistic coming out of last quarter. The trader then puts positions on companies most exposed to that theme.

I’d say successful retail traders are more like a 1% figure, and are mainly lucky and not skillful.


I’m a little skeptical. Last year was a very good year for trading, and everyone looks like a genius in a bull market. I’d want to analyze his trading results (sharpe ratio and other stats) before I have an opinion of him.

Does the degree of intelligence and sophistication of an investor directly correlate to their success as a trader? To say so would mean you're smarter than the herd, but the herd always wins.

And one does not have to be sophisticated to know that a certain stock has exposure to China

I've seen price move before news. example, I saw a nice technical formation on spce couple of weeks ago, a few days before branson's flight announcement. best guess is information was already known by few before the news, and that was shown by price and volume on 6/22, preceded by 3 weeks of accumulation. I might be wrong, but it doesn't matter. The momentum was there, price structure and volume matched what I normally look for. There was good asymmetric risk/reward that if works out, gives me play money for the other plays that don't work. You mentioned to me before that a 50-60% win rate is needed to be profitable. I still don't get why you can't be profitable with a 30% win rate and a 4/1 average r/r.

Also, imo. most news are garbage and follow market sentiment, not dictate it.

 

[longandshort]

@spectastic That’s my point — you also can’t profit after the fact when news is released. You need to have an edge to spot an opportunity before the market does, which is very hard. The smart analyst reading research is predicting what will happen at the end of quarter— well in advance of “news” being released.

The idea that you only need a 30% win rate with a 4x RR is fantasy. There is no one with an idea generation process that will spot 4x RRs consistently. That’s what I’m saying you need to test — how do you know your setup is going to give you a 4x return?

The “hard work” that profitable traders do is the analysis of trading setups. E.g. if you think a pattern formation should result in high profits — why not backtest to see what the actual result of those outcomes were? What if you found out that they resulted in negative returns? Would you still believe in them? Also— why do you believe technical analysis is sufficient in the first place?

 

[spectastic]

@spectastic That’s my point — you also can’t profit after the fact when news is released. You need to have an edge to spot an opportunity before the market does, which is very hard. The smart analyst reading research is predicting what will happen at the end of quarter— well in advance of “news” being released.

The idea that you only need a 30% win rate with a 4x RR is fantasy. There is no one with an idea generation process that will spot 4x RRs. That’s what I’m saying you need to test — how do you know your setup is going to give you a 4x return?

not my journal. and I think one of the chat members made it, as the actual trader no long journals.

google drive link