Trading WITH versus WITHOUT a system

Quote from Mr.Consistent:

Finally a quality post with wisdom based on observation. The dynamics of markets change, but the crowd psychology doesn't. :)
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Quality post meaning something you agree to? Then explain to me.

What is crowd psychology? How would you use that knowledge as a part of your trading process?

And... I think everyone doesn't want to hear the obvious like:

- The price goes up, and the crowd is bullish.

- The price rebounded on a previous resistance price consolidating around the price range.... and the crowd is waiting to see what happens.

Seemingly, those things are just a post-analysis of what has happened. There are direction, there are strengths of a direction. There are bunch of other stuff... that needs to be determined....

I am not posting to be conclusive, but it seems like people who mention crowd psychology are using it as a self-fulfilling reasoning towards what the market has done, without any rational reasoning behind it.

Also, considering you mention market dynamics... isn't crowd psychology the basis of the market dynamics? If not, what else determines the market dynamics? Is crowd psychology just a noise of the other elements of the dynamics? If crowd psychology is a noise, then why not just trade the elements determining the market?
 
The psychology of the crowd is reflected in the behavior of the crowd, it behaves like a herd of animals. Here is an intro for you http://en.wikipedia.org/wiki/Herd_behavior

Such behaviors create inefficient markets, you can read some intro here http://en.wikipedia.org/wiki/Behavioral_economics

Part of my trading process is to capitalize on these inefficiencies through self-awareness so that I don't become part of the crowd, this gives me additional edge.

In the last paragraph you seem to lose yourself. I'm referring to crowd psychology from the perspective that the crowd lacks the awareness of their congnitive biases and is inefficient in their decision making. This was happening even hundred years ago, that's why that your belief about Market Wizards books, and other gems older more than 5 years was misleading. The crowd is inefficient when it comes to fundamental concepts of trading such as cutting loses and letting profits run, which has nothing to do with the dynamics of the given market, but rather with how people process information. Market dynamics can be viewed as a change in the ladscape, higher or lower volatility, etc. Chart is a chart, and good trader needs to learn to adapt to any market dynamics, most people are inefficient decision makers in any kind of market,and that's the why the history repeats itself, that's why old books from trading legends are still useful. :)
 
Quote from Mr.Consistent:

The psychology of the crowd is reflected in the behavior of the crowd, it behaves like a herd of animals. Here is an intro for you http://en.wikipedia.org/wiki/Herd_behavior

Such behaviors create inefficient markets, you can read some intro here http://en.wikipedia.org/wiki/Behavioral_economics

Part of my trading process is to capitalize on these inefficiencies through self-awareness so that I don't become part of the crowd, this gives me additional edge.
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So you consider yourself a contrarian against the crowd. Only as an example, what you do is very close to having some sentiment of what the market should be doing, and you trade against the current market price relative to the sentiment you have.

Correct?


In the last paragraph you seem to lose yourself. I'm referring to crowd psychology from the perspective that the crowd lacks the awareness of their congnitive biases and is inefficient in their decision making. This was happening even hundred years ago, that's why that your belief about Market Wizards books, and other gems older more than 5 years was misleading. The crowd is inefficient when it comes to fundamental concepts of trading such as cutting loses and letting profits run, which has nothing to do with the dynamics of the given market, but rather with how people process information. Market dynamics can be viewed as a change in the ladscape, higher or lower volatility, etc. Chart is a chart, and good trader needs to learn to adapt to any market dynamics, most people are inefficient decision makers in any kind of market,and that's the why the history repeats itself, that's why old books from trading legends are still useful. :)
More...

So what prices the market? Markets are made by people placing orders and getting filled. If the crowd is inefficient in their decision making, what / who determines the correct pricing?

In another words, what is the difference between an inefficient pricing and an efficient pricing?

In the same market:

- Let's say I'm a Quant., I have a pricing model telling me that the market is overbought. So I short the market.
- Let's say I'm a Systematic trader, I see a trend happening so I go long.
- Let's say I'm a chart reader, the market is consolidating at a very strong resistance. I go short.
- Let's say I place an Long VWAP order through a broker, and they send split orders across the day. And the broker's algo. engine just bought a bunch.

They are all part of the crowd. Who is right or wrong at this point?

* Apologies, I edited the post a little.
 
Quote from TSGannGalt:

So you consider yourself a contrarian against the crowd. Only as an example, what you do is very close to having some sentiment of what the market should be doing, and you trade against the current market price relative to the sentiment you have.

Correct?



So what prices the market? Markets are made by people placing orders and getting filled. If the crowd is inefficient in their decision making, what / who determines the correct pricing?

In another words, what is the difference between an inefficient pricing and an efficient pricing?

In the same market:

Let's say I'm a Quant., I have a pricing model telling me that the market is overbought. So I short the market.

Let's say I'm a Systematic trader, I see a trend happening so I go long.

Let's say I'm a chart reader, the market is consolidating at a very strong resistance. I go short.

They are all part of the crowd. Who is right or wrong at this point?
More...

It only matters to you and what you see. It's the same point I keep trying to make with that I am fellow: It doesn't matter if I'm some virtual construct or an outcrop of my metaphysical mind, my reality is what it is to me.

If your position is causing you pain, you are on the wrong side.
 
Quote from TSGannGalt:

So you consider yourself a contrarian against the crowd. Only as an example, what you do is very close to having some sentiment of what the market should be doing, and you trade against the current market price relative to the sentiment you have.

Correct?



So what prices the market? Markets are made by people placing orders and getting filled. If the crowd is inefficient in their decision making, what / who determines the correct pricing?

In another words, what is the difference between an inefficient pricing and an efficient pricing?

In the same market:

Let's say I'm a Quant., I have a pricing model telling me that the market is overbought. So I short the market.

Let's say I'm a Systematic trader, I see a trend happening so I go long.

Let's say I'm a chart reader, the market is consolidating at a very strong resistance. I go short.

They are all part of the crowd. Who is right or wrong at this point?
More...
Sometimes contrarian, sometimes not, it depends on the excact definition. If the market is extremely OB os OS, in other words the matket gets extremely extended,(say 3 standard deviations over a longer time period) statisticaly I know that it will revert to the mean. DOes it mean that I blindly put on a trade against the crowd? No, what I do is look for strong level of confluence of S/R and at that zone I wait if I get a reversal pattern with confirming internals. Maybe it could be classified as reversal trading, but if the reversals occurs in a deep retracement which is just a countertrend to a trend on a larger timeframe then it coud be defined as an early trend entry with tight stops at the lowest denominator levels. Sometimes I do trend against the sentiment, if I am right then my risk to reward is very good. If my trade doesn't work out then I get out with a small loss and let the market extent even further. Sometimes I'm just a Theta pig, and don't care much where the market will go.

When it comes to efficient versus inefficient pricing, I don't put every single tick in the market into a black and white category. In the big scheme of things, it is the crowd. But on the micro level, people have certain agendas. For example during the openings, there are emotional order flows, and NYSE specialists take advantage of that. Instutuitions are very aware of their VWAP, so they need to get involved in certain situation, then they need to back off and wait for the stock rebound and then perhaps jump in again, and as a result you get those common first hour reversals in the market. Is it due to crowd psychology or due to someone's agenda? Is it due to cognitive biases or due to someones own agenda? I'll let you decide. Another example would be institutional "programs" trading, is it due to crowd psychology or due to someone's agenda? End of month, or end of quater window dressing, once again, I'll let you decide. I just don't put every wrinke in the market into a pigeonhole. :)
 
to the op:

here's your last lifejacket i am throwing you after reading all the previous posts.

question:
do you want to be a trader or do you want to analyze crowds?

it's important, because being a trader employs different skills which are rather different from what it takes to be an analyst.

analysis and trading have nothing in common. ok, maybe 5% at best.
 
Quote from alex.samant:

to the op:

here's your last lifejacket i am throwing you after reading all the previous posts.

question:
do you want to be a trader or do you want to analyze crowds?

it's important, because being a trader employs different skills which are rather different from what it takes to be an analyst.

analysis and trading have nothing in common. ok, maybe 5% at best.
More...
Let me ask you this,isn't technical analysis a method that analyzes a quantifiable behavior patterns which are presented on your monitor by charts? If so, then what does it imply? Your answer will give you answer to your question. If you believe it is, then you're right. If you believe it isn't, you're also right, because whatever you believe will become your personal truth for "you".

I never said that analysis and trading are the same thing, that's a whole new subject you're bringing up.:)

Before we got side tracked ,the preceding posts were on the topic that I believe Market Wizards books are still useful even though they were writen more than five years ago because markets were inefficient back than as they're now ,and there is tremendous amount of insight in those book. If others believe otherwise that's ok with me too, I don't have a problem with that :)
 
technical analysis as well as any type of analysis represents less than 5% of what it takes to trade.

who understands this, good, who doesn't ... well, i hope you don't get bored spending another X amount of years figuring out the "game".

and "we got sidetracked" from what you people already started babbling about. crowds and whatnot.

the original poster stated that he wants to start trading and doesn't know what to do. he asked if he needs a system or what.

i am here to tell him he does need a system, but not a system of analysis.

period.
 
I could see through your second last post that you were trying to set me up, hoping that you’ll get certain reaction from me to go ahead with your agenda. Confirmation of that is that in my reply I wrote ‘I never said that analysis and trading are the same thing.’ Instead you chose to ignore that and in your last post you went ahead and began to impose your agendas on me.

If you want to play these games, then I suggest go and pick on somebody else, I have better things to do than write to people who cannot read. Or should I say "choose" not to read ,or maybe enjoy twisting everything to justify their own agendas.
 
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