nice graph, but, er, you left out the 50-interval moving average...
Trends in random data
- Thread starter Ciatronic
- Start date
nice graph, but, er, you left out the 50-interval moving average...
It takes the average person more than 7 years to become an expert in technical analysis when using real money to trade. I think you did not try very hard and you are looking for arguments to justify that.
I think a large part of the reason TA works and actually works pretty well is that so many people, including many institutions and automated traders use it, that it becomes a self-fulfilling prophecy. Think about it, if enough people/systems are looking at a price reversal at the same or similar point and have potential orders at those points it will in effect cause the reversal.
Example:
Suppose XYZ stock made a 52 week high 2 months ago of $45. Then it dropped dramatically and is just now getting close to retesting that high. TA principals will say that there is a lot of "supply" at that $45 level so practically every TA follower or automated system will be waiting to short or sell to cover at that point, there by artificially creating the supply level even if there wouldn't have otherwise been one there.
Example:
Suppose XYZ stock made a 52 week high 2 months ago of $45. Then it dropped dramatically and is just now getting close to retesting that high. TA principals will say that there is a lot of "supply" at that $45 level so practically every TA follower or automated system will be waiting to short or sell to cover at that point, there by artificially creating the supply level even if there wouldn't have otherwise been one there.
Quote from Ciatronic:
No, this was not the message that I wanted to send.
First of all, let's clarify:
I don't say that the market is random all the time. Actually I believe that it does have moments when is not random. I trade based on macroeconomic analysis. (So, I don't trade stocks > I don't need inside informations, as someone indirectly defined the FA). I won't enter to much in details of my style of trading.
I just want to say that actually I believe the market could be predicted(when trade based on macro, you rely on the so called "inertia" of the economy). Here is how I see the market: in the short term the market really become very random (high noise if I can say so) but on a longer term, the market tend to have a bias. Cuz it's common sense, the market adjust based on the "need". Let's say the inflation is heating(and inflation is quite cyclic, it doesn't change from having a bias up or down instantly, theoreticaly) then through different mechanisms/effects, the local currency gain in strength and the inflation is suppressed(this is just a plain theoretical example, we know what is in real time) . So, the market have a bias in that moment because of the stage of the economy, the market is moving from point A to B, BUT between this, the market is quite random with a lot of noise.
And one more thing, if someone believe that the market is 100% random then, how could he expect to make profit? Because after you enter in the market you don't have a 50/50 chance of winning losing (with a 1:1 RR) , because of the spreads/commissions and whatever tax you are charged, so the ratio is let's say 49/50 W/Loss. You already have to pass this hurdle, so you need a edge. And you start from the premise that you can predict to some extend the market and cover that cost and on top of this, make a profit.
Basically, the edge should be extracted starting from the idea that not everything is random.
Finally, I just wanted to send a wake up signal for those who rely solely on silly TA patters. I went through this type of analysis about 3 years ago so I know pretty much what it does involve. Just look outside the box.
I just wanted to help, I apologize if I offended someone.
Regards.
Thank you for starting the thread.
This summary comment on your views and experience is interesting to read.
Modern trend summary comments, from my orientation, began to appear around 1790. This makes for a lots of good reads and allows a person to follow the path of the iterative refinement of trand consideration.
Today there are a range of views on how the market works. there is also a definte pattern of how discussions go as participants either share or criticize.
I take most contributions at face value and most critiques as just off the cuff and not too thoughtful.
I'm not criticizing your viewpoint and its components. People who read other's work over the years usually can locate them on the spectrum and how far they have travelled.
I've been trading about 18 times longer than you have been assembling your current viewpoint.
It is very easy to make a lot of money trading in markets. How much is made is unbelievable and astonishing to most people.
I believe the correct view of how market's offer and people take is proven by a critical thinking process.
Many people do try to construct proofs ofthe market system of operation and most proofs do not work out.
Criticism of another person's work is just a criticism. By conducting a reasoned dialogue among interested parties, it is possible to move the trading culture forward on sound footing.
Could you give your comments on this reading?
Foundations of Technical Analysis: Computational Algorithms, Statisitical Inference and Empirical Implementation.
It appeared in the Journal of Finance, August 2000.
Maybe if some common neutral turf develops, then some forwarding might occur.
I totally agree. This in my opinion is probably one of the major reasons why TA works in many instances. I believe statistically speaking the probability of a certain event occurring like a bounce of a trendline or a retest of the highs, like in the example above, can be influenced by everyone who uses TA and is "seeing" the same thing, thereby placing similar orders close to each other acting as price "walls" if you will. Obviously i do not have statistical proof but i've seen authors make attempts and have shown some higher success ratios on certain patterns for example. Albeit sample size is always usually only a few hundreds.
