Here follows is a few quotes that I found to be relevant to the discussion over on forexfactory;
Topherhk88
I do want to make it clear, though, that my only input is price. I don't use volume or any sort of fundamental analysis. I don't want to give you the idea that my screen is cluttered with a million lines and indicators; at the same time, I follow carefully constructed rules that cover every potential occurrence. I never even contemplate whether or not to enter a position: it is a given based on my rules, as is every single action that I could possibly take with that position as a reaction to the market.
To put it simply, there is no thinking involved in any of my trading decisions; in fact, I wouldn't even really call them decisions, since they were decided along time ago. Now they are simply givens. All of the thinking (discretion) went into creating the strategy, following it is simply about discipline. Discipline only ever wavers during drawdowns, and even then it is kept in check by more rules. Rules, rules, rules - they are what keep me confident enough to follow a strategy consistently; sane enough to live everyday without a frenetic fixation on the market; and humble enough to know that the outcome of any single trade - or series of trades - is completely out of my control. After all, I'm just following orders. Just make sure that those orders are grounded on a tenable foundation - that you actually have a solid edge at the core of the entire process.
I would say that conceptually most successful trading systems capitalize on capturing herd behavior; the edge is simply derived from quantifying and mechanizing this behavior. If the herd change how they collectively react to these various factors, then there goes your edge. The bet - or, I suppose, the lucky or uncertain element - is the belief that aspects of human nature dictate that the crowd will always react in this way (obviously given a sufficient sample size, etc). It is merely a belief and that is all it can ever be.
Anyway, you can't even begin to do any of that until you have a strong foundation - and this is precisely where many get it wrong. They want a mechanized model, so they do a 'backtest' of various rules that they have composed. However, what is the logical basis for those rules, aside from the fact that they appear to historically work? Finding that you make x% over x years based on rules that are not grounded on a specific understanding of market dynamics is likely to be no more than a mere coincidence. To borrow from Taleb's monkey example in 'Fooled by randomness', if you tinker with enough variables you are going to find something that fits. This of course is the process of curve fitting - something that is easy to inadvertently do, mainly because it is so perversely satisfying and so seemingly reasonable.
The only way to really avoid this is to first truly understand what your chosen inefficiency is before developing a system to exploit it. And I don't mean understanding exactly why x bank placed x order that moved the market x amount on xyz date; rather, the overriding concept that what you're designing will attempt to capture.
I know this all may seem somewhat esoteric, but figuring out an edge can be somewhat of an esoteric (and exhausting) process. Doing all of what you have done; learning all that you have already learned; falling into all of the traps that you have likely already fallen into, are generally all prerequisites to the process of understanding, in a broad sense, why certain things tend to happen more often than not. It is understanding why, given certain identifiable situations, people 'tend' to act in a particular way with at least enough reliability to exploit."
The most important thing is to think critically for yourself, and to have a reasonable basis for every trading action that you take. Never fall into the trap of thinking that you possess some prescient instinct for the markets. There are few shortcuts to the process, but if you approach it without preconceptions, unsubstantiated ego, or a get-rich-quick mentality, you will be leagues ahead of many that are in your shoes.
Gaston
Consider that almost every new trader believes that success begins and ends on this picture in front of them, then consider that 95% of these people fail. Next, ask yourself why you think studying the same tool which countless others have failed with is the best and most efficient route to success.
Charts are used by newbies as a sole tool to predict price. Professionals know this, so they use charts to determine what all the newbies are thinking. Therefore, charts often times provide the right amount of information needed to trick a trader into losing his money. Big players need order flow to get into and out of the market. What better way to do it than to buy at a point you know everyone and their dog is going to sell? The market will follow the big money on such a transaction, because all the speculators in the world cannot provide enough buying/selling power to eat up and oppose a bank’s intervention.
So anyway, my long winded point is to question the importance of charts. Can I profit off a naked one with a buy/sell button only? Probably. Should I devote years of my life studying a TOOL of the market instead of the market itself? Probably not. Again, this is the thought trail I walked down to take me where I am today. Hopefully it benefits you as well.
I personally exploit market inefficiencies through mispricing and crowd overreaction.
