Why does TA not work (for you)?

[jack hershey]

Quote from marketsurfer:

Sister D, your intuition gives you the edge, markets evolve to counteract every successful fixed edge. This fact is lost upon the silly price only TA brigade. TA, if it has an edge, is minuscule. TA is attractive to many traders because it makes everything look so easy. Follow this line, buy now, red light green light kind of fast money attraction.

Sure, there are dozens upon dozens. Here is one example:

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1181367

Technical Analysis Around the World


Ben R. Marshall
Massey University - Department of Economics and Finance

Rochester H. Cahan
Macquarie Capital (USA)

Jared Cahan
Macquarie Bank Ltd

August 1, 2010


Abstract: ____
Over 5,000 popular technical trading rules are not consistently profitable in the 49 country indices that comprise the Morgan Stanley Capital Index once data snooping bias is accounted for. Each market has some rules that are profitable when considered in isolation but these profits are not statistically significant after data snooping bias adjustment. There is some evidence that technical trading rules perform better in emerging markets than developed markets, which is consistent with the finding of previous studies that these markets are less efficient, but this result is not strong. While we cannot rule out the possibility that these trading rules compliment other market timing techniques or that trading rules we do not test are profitable, we do show that over 5,000 trading rules do not add value beyond what may be expected by chance when used in isolation during the time period we consider.

lol.....

 

[logic_man]

Quote from dv4632:

I agree with Surf that intuition is what gives the successful trader his/her profits. It's all between the ears. Another way of putting it is it's not the method that matters, it's the execution of the method. Think about it, if it were anything else then the success rate in this business would not be so low.

It's just like in sports. Golf is a very simple game with simple techniques being used (how much easier can it get than hitting a ball?) but to become a highly skilled player... that goes way beyond the physical mechanics of the game.

Take this chart with some possible trendlines that could have been drawn on it. Have 20 people trade that day and you'll probably get 20 different results. At 10:00 ask them what they think about the market. Some will be shorting the upper channel limit, others will be going long off the horizontal line expecting a channel breakout, others will be on the sidelines.

I don't know how anyone else trades, really, but I know that I have zero intuition. I have a bunch of rules and when they trigger a trade, I take it.

And you can't just look at one set-up and say "Oh, because 20 different traders would trade that one set-up 20 different ways, that means TA (or PA) is subjective". You have to look at a much larger sample size than 1 trade. The reason, obviously, is that no method, objective or subjective, can win on every trade. Give those same 20 traders 100 set-ups and by the end of the 100 trades, you'll start to see a lot of separation between the good and the bad traders. Give them 1000 set-ups and I would be shocked if 1 trader didn't turn out to be the best.

 

[Fah Q]

some people want to keep believing something is impossible. the pain is too great to bear if they are proven wrong. ignorance is bliss.

 

[jack hershey]

Quote from NoDoji:

Back to the chart I posted yesterday (which so far nobody cared to comment on or perhaps nobody saw a potential trade setup there).

I will play the part of my five hypothetical technical price action traders and describe the potential trades the traditional technical price action trader might find here.

SETUP: The price environment demonstrated within the narrow confines of this chart tells us that a previous down trend has reversed and buyers are clearly in control. No one is selling hard into the strength of buy stops clustered above each previous resistance level on the way up; in fact price is just blowing right through those levels. This convinces traditional TA traders to "think continuation" as my traditional trend-following mentor drilled into my head day after day.

1. A micro-scalper would either place a buy stop above the high on the chart, or above the high of the small red pullback bar at the right edge, expecting to scalp several ticks profit off what should be a decent stop run at the very least. A micro scalper would exit immediately if either entry level produced no follow through. Micro scalpers have no room to take large losses. Price action micro scalpers have high win rates with small profits and small losses. What's the downside, why doesn't everyone do this? It requires a level of concentration that few people have and absolute mastery of the trader's mindset as described by Mark Douglas.

2. An intraday "price swing" scalper (me, for example) would either place a buy stop above the high of the chart, above the high of the small red pullback bar at the right edge, or place limit orders to buy somewhere between the low of the small red pullback bar and the previous resistance zone in the first half of the chart. The stop loss if a buy stop is used to enter need not be greater than a few ticks below the inside bar because a break of the high following a strong run and a shallow pullback will produce quick follow through or will likely pull back quite a bit more deeply if it fails to do so. If you're a scalper, why risk a large loss relative to the expected profit, when you can take a small loss and get back in if a secondary setup appears. The continuation price swing to be expected if the break of this high attracts another round of buying is a move equal to the move from previous support (low of the 7th and 9th bar prior to the last bar shown) to the high on the chart. This is known as a "measured move" and is about 20 grid lines on this chart. The measured move is measured from the consolidation low or pivot low of the pullback.

3. An intraday trend-follower who scalps price swings only in the direction of a trending move would do the same thing as trader #2.

4. An intraday trend follower who holds through retraces (and possibly adds to a profitable position during retraces) likely initiated a long position with small size off the 1-2-3 setup from consolidation at the lows on the chart. The first "add" would've occurred during the breakout of the next consolidation, and now the second add will take place on the breakout of this possible consolidation at the right edge. The profit targets will be based on a larger time frame.

5. A counter-trend scalper who only trades contrary to a strong directional price move may have shorted via a limit order near the high of the chart if, and only if that level was a key "previous support becomes resistance" level on a higher time frame or further back on the current chart (which is hidden from our view here). Assuming the next key resistance level is not at the high of this chart, the counter-trend trader has absolutely no reason to put on a short position here, even if the low of the small red inside bar is broken. This is the same reason why trader #2 who trades both directions would not contemplate a short position here either.

the coding surfs RDBMS programmer generated would draw these lines.

Pt1 is the reversal for each segment.

I didn't see your chart.

his chart shows VE's and a M1 ...M2 red

It also shows haw to move points when acceleration exists.

cahrt on next post

 

[jack hershey]

Quote from jack hershey:

the coding surfs RDBMS programmer generated would draw these lines.

Pt1 is the reversal for each segment.

I didn't see your chart.

his chart shows VE's and a M1 ...M2 red

It also shows haw to move points when acceleration exists.

cahrt on next post

see attached.

surf is really out of it.

 

[frenchfry]

Quote from jack hershey:

see attached.

surf is really out of it.

Critique:

1. Chart does NOT contain volume. SCT heavily relies on volume. Omitting volume is like driving with one half blind eye through rush hour. Volume leads price.
Drill: Post charts of one week with perfectly annotated volume gaussians on three fractals!

2. Chart is only annoted on one fractal. Annotating multiple fractals prevent you from jumping fractals too soon.
Drill: Post charts of one week with all three fractals annotated. You may skip the yellow boxes but annotate all laterals.

Sorry, Jack. Couldn't resist. ;-)

 

[dv4632]

Quote from logic_man:

I don't know how anyone else trades, really, but I know that I have zero intuition. I have a bunch of rules and when they trigger a trade, I take it.

And you can't just look at one set-up and say "Oh, because 20 different traders would trade that one set-up 20 different ways, that means TA (or PA) is subjective". You have to look at a much larger sample size than 1 trade. The reason, obviously, is that no method, objective or subjective, can win on every trade. Give those same 20 traders 100 set-ups and by the end of the 100 trades, you'll start to see a lot of separation between the good and the bad traders. Give them 1000 set-ups and I would be shocked if 1 trader didn't turn out to be the best.

Well, try and teach your method to someone else and see what happens.

I've talked to some traders who are successful and I know how they trade, yet I can't duplicate their success. Even though I know all the rules I still can't do it. Well, not yet at least. But that's why I've become convinced there has to be more to it than just the method/rules.

 

[NoDoji]

Quote from dv4632:

Well, try and teach your method to someone else and see what happens.

I've talked to some traders who are successful and I know how they trade, yet I can't duplicate their success. Even though I know all the rules I still can't do it. Well, not yet at least. But that's why I've become convinced there has to be more to it than just the method/rules.

I'm curious why you can't follow their rules. Is it because their rules are not well-defined or is it because you can't bring yourself to trade their rules?

I've taught my core method to quite a few traders and they can't duplicate the success because they don't trade every setup defined by the rules. That has nothing to do with the method, though. It's their mindset that's causing a problem.

As a struggling trader, I watched a successful price action trader for nearly a year and he called every entry, stop, and target in advance. After a couple months, I realized that he was quite profitable and I didn't even have to know his rules because he called every trade in advance and I could've mirrored every one of them and had a fantastic year.

The problem was that the rules weren't mine, I had no experience with his style of trading, and I didn't trust that it would keep working over time. I was certain that any day it would begin to fail badly. Whenever he called a trade setup, it seemed totally improbable to me that the trade could possibly reach his profit target. Every setup looked impossible at the right edge of the chart.

Whenever a trade hit his stop loss it simply reinforced my firm belief that his style of trading could not be consistently profitable over time. I had a severe case of survivor bias watching him trade. One day he had 5 out of 5 trades hit his stop loss, and I smugly thought, "See? Just what I thought, he's lost his edge."

But he knew from 8 years of experience that "there is a random distribution between wins and losses for any given set of variables that define an edge" and 5 losses in a row were completely within reason for his plan.

I couldn't argue with the hard data by the end of that year. He was not only consistently profitable, he was very profitable.

 

[logic_man]

Quote from dv4632:

Well, try and teach your method to someone else and see what happens.

I've talked to some traders who are successful and I know how they trade, yet I can't duplicate their success. Even though I know all the rules I still can't do it. Well, not yet at least. But that's why I've become convinced there has to be more to it than just the method/rules.

To be able to teach someone my method, they'd have to want to learn. It could be done, though.

 

[R. Raskolnikov]

And yet you are dropping it all to start a brand new method that is unproven and untested. Why would you want to abandon something that's been "very good" to you?

Quote from marketsurfer:

They both have been very good to me.

surf