Why does TA not work (for you)?

[nigam arora]

The research and recent testing at "The Arora Report" show that the traditional technical analysis no longer reliably works as described in the classical literature and as practiced by most technicians. The reason appears to be that the traditional technical patterns, support/resistance, indicators, and sentiment analysis are now well known, giving advanced indications to the smarter players as to what the market participants following traditional technical analysis would do. The smarter players take advantage of this information, sometimes acting ahead of the traditional technical signals in the direction of the predicted signals and then exiting in the order flow generated by the technical signal. This is the reason that as the years go by, more and more break outs fail and the success rate of technical patterns diminish.

http://thearorareport.com/ZYX METHOD.htm

 

[R. Raskolnikov]

Have you been reading this thread or just posting based on the thread title?

Quote from nigam arora:

The research and recent testing at "The Arora Report" show that the traditional technical analysis no longer reliably works as described in the classical literature and as practiced by most technicians. The reason appears to be that the traditional technical patterns, support/resistance, indicators, and sentiment analysis are now well known, giving advanced indications to the smarter players as to what the market participants following traditional technical analysis would do. The smarter players take advantage of this information, sometimes acting ahead of the traditional technical signals in the direction of the predicted signals and then exiting in the order flow generated by the technical signal. This is the reason that as the years go by, more and more break outs fail and the success rate of technical patterns diminish.

http://thearorareport.com/ZYX METHOD.htm

 

[cornix]

Quote from baro-san:

Here it is ...

The fact random chart and market chart look somewhat similarly does not prove that trading them will lead to the same result. Only that they look somewhat similarly.

 

[cornix]

Quote from marketsurfer:

Exactly. Why folks just won't admit to the intuitive subjective nature of TA instead of relying on pseudo science / flawed logic as a reason they use it, I don't understand.

Not at all. I would never say it's "magic power of TA" which makes a trader, just the opposite: that as you said, intuitive feel and understanding of typical patterns expressed by regular market participants appears as you watch charts long enough. Can be not necessarily charts, can also be an old style tape reading (T&S + DOM) or any other way of transferring information from the market to the trader's brain... doesn't matter...

But the point is: WHO CARES of anything but making money in this business? I personally care less if that's TA or intuition as long as it makes me profits.

 

[dv4632]

Quote from NoDoji:

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 don't know. It must come down to real-time execution. Maybe it's poor pattern recognition on my part?

Also, not all traders have clear mechanical rules. With some it's more like general guidelines. I've had a lot of conversations with Cornix and he is a good example of such. Sometimes I'll ask why did you exit there, or why didn't you take this trade, and he'll have replies like "it looked like price was stalling" or "I didn't like the look of the price action". Those statements are hard to quantify. I don't think he has a checklist on his trading desk saying if A then B else C. So while he is trading simple setups, the actual execution of it is more organic and nuanced. It is helpful advice I get from him of course, but there is no simple answer to some questions. (sorry for talking about you behind your back Cornix-- LOL)

There are also some traders who while the basic structure of their trading remains the same, they will make minor adjustments to it as market conditions change and volatility ebbs and flows. Someone like myself is not able to adapt to changing conditions as quickly and thus I end up running a couple of steps behind when things change. And in daytrading the margin for error is so slim that losing a couple of steps is a big deal.

That's my best try at explaining it.

 

[oraclewizard77]

I think it can be both intuition and rule based. For example, lets say I have a few rule based setups that I use.

However, when watching the chart in real time, instead of going long at a possible long trade setup, I look for more confirmation based on price action. When this confirmation does not occur, I am not in the trade, so that when it would have hit my stop, I have not lost any money.

 

[logic_man]

Quote from oraclewizard77:

I think it can be both intuition and rule based. For example, lets say I have a few rule based setups that I use.

However, when watching the chart in real time, instead of going long at a possible long trade setup, I look for more confirmation based on price action. When this confirmation does not occur, I am not in the trade, so that when it would have hit my stop, I have not lost any money.

But if you don't make those exceptions systematic, for every time you don't lose money, there will probably be an equal number of times you don't make money. Or, more likely the percentage of time you don't make money will be about the same as your overall winning percentage.

I'm all for building filters for trades to identify "false positives", but those filters should also be rules based, if you are already trading based on rules.

 

[cornix]

Quote from dv4632:

I don't know. It must come down to real-time execution. Maybe it's poor pattern recognition on my part?

Also, not all traders have clear mechanical rules. With some it's more like general guidelines. I've had a lot of conversations with Cornix and he is a good example of such. Sometimes I'll ask why did you exit there, or why didn't you take this trade, and he'll have replies like "it looked like price was stalling" or "I didn't like the look of the price action". Those statements are hard to quantify. I don't think he has a checklist on his trading desk saying if A then B else C. So while he is trading simple setups, the actual execution of it is more organic and nuanced. It is helpful advice I get from him of course, but there is no simple answer to some questions. (sorry for talking about you behind your back Cornix-- LOL)

There are also some traders who while the basic structure of their trading remains the same, they will make minor adjustments to it as market conditions change and volatility ebbs and flows. Someone like myself is not able to adapt to changing conditions as quickly and thus I end up running a couple of steps behind when things change. And in daytrading the margin of error is so slim that losing a couple of steps is a big deal.

That's my best try at explaining it.

No problem.

My entries are mostly rule-based indeed (while still consider the context usually), as well as hard-stop loss is always pre-defined, but what happens in between the entry and exit (for a profit or a loss) is indeed much dependant on the real-time action.

But honestly I think that's a great thing, because Surf is right: any objective quantifiable edge is soon being exploited to it's death while subjective edge, aka experience of real-time market reading evolves with the market itself (as long as you watch it without significant breaks) and keeps you in sync with it's rhythm. This is not a true "edge" in the mechanical sense, but even better, that's form of an art which is hard to repeat (honestly, not hard at all, just watch the mkt for a few years ) and impossible to destroy...

 

[cornix]

Quote from oraclewizard77:

I think it can be both intuition and rule based. For example, lets say I have a few rule based setups that I use.

However, when watching the chart in real time, instead of going long at a possible long trade setup, I look for more confirmation based on price action. When this confirmation does not occur, I am not in the trade, so that when it would have hit my stop, I have not lost any money.

Yea, it's a mix of rules and intuition. Simple rules are used as base for intuition development... Just like sports or any other form of art/craft.

 

[logic_man]

Quote from cornixforex:



But honestly I think that's a great thing, because Surf is right: any objective quantifiable edge is soon being exploited to it's death

I'd love to know where you guys are getting the proofs for this statement. If I develop an objective edge via a positive expectancy algorithm with very explicit rules, unless I tell the details to someone else, how is that edge going to be exploited to death? If I'm the only one trading those exact prices where I buy and sell for the exact reasons I buy and sell, how would the market know to evolve so that future buys and sells I make would turn to negative expectancy trades? I don't know about you, but every time I buy or sell at a given price, I'm not the only one buying or selling at that price. There are hundreds, if not thousands, of contracts being bought and sold in the seconds immediately preceding my trade and the seconds immediately following it. The market doesn't know that I'm in there buying or selling based on my specific algo. How could it?

The market isn't a mind-reader and doesn't really give a shit if someone makes a ton of money, just like it doesn't give a shit if someone loses a ton of money. The market is completely indifferent either way. As long as you don't try to take more liquidity at your entry price than the market has to offer at that price, I don't see how the market would even know it was you entering at that price and therefore wouldn't know that it had to react a certain way just to make sure that your "edge" was undermined.

Can you explain to me how all that market magic is supposed to happen?