I tuned in and out of the other thread on this, and I've made a post of my own questioning whether any purely technical approach could really be profitable. I didn't want my post to get lost in the other thread (it's far too long), so for the benefit of all I've started this thread. Over the last 6 months I've come full circle and am starting to comprehend, from an intellectual perspective, how trading without an eye on the fundamentals nor on any "outside" information can work.
First point I wish to address is terminology. When I say technical analysis I don't mean RSI indicators and whatnot. I mean trend-lines, channels, support and resistance levels, round numbers and "price action", collectively viewed on various different timeframes. By price action I mean things like pinbars, outside bars, bullish and bearish bars which show momentum (relative to previous bars). I think many people place weight on bar closes on different timeframes, so I think this is an important point too. e.g. a closed pinbar has more weight than a pinbar-in-progress.
I believe that all of these "technicals" are meaningless on their own. Price approaching a round number is not a reason in and of itself to fade a touch. It might be a reason to watch price action there, however. If you add a long-term trend-line and prior resistance, and you couple that with a good M5 pinbar however - that might be a good enough reason to fade the touch.
Basically, I think the key to profitability is to take in as much information as one can about current market movements to derive some sort of sentiment. We can read the psychology of price movements through the various factors that other traders will be utilising.
One more thing - I find myself disagreeing with those who believe that higher timeframes are "more reliable". I think that higher timeframe movements - by their very essence - are more open to shifts in the fundamentals. Fundamentals can drive big shifts in the market on the weekly, daily, 4 hourly - perhaps even hourly charts. Jump down to the M15/M5/M1 and you've got what many people call noise. I believe this "noise" is in fact a whole lot of technically-based trading, plus some market manipulation.
That brings me to my last point - market manipulation. I think one of the keys to good success on these lower timeframes is learning to identify market manipulation. I work at an institution which is big enough to push a market around (it's not forex and unfortunately I get no chop). We don't use charts, we just use the order book. A conversation the other day led me to draw the following image to try and explain something that I do almost every day to get a lot of volume at a good price:
I'm interested to hear thoughts on all of the above, and I might flesh out a few more of my ideas in the process of the thread.
First point I wish to address is terminology. When I say technical analysis I don't mean RSI indicators and whatnot. I mean trend-lines, channels, support and resistance levels, round numbers and "price action", collectively viewed on various different timeframes. By price action I mean things like pinbars, outside bars, bullish and bearish bars which show momentum (relative to previous bars). I think many people place weight on bar closes on different timeframes, so I think this is an important point too. e.g. a closed pinbar has more weight than a pinbar-in-progress.
I believe that all of these "technicals" are meaningless on their own. Price approaching a round number is not a reason in and of itself to fade a touch. It might be a reason to watch price action there, however. If you add a long-term trend-line and prior resistance, and you couple that with a good M5 pinbar however - that might be a good enough reason to fade the touch.
Basically, I think the key to profitability is to take in as much information as one can about current market movements to derive some sort of sentiment. We can read the psychology of price movements through the various factors that other traders will be utilising.
One more thing - I find myself disagreeing with those who believe that higher timeframes are "more reliable". I think that higher timeframe movements - by their very essence - are more open to shifts in the fundamentals. Fundamentals can drive big shifts in the market on the weekly, daily, 4 hourly - perhaps even hourly charts. Jump down to the M15/M5/M1 and you've got what many people call noise. I believe this "noise" is in fact a whole lot of technically-based trading, plus some market manipulation.
That brings me to my last point - market manipulation. I think one of the keys to good success on these lower timeframes is learning to identify market manipulation. I work at an institution which is big enough to push a market around (it's not forex and unfortunately I get no chop). We don't use charts, we just use the order book. A conversation the other day led me to draw the following image to try and explain something that I do almost every day to get a lot of volume at a good price:
I'm interested to hear thoughts on all of the above, and I might flesh out a few more of my ideas in the process of the thread.