How many of Technical Analysis based systems are junk?

My current interperatation of markets is this, it somewhat agrees/disagrees with alot of posts so I'm just going to lay it out.

Fundamentals shape large movements. They define weekly/monthly/yearly trends. A pure fundamental trader would have a tough time day-trading(outside of news) because they are forcasting what impact global events might have in the long run. I don't believe a fundamental trader can trade news well without a solid understanding of technical analysis. The news will immediately shape the price however it's so short term that technical anlaysis has alot of influence on the price.

I think that because I see that although TA is relevant on long term charts, it's Technical Analysis making up "the waves" as people like to call them. The short term inbetween the fundamental movements. Technical analysis is watching the fundamental events being priced into the market, and playing with the gauranteed retracements and continuation of the fundamental move, which can be influenced by TA. It's a lagging strategy, it's possible to define future turning points, or area's of interest where some action might occur, but it's strengths lie in interperating the fundamental changes as they are priced into the market. I try my best to determine what is happening, is it actually a point in the price action that can be determined by TA, or do I need to wait for confirmation of the fundamental move, and then play the TA after as soon as possible.

The range and intensity of the waves can definitely be affected by technical analysis. However I find over-all trends cannot. Trendlines and support and resistance are really the only things I consider. I use 1 12LMA to filter some of the actual noise in the past bar or 2, but past that I get nearly no information anymore from indicators. I just got used to them...then I stopped looking at them...what are they actually telling you that the price and support/resistance/trendlines aren't?

Since I consider TA to already be a lagging form of trading, I can't justify using indicators that tells me what to do based on what happened 2-10+ bars ago. It needs to be a fundamental move for that signal to be accurate. Does the indicator let you know it was a fundamental move? I think that's the important filter alot of people don't want to bother with...what made your indicator signal enter?

There is a huge grey area that I think people have to consider and decide whats best for themselves.

-Using lagging indicators in short term charts(60min and less) seems a bit rough to me. I've been there and done that, but trading short term on old data just chews you up and spits you out. Trading current price action, at the current bar, hitting the current trendline/support/resistance seems to make much more sense short term. Letting old data a few bars back make your decision for you isn't effective because in the short-term realm of TA, things change to fast...moves are often more or less over in a few bars. At least the area where you can enter with a short S/L and solid T/P is gone.

-However using lagging indicators on large time frames (daily/weekly/monthly) can be much more forgiving as your in the trade for the long haul anyhow.



Anyway I might need to sum that up a bit. I think Technical Analysis is the most useful when trading the short-term effects of large fundamental movements. You need movement to chart it, therefore it's already a lagging indicator on it's own. The realm of short-term trading changes much to fast to lag behind anymore than you currently are just by using TA. Waiting for indicatars that rely on several+ bars of information closes your window of opportunity in most cases and often means you are actually chasing trades. Your late. Your s/l has to be bigger than it needs to be, and your T/P is smaller than it needs to be.

Of course there are exceptions, everybody's different but for myself using TA is only consistantly useful when I'm trading trendline/support/resistance breaks/continuations. Determining what trades to take is the "skill" part, but I can actually feel myself getting consistantly better the more I trade with just price action, support, resistance, trends, and a single 12LWMA on the median price of bars to use with discretion.

It's been a few years of 6-10hr+ days, just watching 12 pairs and charting what I felt was relevant at the time. Basically just soaking up as much as I could across most of the major pairs, only now it really feels like it's sinking in. Only since I've focused on trading the price and what it's doing right now, does it feel like I'm making huge progress. I'm not so sure there are any shortcuts, or complicated calculations that make you money. If there is I think you will need to develop them yourselves, whats readily available on the internet just does hold very much value in my opinion.

exelent text!

only part i need to confort in tehnical analysis is that "trend" what we are looking is happening in all the time. 24/7 only by defining the same phenom from far we can observe it closer. To see how that perspectives resoult will effect on distantant perspective. but its inside out. as the distants perspective will effect on short. but the short distance will show that effect first.

I like to avoid extremes. This is dynamic and there are always new things coming out and I prefer to stay open-minded. Which means, yes I, too had fallen in love with all the fancy pancky indicators and had them all on the charts and soon realized they are reflections of the same movement. So, are they useless????

I always grin if I see people posting something like "I trade only naked, only S/R, Trendlines, Candlesticks, or whatever...." Why? Because they are the same as indicators: GRAPHICAL, VISUAL REPRESENTATIONS TO HELP OUR BRAIN PROCESS THE UNDERLAYING PHENOMENOM CALLED PRICE FLUCTUATIONS.

Take Candlesticks, for example. They are just graphics - Upper Wicks, Lower Wicks, Red Color for down, Green for up - Humans are centered on VISUALS and the more complex something is the more we like o rely on VISUALS - look at your DVD Player, Car Dashboard, etc. ALL GRAPHIC SYMBOLS.

There is nothing wrong using Indicators (I get the feeling some people tend to "feel like Pro's" because they trade "naked") but they are not a magic crystal ball - as Trendlines (that aren't reliable either, why should the market respect some Trendline? Sometimes it breaks below a Trendline and comes back). Even Support and Resistance areas - the people that bash at Fibs or Pivots, attribute some special meaning to S/R or think "round numbers" will have some effect....look at your charts and think again!

I like to see Tools or Indicators like this:

You can have a "barebones cockpit" or a "complex cockpit" in both you need TO KNOW HOW TO FLY and HOW AERODYNAMICS WORK, WEATHER and all the other basic stuff. If you are a Professional then the fancy cockpit will make even more sense to you....the switches and lights and "extra systems" are there to help you, but if necessary you could switch them off and still fly that thing. If you are a Beginner then you will mostlikely crash the big guy...you need first to understand the "roots" of trading.

http://img234.imageshack.us/my.php?i...erturn1pf9.jpg http://img234.imageshack.us/my.php?image=747ld7.jpg

I don't curse Indicators nor do I attribute special powers to them - keep my mind open, maybe there will be one day some indicator that is different than all the others....its an evolution, you never know. Traders from the 60's could look at you and laugh, saying that trading off that box on your desk (called computer) will NEVER work, because Traders have always traded on the floor....

Yes, maybe some indicator like Haiken Hashi (lately a favorite at FF) is a representation of price itself, but if it helps my poor brain in a visual, better way to SEE those Retracements or Trends, why not?

....Keep your mind open and relax.

I agree with you 100%. my honest opinion about trading system is the following. use support and resistance. It isnt easy I struggled myslef for nine month till I finally was able to get it. I have some simple charts at home I can share with you if you are interested but the simple trading system is support and resistance that's for sure

an example of support and resistance is the BGP/YEN, a resistance of 239.42 was back few days ago, that resistance turned into a support today and this is where the BGP is around as of 3PM Eastern time. if the close is below that level that would mean the trend is loosing steam and not going up, if it closes above that would mean the next step up is 240.03

petercross . i really enjoyed your text! have been wondering lately. Everything seem to be that the subject of "understanding" the market needs lot of work and self education and reasearch. Why there is so mutch bad information available from the source to blind guide and misslead the actualy learning prosess?

Nice post, while I disagree with what i quoted from you, I'm not going to argue it because I think it's interesting to read different views, and in the end my opinion obviously only applies to myself.

Everybody is different, if we could all trade the same somebody would have shared the secret long ago, and markets wouldn't exist as there would be nobody losing money.

It's a hard way to make a living. There are 1000's of ways to trade, 1000's of interpretations for something that only goes 2 directions. I often think of the fact that every time you place a trade you have a 50/50 chance of being right, but in the end around 90% of the people are generally wrong. I think over-trading, poor understanding of important area's (however you determine them) are obviously the main culprit. That's definitely a simplistic view but I'm heading to bed.

For myself the above observation tells me to keep it as simple as possible. Don't over-think, focus in on what works for yourself. I only condemn indicators for myself, if others can make them work that's great. Personally I still say they add noise rather than filter it...and it's old noise at that!

you can even devise a system from a statement......

somewhere in this forum , someone ask, "can a currency pair goes zero?"
knowing that it is a very rare occasion,.... i try to utilise it... to MM

here's the silly technique
http://www.forexfactory.com/showthread.php?t=26748

feel free to comment

Coincidence does not prove causation.

The majority of traders are men, and the majority lose. Maybe that's the problem?

Nearly all losers trade the E/U. That must be it.

How many successful traders use indicators vs. those who don't? That's the question. I think you'll find successful traders that do use them, and also those that don't. I only know one professional personally, and he uses them.

Yes, you've caught me there, my statement is not proof. However, it is an expression of the likelyhood, it trading was all about having a good indicator, many more traders would make money, and that's not the case. In the end, that's just my oppinion, decide for yourself...

P.S good TA system is = turn on your pc, enable EA, go to the beach and relax while making millions. Dream on...

I agree with you completely. And, I didn't tell the whole story.

My friend the pro says that indicators, fibs, support/resistance, etc.... merely give you DECISION POINTS.

Then price action and candlesticks tell you what to do there.

finally a post worthy of this thread. Thanks for solving the mystery... like Bemac said, "if its just an in thing that indicators should be bashed" just tell me how profitable are you without trendlines and MAs. Lets not kid ourselves.

Is it really cool not trading with indicators?
I personally find the RSI helpful after reading this;
http://www.trading-naked.com/library...ermination.pdf

and the HAS indicator has surely pips just by trading its signals with little use of the brain.

regards
Jest

...and MAs are just filters of price action.

I used to work with satellite data, so I know a few things about signal processing and whatnot. The EMA is a type of filter actually used to take out noise from an electronic signal. MAs are no more than low-pass filters (noise tends to be in the higher frequency range) for price data. Because of this, by their very nature, they must lag. Lag would be approximately half the period of the MA, and if you reduce lag, you're only going to let more of the higher frequency (ie: noise) pass through the filter.

Again, this is the problem with TA. Most people don't understand the basic nature of indicators or how/why they came about, yet they think they can tweak them into a Holy Grail, or sometimes act like the indicator is what controls the market.

You're absolutely right. Most people do not understand indicators. This is most true as pertains to those that say they're all based on MA's.

I hate to be a @##^& troll, but that's one thing that irks me, and the ones who say it often state that they're great at math. Just not great at research, I guess.

There is no MA in calculating stochastics.
There is no MA in calculating %R.
There is no MA in calculating Momentum Index.
There is no MA in calculating ADX
RSI does not use MA of price, only of magnitude of up movement and of down movement.
I would call fibs an indicator. There is no MA in a fib.

I could go on, but I've made my point (again).

Stochastics is various MAs of %R. There are no MAs in %R. %R is basically where the closing price is within a Donchian Channel (Highest High, Lowest Low of x periods).

This is true... however, by co-incidence the slope of an SMA of x periods is exactly the same as the Momentum Index of x periods; the only difference is a scaling factor.

The DI+ & DI-, which are the backbone of ADX uses MAs. The ADX itself is an MA of the difference between DI+/-.

RSI is the ratio of an MA of price momentum (current price minus previous price) divided by the MA of the absolute value of price momentum.

Yep.

No. Raw stochastic is %K and there is NO MA in the calculation. You then take an MA of %K to smooth it. There is NO MA OF PRICE.


Wrong again. See attached chart with 50 SMA and 50 period momentum. There are lots of places where the MA slope continues positive while the momentum index goes lower, and vice versa. I don't understand why people make statements like this when it takes no more than 20 seconds to throw up a chart like this, look at it and go hmmm....


You are speaking not of DI+ and DI-, but of +DIn and -DIn. This calculation is the fourth step of reaching ADX, and by then you are far removed from price. There is no MA of price, only of prior calcuations for smoothing. The prior calcs use the part of today's range that is outside yesterday's range, and the true range.


Not according to the inventor of the indicator. It is the average of the total of the UP price deltas divided by the average of the DOWN price deltas over the time period, then scaled. Not anywhere close to a price MA.

I don't know if I have anything of major value to add to this thread, but it strikes a chord with me. I've been going through my own personal struggle (as I'm sure many of you have or are currently doing) to figure out how to be a currency trader. As you might expect, my initial efforts have been very negative, so take anything I say with a huge grain of salt.

First, I think that indicators can serve to provide objective references where they might otherwise be difficult to find. A plain price chart is built from nothing but objective data, but determining the important points/areas/levels on that chart is often completely subjective. Indicators can provide an objective decision point. For example, an MA cross is (usually) a pretty clear occurence. It either shows up or it doesn't. I'm not claiming that any particular MA cross is important - but at least you can use those objective crosses as a catalyst to further scrutinize market activity.

Second, markets are a reflection of mass/group psychology. Therefore, it is possible for an indicator to be useful or important merely because many other traders believe that it is important. I haven't been doing forex for long enough to identify the proper indicators in this market, but I can tell you with confidence that the 200 MA in the stock market is significant. It's not significant because of any particular magic surrounding that imaginary line on a stock chart. It's significant because so many stock traders - everyone from day traders to fund managers - have come to see it as a concrete example of a stock's strength/weakness and when a stock crosses its 200 MA, it behooves you to take notice, regardless of what you may think about MAs in general. If every trader has Indicator X up on his monitor, that fact alone makes Indicator X significant. Again, I'm not quite certain what indicators would fall under this category for forex, but I'm sure they exist to some extent.

Third, as has already been pointed out in this thread, I'm not sure that anyone truly trades "naked". A seasoned pro who spends all day staring at nothing but price charts is probably still applying technical indicators in his head. Certainly, he is not bothering to mentally draw an indicator on the screen, but his years of experience are providing the filtering/smoothing/highlighting effect that many noobs (myself included) seek from an indicator.

Fourth, indicators don't need to be evaluated merely for the ability (or lack thereof) to completely automate trading decisions. Anything that provides a different look on the market can be valuable in the right hands. I don't personally believe they are helpful as sole arbiters of trading decisions, but I believe they can be extremely useful in determining the exact timing of trading decisions you've already made. Fundamental traders may decide that a country's economics dictate going long on that country's currency, but exactly when they decide to go long can be the determining factor as to whether or not the trade is successful.

Smart guy, that bytebodger....

I think he's pretty much painted the picture.

I think you just added to it and in a nutshell, "Drawing" trendlines is not much more than a waste of time and graphics for me.

If you can't see them without actually drawing them, stay with the Micros.

{too much noise from the newbs to do otherwise}

The problem with indicators is that one kind of indicator cannot react/predict to all the kind of states the markets may be in. Sometimes you can see the market move in very nice sinusoidal curves and then you can apply an EMA/SMA crossing that delivers hundreds if not thousands of pips in a couple of days on one currency pair. Then the next days the beautiful sinusoids are gone and the MA crosses become worthless.

I think the art of trading lies a lot in recognising the state or sentiment the market is in, and then apply the adequate indicators to it. Relying on just one indicator will not work, I think.