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Technical Analysis Fallacy

  • #101
  • Nov 30, 2007 2:40am Nov 30, 2007 2:40am
...and the other thing I wanted to dissect is this whole concept of timeframes.

Here's my take on it, please feel free to shoot my logic to pieces:

1. There's no such 'thing' as a four-hour candle. the market doesn't halt, make a note and then restart every four hours. Likewise one hour or 15min candles.

2. The OHLC of a '4hr candle' on my EST broker platform is totally different to the OHLC of a '4hr candle' on someone else's GMT broker platform, which generates different candlestick formations one broker to the next. A strong reversal on one is an indecisive reversal on another.

If what we're trying to determine is market sentiment and subsequent price action "in the moment", wouldn't it be better to watch a line chart? I have one up right now and the close values connected as a line seem to tell a much clearer story. They seem to respect logical levels much more closely (see attached) than do the porcupine quills of candle wicks. Opinions?

If we want to go totally naked and see the market as continuum, then aren't the candles themselves working against us by representing the flow as a broken, segmented series of (pseudo) 'events'? I don't want get all esoteric, but the question keeps poking me in the forehead.

I have a trading buddy out in Dallas (I'm a Brit in LA) and he uses a GMT-based broker. Mine's on EST. It's nearly impossible for us to discuss specific market/candle structures 'cos he's seeing something completely different to me on a candle-by-candle play out.

If there's an impulsive move followed by a retracement and a continuation, that is a continuum that is most clearly depicted on a 5min chart. It's summarised on a 4hr chart. But re-revealed by looking at a '4hr' line chart.

Just need to talk about this with anyone who'll humor me...
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  • #102
  • Nov 30, 2007 2:51am Nov 30, 2007 2:51am
Quoting fiveshorts
...and the other thing I wanted to dissect is this whole concept of timeframes.

Here's my take on it, please feel free to shoot my logic to pieces:

1. There's no such 'thing' as a four-hour candle. the market doesn't halt, make a note and then restart every four hours. Likewise one hour or 15min candles.

2. The OHLC of a '4hr candle' on my EST broker platform is totally different to the OHLC of a '4hr candle' on someone else's GMT broker platform, which generates different candlestick formations one broker to the next. A strong reversal on one is an indecisive reversal on another.

If what we're trying to determine is market sentiment and subsequent price action "in the moment", wouldn't it be better to watch a line chart? I have one up right now and the close values connected as a line seem to tell a much clearer story. They seem to respect logical levels much more closely (see attached) than do the porcupine quills of candle wicks. Opinions?

If we want to go totally naked and see the market as continuum, then aren't the candles themselves working against us by representing the flow as a broken, segmented series of (pseudo) 'events'? I don't want get all esoteric, but the question keeps poking me in the forehead.

I have a trading buddy out in Dallas (I'm a Brit in LA) and he uses a GMT-based broker. Mine's on EST. It's nearly impossible for us to discuss specific market/candle structures 'cos he's seeing something completely different to me on a candle-by-candle play out.

If there's an impulsive move followed by a retracement and a continuation, that is a continuum that is most clearly depicted on a 5min chart. It's summarised on a 4hr chart. But re-revealed by looking at a '4hr' line chart.

Just need to talk about this with anyone who'll humor me...
I started using a line chart when I started scalping and I noticed the same thing as you. It feels like candles are hiding what's really going on, IMO.

However, I still think you can trade with them...it would just be nice for everyone to be one the same time, so there is no difference in formations like you mention.

With Oanda, everything is in your local time(for the browser version) so you could literally take a vacation and when you get there, all the candles are different LOL.

I think GMT is a good standard, but unfortunately not all platforms follow it.

Thanks for the post,
Nathan
  • #103
  • Nov 30, 2007 5:36am Nov 30, 2007 5:36am
The nature of the market is random - never be too trusting - never assume too much - babysitting your trade is good - that's my take.

fti,
I meant to comment on your use of music - I like it - need to bring out my Enya cds.

Thanks again for your contribution....and thanks to everyone else for your input also
  • #104
  • Nov 30, 2007 7:18am Nov 30, 2007 7:18am
Quoting fti
PS:Lets see if we can get the juices flowing,
No, up there.
For all you Analyst.
In one word, can you summarise the story in the context of trading?

regards
Here is my answer, though I could come up with a few.

Turtle - don't put yourself at risk if you are not comfortable with something. Understand the risk of your trades and do not commit to something that can wipe you out.

Scorpion - Understand your own nature before entering a dangerous situation. Forex can be damaging to the careless. Look for a route that will get you to your destination safely - even if it takes longer (i.e. put in the effort). Start trading small and build it up.
  • #105
  • Nov 30, 2007 7:43am Nov 30, 2007 7:43am
Quoting fti
Charting may be a definative method to sieve thru the actual market moving fundamentals.
Nevertheless it has its short comings that, it is still a lagger.
Understand that the charts are historical footprints of the market,
therefore they can hardly be predictive, without imposing on it assumptions.
AND i am one who is strongly against, imposing assumptions on my charts,
for me thats THE FALLACY, i mentioned in the title of this thread.
I don't really understand your point here. Can you please elaborate?

I see it as nothing but predictive and sure, there are many assumptions. How do you trade without assumptions? It is based on probability and previous action. We have support and resistance, trends and patterns that continue to repeat. So the predictive nature is to assume that will continue. Trades are based on what is seen and the most probable outcome. We don't always get it right, but that's where money management comes in. I don't necessarily see it as lagging either.

Also, those that claim technical analysis is voodoo or that the market is random, please justify your claims. As a technical analyst, I don't tend to bother with too many fundamentals as they will and do appear in the charts. I normally trade larger timeframes so news spikes are generally within an acceptable range and the trend generally continues. Why do we have trends if the market is so random? Why will a support or resistance level hold for decades?
  • #106
  • Nov 30, 2007 7:44am Nov 30, 2007 7:44am
Fti and others,


Originally Posted by fti http://www.forexfactory.com/images/buttons/viewpost.gif
PS:Lets see if we can get the juices flowing,
No, up there.
For all you Analyst.
In one word, can you summarise the story in the context of trading?

regards

Here is my intrepretation........

Don't be a turtle
Don't be a scorpion

Instead be A RIVER...go with the flow

Unus pro omnibus, omnes pro uno
  • #107
  • Nov 30, 2007 8:31am Nov 30, 2007 8:31am
Quoting leighsww
Hmmmm, this is the reason I hope Money Management isn't too far away in the future, because I worry about David's overnight trades.
Hey leigh, how are you? I thought I'd wonder around and have a chat to others on this thread. You seem to be quite sociable. Is it true that you are two years older than fti? Also, it seems that you have known him for a while and that he has taught you some important skills. I can understand your eagerness to get to MM but it will come. Foundations are important.

I received my "Paper Money" book today and it is new (in that it has not been read) but still 25 years old so there is a bit of an old bookshop smell to it. Have you read it?

Oh, and are you from the Australasian region also?

Bye
  • #108
  • Nov 30, 2007 10:05am Nov 30, 2007 10:05am
Quoting fti
A Lesson about Human Nature.
The Turtle and the Scorpion.
------------------------------------------------------------
PS:Lets see if we can get the juices flowing,
No, up there.
For all you Analyst.
In one word, can you summarise the story in the context of trading?
regards
“Overcoming”

If seen as a lesson in human nature, and taken in the context of trading, I would see it as a metaphor about overcoming our natural tendencies.

The turtle was too trusting and easily swayed. In the end his trade left him without an exit strategy in case things turned against him.

The scorpion, on the other hand, gave up on his trading plan when things got choppy. His emotions and instincts took over and he needlessly killed a viable trade.

P.S. – Thank you for sharing your wealth of experience with us, fti, and for stimulating our thought processes. I look forward to more of your insights in the near future!
  • #109
  • Nov 30, 2007 10:30am Nov 30, 2007 10:30am
Hi FTI,

The story is known to me with a frog and a scorpion - and I agree with Pips Cruiser on the interpretation.

The difficulty (and sometimes impossibility) to supress what is ones nature.

regards
daytrading
Enter Signature
  • #110
  • Edited 11:16am Nov 30, 2007 11:05am | Edited 11:16am
Is ...(drum roll please)....SUCKER!

The turtle got "suckered" into the price created by the dealer. Dealers "rally" prices in order to sucker turtles in. Once the dealer has everyone "suckered" He then drops the price hard and fast, and he laughs and says...suckers! Then the scorpions wait for the next bunch of turtles at the river bank...they keep comin non-stop.

This is only a small part of what the dealers do as a group to all the "investors" out there looking to take THEIR money. The dealers have too
much information at their disposal to ever lose at this game over time.

How many traders were buying G/J at 210.00 when the dealers were forced to buy and who do you think they'll dump all of those contracts on at the swing highs at the end of a long trend (for tax purposes).

The dealers work the price between the riverbanks (wholesale and retail).

Its my story and I'm stickin to it lol
  • #111
  • Nov 30, 2007 11:25am Nov 30, 2007 11:25am
Quoting FXNorm
Its my story and I'm stickin to it lol
Interesting story, but remember the scorpion dies also and I don't think a dealer will commit suicide.
  • #112
  • Nov 30, 2007 11:36am Nov 30, 2007 11:36am
Ahhhhh but the scorpion doesn't sting the turtle until he's close to the other riverbank (RETAIL PRICES). Once the scorpion has the turtle at the rally highs (other riverbank) thats where the "sting" takes place. Dealers drop prices hard and fast...look at your charts, you'll see it time and time again. Imagine whats happening to all those trusting turtles.
  • #113
  • Nov 30, 2007 11:36am Nov 30, 2007 11:36am
Quoting Zoran
Interesting story, but remember the scorpion dies also and I don't think a dealer will commit suicide.
Absolutely agree. I'm holding with my interpretation back in my last post: The scorpion and the turtle = don't trust the market or rely on its "promises" (indicators make promises). Don't rely on your (or anyone else's) predictions or promises about how the market will behave.
  • #114
  • Nov 30, 2007 11:51am Nov 30, 2007 11:51am
Quoting FXNorm
Ahhhhh but the scorpion doesn't sting the turtle until he's close to the other riverbank (RETAIL PRICES). Once the scorpion has the turtle at the rally highs (other riverbank) thats where the "sting" takes place. Dealers drop prices hard and fast...look at your charts, you'll see it time and time again. Imagine whats happening to all those trusting turtles.
As you can see, the turtle was stung in the middle of the river. But there is no one right answer anyway...

"While half way across the river, as the waters became choppy.
and the ride became rough, the scorpion stung the turtle.
And as the turtle was drowning, he asked the scorpion why he did it.
Now they will both drown."
  • #115
  • Nov 30, 2007 12:34pm Nov 30, 2007 12:34pm
You cannot change the nature of anything. The chart is what the chart is. Price action is what the price action is. No indicators will change what the price action will do. The scorpion had no choice. The turtle did have a choice and chose to exercise compassion. The scorpion is the market. Assume nothing. Protect yourself from the scorpion's sting.

You cannot prevent the birds of sorrow from flying over your head, but you can prevent them from building nests in your hair.
  • #116
  • Nov 30, 2007 12:46pm Nov 30, 2007 12:46pm
Quoting fiveshorts
(where leighsww first introduced the idea of nakedness to our previously fully-clothed forum lives and spiced the experience up a bit...)
LOL, I didn't introduce it ... all I did was plead for people to join me in my nakedness. But, thanks for saying that I spiced the experience up (I think) :.

Quoting fiveshorts
I want to ask Leigh how her bottom line is looking (no joke there btw) since making the switch to price action trading.
Unfortunately, I haven't had too many buses to catch using feb's V-Formation method and longer-term trading with everything ranging or going against the main trend, but the bus I did catch I made some pips successfully (+49 and +77 pips). I am liking naked charts and only reading price action, as it is less distracting for me

Quoting fiveshorts
But I don't want someone to tell me when to trade — I've been there, done that — I want to learn how to really do it for myself.
Yes, I agree, this is important ... to learn how to trade ourselves.

Quoting fiveshorts
And this whole 'no stop loss' thang is just throwing me right off...
LOL, yes that is hard to get used to. I can see fti's point though about stop sweep hunters. Even in Rusty_forexman's thread, he talks about that (which I just read a couple days ago) ...

Quoting Rusty_forexman
To the idea of chasing stops - Yes, this did occur, quite often. During news times mostly. We would see where stops were with our clients, we also had a good idea where market depth was, and we would send through volumes of trades to take them out, in order to make money for the bank ...

... If you are a good trader - and know the ins and outs of the market (not placing in house stop losses. etc), you will not need to worry, cause you can play the game - then your sweet!
... He worked for an investment bank, so there's another testimonial from a reliable source that stop sweeping/hunting is not just speculation.

However, we all need to monitor our babies in order to trade without stop loss positions. fti will go into more of that later.

Quoting fiveshorts
...and the other thing I wanted to dissect is this whole concept of timeframes...
You make a very good and interesting point about that. There could be much good discussion on your post's content. I'm going to want to digest that one for a bit.

Quoting Zoran
Hey leigh, how are you? I thought I'd wonder around and have a chat to others on this thread. You seem to be quite sociable. Is it true that you are two years older than fti? Also, it seems that you have known him for a while and that he has taught you some important skills. I can understand your eagerness to get to MM but it will come. Foundations are important.

I received my "Paper Money" book today and it is new (in that it has not been read) but still 25 years old so there is a bit of an old bookshop smell to it. Have you read it?

Oh, and are you from the Australasian region also?
Hey Zoran!

Yes, I am 2 years older than him, lol. I have only known him for a couple weeks. He posted on a thread where fiveshorts mentioned we were trading naked, lol, and subsequently fti was banned from FF. I personally felt that people misjudged him, but anyway, since then he has been kind enough to share and help me understand his concepts and methodology. I am still far from knowing completely and totally what it's about, lol, but I've been understanding more and more, especially through this thread, as we discuss such things.

Yes, I totally agree with you ... MM will come and foundations are important. I just mainly wanted David to know that unless he knows the MM that fti uses, he needs to be careful about his overnight trades.

No, I have not read that book yet.

I'm located in Hawaii, thus I'm 5 - 6 hours from NY, so I'm normally either in the Japan or U.K. sessions.

Cheers!

----------

LOL, most everyone is using more than ONE word for that turtle/scorpion story summation :. Although some pretty good interpretations, I might add
  • #117
  • Nov 30, 2007 1:05pm Nov 30, 2007 1:05pm
Quoting fiveshorts
You cannot change the nature of anything. The chart is what the chart is. Price action is what the price action is. No indicators will change what the price action will do. The scorpion had no choice. The turtle did have a choice and chose to exercise compassion. The scorpion is the market. Assume nothing. Protect yourself from the scorpion's sting.

You cannot prevent the birds of sorrow from flying over your head, but you can prevent them from building nests in your hair.
Would your single word to describe it be "nature"? I can definitely see a lesson for traders about "nature" in the story. Both in the nature of the market (scorpion), and in the nature of humans (scorpion and turtle).

Other ways of looking at the story and creating a lesson for traders from it, might involve "trust", or even "selfdestruction". Lots of room for thought there, unfortunately.

  • #118
  • Nov 30, 2007 1:11pm Nov 30, 2007 1:11pm
Quoting Pips_Cruiser
or even "selfdestruction".
LOL, that's funny that you just posted that, because I just emailed fti that word as what I thought might also be it, haha.

I didn't want to post it, cuz I already had my one word shot, but since you did, I thought it was interesting we had thought of that same word
  • #119
  • Nov 30, 2007 1:45pm Nov 30, 2007 1:45pm
Quoting fiveshorts
You cannot change the nature of anything. The chart is what the chart is. Price action is what the price action is. No indicators will change what the price action will do. The scorpion had no choice. The turtle did have a choice and chose to exercise compassion. The scorpion is the market. Assume nothing. Protect yourself from the scorpion's sting.

You cannot prevent the birds of sorrow from flying over your head, but you can prevent them from building nests in your hair.

fti will be pleased that we are talking amongst ourselves.

I think it is difficult to change the nature of something but I see it more as knowing the nature and then working with it. I would say the scorpion's intention was not to sting the turtle but it didn't realise it couldn't control its nature.

The market makes no promises and neither do indicators. We can never be certain where it will go next but through understanding it, we can have a reasonably informed idea.
  • #120
  • Nov 30, 2007 1:52pm Nov 30, 2007 1:52pm
fti,

I really like what you wrote in beginning of your thread so i decided to read all the pages. good one and waiting for more from you.

regards,

korn_trader

p/s: psst..did you bring along a cheerleader?
........... have nothing to say..........
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