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Technical Analysis Fallacy

  • #181
  • Dec 3, 2007 11:02am Dec 3, 2007 11:02am
Quoting fti
As a wrongly timed entrance , just signifys your lack of the ability to pulse the market.
The right protocol, I repeat, would be to either withdraw from the position
with minimal damage.(damage control if you please).
or to commit into the position, as a rescue process and a re-averaging process
for position retreval.
There is no other avenues other than these two options.

If positioning was bad, and the trader reverts back to analysis,
then the whole process collapses into hope.
And a host of subjectivity and egoistical processes begins.
Which will paralyse the traders determination and create illusional thinking.

I hope I articulated clearly.

regards
fti,

You articulated it quite clearly.

So, when opening a position, you never commit your total position? If your timing is off, then you need to be able to commit more capital to re-average it out and wait for your anticipated move. I assume your money management plan will only allow so much of a loss to accumulate, or am I wrong? I also assume that there is a predefined amount of loss?
If I'm correct in my assumptions, what percentage of the total available capital is used in initiating the position? How is the rest added?


For traders like us, we tend to have fairly straightforward and rigid money management systems. From everything I've read to date by you, an institution has more resources and methods available to them in order to ride out an ill-timed position. Are your risk parameters set in stone, or are they flexible? Do you use thresholds with your risk? I got the sense from your posts that there is a type of flexibility that most of us aren't using. Whether or not we could is another question.

I understand if you don't want to get into such specifics as my questions point towards. I just thought I'd ask.
  • #182
  • Edited 12:51pm Dec 3, 2007 12:41pm | Edited 12:51pm
Hi fti and All,
great thought provoking thread!

Is TA a fallacy? I think yes in the terms that you can never predict what the market will do, that indeed is impossible.

Can you 'read' the market to base your trading decisions on though (i.e. the dance)? Yes, but while nothing is certain there is still a reason for how the market is moving and price action if read correctly can give you clues to the markets' sentiment - but again, nothing is certain!

I thought about the old man story but couldn't get it to one word, hope definitely sums it up. Others, some already mentioned were trust, faith and rigid - as in trust/have faith in your decision, stay rigid to your decision - but we are leaving ourselves open to bad trades that can go against us if we are too trusting or rigid.

For the scorpion and turtle my one word is 'hesitation' or 'indecision', both the turtle and the scorpion changed their minds either half way across or at the beginning of the river crossing, neither stood fast to their original decisions and made poor choices at the wrong time.

Both stories as I have interpreted them though contradict each other but we still need to be prepared and able to handle what is coming up as it unfolds and not what has happened, if we can't do that we are at the markets mercy indeed.

Thanks again for your efforts fti, they are much appreciated.
regards,
Mick.
  • #183
  • Edited 2:31pm Dec 3, 2007 12:59pm | Edited 2:31pm
The fallacy is anyone believing that TA is infallible. Last time I checked FA / fundamental trading and news trading fall into this same category.

The other real fallacy is that "one way is better than the other".
  • #184
  • Dec 3, 2007 2:01pm Dec 3, 2007 2:01pm
Hi ALL,
@ Dopey,

You ask the hardest question to answer,and thats because you are putting the cart before the horse.
I say that because you are asking for parameters.
It is the subjective ness that I am grapling with.
Let me explain it this way.

Now I have been trading on the side for myself, not in the forex, but the nikkei225 and taiwan indexes.
By virtue that I do forex for the bank, it was a conflict of interest to deal forex,
but not equity, as thats out of scope for banks.

I manage positions by using the delta hedge technique.
  • #185
  • Dec 3, 2007 2:02pm Dec 3, 2007 2:02pm
We'll start with the bank.
We have large corp customers who need hedges for their FX risk on annual earnings,
so as a service we write them OTC currency options and other synthetics.
These positions have delta reads, which tells us what our exposure is.
As markets move the deltas changes.

So basically we receive premiums, for the undertaking. We collect theta and Vols moneys.
Now that gives us foreign capital to risk in the markets.
Remember, I said as the market move my delta changes.
So as the customers come closer in or out of the money,
I have to adjust the hedge of the exposures.
Sometimes when the market trend run, I could just as well expose the delta to full hedge.
or non at all if they are getting too far out of the money.
Of course other than that profits , I have spot exposures profits as well.

... more
  • #186
  • Dec 3, 2007 2:02pm Dec 3, 2007 2:02pm
For my personal portfolio,it was very much smaller than the banks books, nevertheless,
it operates on the same MO but in the futures market,
only that my hedge bros becomes very expensive, even though I used to be a non clearing seat owner.
Now they converted to exchange shares, and thats another story.

One of the reasons I am here is to find out, if there ia an option FX retail market,
and how the vol are skews.
I would be much obliged is there are traders here who would help me out with some info.


...more
  • #187
  • Dec 3, 2007 2:04pm Dec 3, 2007 2:04pm
Now your million $ question, what parameters should a traders trading retail spot positions use.
Frankly, I cannot ascertain for sure as I have not participated in the retail game yet.
In interbank spot there is no leverage .So the value at risk is, close to volitility figures.
On the average it is in the high teens.
Depending on the the ratio of leverage you use, it doubles every 1X leverage.
Having said that, I have done one experiment, I doubled my demo deposit in 3 weeks.
but of course the if I didn't manage the position prudently I could be wiped out in the same tenure.
So all I can tell you at the moment is that it is stillnot conclusive yet,
this is because I have to deal with two varables, one optimum leverage and at different volitility of markets.

... more
  • #188
  • Dec 3, 2007 2:05pm Dec 3, 2007 2:05pm
But of course you can take the military offensive attack ratio of 1:3 for every shift of short chart tenure,
but the snowballing gets to become very large to stomach.
Imagine after 5 steps.But of course you may even consider martingale or fibonacci progression of increasing your exposure,
and even these are not small potatoes, relative to your margining.
The snowballing of the value at risk is not easy to manage because of the leverage.
I am at moment experimenting , no leverage game, to consider its viability.

Generally if you used less than 3 step for remodest recovery of bad entries on the short time frame, it can still be useful.
Then you also must consider the attack strategy to ride trend that are persistent.
and thats another calculus, you have to workout for yourself,
as doing defensive trading only , isn't worth the effort without a posibility of trend rides.
  • #189
  • Dec 3, 2007 2:06pm Dec 3, 2007 2:06pm
So in a nut shell it depends on the risk you are willing or is able to stomach.
A flat game probably is only good for entertainment value.
The parameter thresholds I had at the bank ,I think I have already given in this thread.

Basically the money managing is a abstract derivative from the SunZi bing fa.
If suits and time permits, we may visit it.

regards
  • #190
  • Dec 3, 2007 2:24pm Dec 3, 2007 2:24pm
Hi MickD,

Is TA a fallacy?
No not by itself and if you keep to the mainstream analysis.
but you can create the fallacy if you approach it wrongly.

The word
Technical = implys Charting
Analysis = imply the need to use brains to think and to reason.

If you use TA meaning line crosses, breakout trading , predictive analysis. black boxes, and ahost more ??????????????
Sorry, for calling a spade , a spade.

Think about it.
whether it is technical or otherwise , the fact that you have to think, deems it analysis.
A trend follower is called a trend rider.
What should we call line followers? surely not Technical ANALYST.
I guess for me thats "the Fallacy"

regards
  • #191
  • Dec 3, 2007 2:33pm Dec 3, 2007 2:33pm
Quoting fti

Think about it.
whether it is technical or otherwise , the fact that you have to think, deems it analysis.
A trend follower is called a trend rider.
What should we call line followers? surely not Technical ANALYST.
I guess for me thats "the Fallacy"

regards
well said as usual, point taken
  • #192
  • Dec 3, 2007 3:13pm Dec 3, 2007 3:13pm
What is a line follower?
  • #193
  • Dec 3, 2007 3:35pm Dec 3, 2007 3:35pm
Quoting SunTrader
What is a line follower?
I took it as 'price' follower, as in perhaps a line chart.
  • #194
  • Dec 3, 2007 3:45pm Dec 3, 2007 3:45pm
Quoting fti
Hi MickD,

Is TA a fallacy?
No not by itself and if you keep to the mainstream analysis.
but you can create the fallacy if you approach it wrongly.

The word
Technical = implys Charting
Analysis = imply the need to use brains to think and to reason.

If you use TA meaning line crosses, breakout trading , predictive analysis. black boxes, and ahost more ??????????????
Sorry, for calling a spade , a spade.

Think about it.
whether it is technical or otherwise , the fact that you have to think, deems it analysis.
A trend follower is called a trend rider.
What should we call line followers? surely not Technical ANALYST.
I guess for me thats "the Fallacy"

regards
So those that do not think are not technical analysts? I can understand that to the point that some just take for granted a system of sorts or the analysis of others (black box)... without really understanding it. However, I don't understand what's wrong with a line, be it a trendline or Support/Resistance within the designated timeframe and the weight it holds... but of course the marketmaker is in control, right?

Please explain. I'm sure this is leading to something. The naked chart?
  • #195
  • Dec 3, 2007 3:54pm Dec 3, 2007 3:54pm
My opinion is that he is referring to MA line crosses, etc. ... mainly the use of "indicators" to dictate your decisions to enter/exit trades.

Reading the price action would be "analysis."
  • #196
  • Edited 4:33pm Dec 3, 2007 4:19pm | Edited 4:33pm
Quoting leighsww
My opinion is that he is referring to MA line crosses, etc. ... mainly the use of "indicators" to dictate your decisions to enter/exit trades.

Reading the price action would be "analysis."
OK, my use of MAs is still under the "experimental" umbrella. I use support and resistance as my main strategy and that usually comprises of trendlines or horizontal S/R lines on the larger timeframes. I find them highly reliable though I do not claim to have the test of time that fti does. So I will give him the benefit of doubt.

I also follow price patterns as confirmation, be they the traditional H&S (reversal), consolidation, continuation or harmonic with some fib ratios. My charts are pretty naked when I look at them but I do dress them up when I post.
  • #197
  • Edited 4:37pm Dec 3, 2007 4:25pm | Edited 4:37pm
Quoting Zoran
My charts are pretty naked when I look at them but I do dress them up when I post.
LOL, don't like to be seen naked in public, eh? :

*edited - Yeah, getting completely naked takes getting used to, but I found it quite liberating once I got used to it, lol
  • #198
  • Dec 3, 2007 4:37pm Dec 3, 2007 4:37pm
My take on it is don't be 'rigid' in your trading, indicators and such can build hope and a rigid style of trading that you really want to believe in but they can actually help you to make poor decisions at times but you won't know until it's too late if you follow them blindly.

Like in battle, if you decide to go forward using what ever analysis you choose that's fine but be ready with a plan to go back/escape as well at a moments notice for self preservation as the battle field can change quite quickly. If you are winning you also need a good strategy to maximise your winning position.
Only when you win more battles convincingly and take your losses quickly to preserve you soldiers for other battles can you win the war.
  • #199
  • Edited 5:10pm Dec 3, 2007 4:58pm | Edited 5:10pm
Quoting leighsww
LOL, don't like to be seen naked in public, eh? :

*edited - Yeah, getting completely naked takes getting used to, but I found it quite liberating once I got used to it, lol
Though I look at nakedness, I dress it with my own eyes. Here is a dressed chart. What would you see? Out of all the calls I made, I managed to accurately call a 3000 pip drop and several (about 6) 1000+ pip moves within a few months. Also, I was slapped on the face once - so I assume women don't like it when I stare too long, but I deserved it! This is all based mainly on support and resistance (as I understand it).

Now I don't think fti sees what I see and that's why I am all ears. My self destruction can get in the way and fti has taught me a very valuable lesson. That's what happens when I take my eye off the ball. I have realised my weakness is accepting loss, so now I have some work to do! I have had one losing call... can you pick the point?
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  • #200
  • Edited 5:41pm Dec 3, 2007 5:26pm | Edited 5:41pm
Quoting Zoran
I managed to accurately call a 3000 pip drop and several (about 6) 1000+ pip moves within a few months.
Congratulations, Zoran! That's great!

LOL, I was going to say ...

"However, I do have a question ... from starting your use of that method, what was your total profitability after averaging your wins to losses? Could you say that you were consistent in your profitability?

For me it's all about consistency, because I've had some large wins, as well (not as large as 1000 pips, whoa, that's impressive), but I've also had many small losses that added up and together with my commission outlay, I couldn't say honestly that I was profitable, because in the end, my account is not utilizing house money, I'm still playing with my own money.

Anyway, if you can say that you're having consistent profits with your method, then I would have to say that your method surely works for you!

For me, looking at your chart, I'd get totally confused and distracted from reading the price action, lol"

However, you edited your post with this ...

Quoting Zoran
I have had one losing call... can you pick the point?
... so I guess having only ONE losing call, that puts your wins to losses at a very good ratio (unless that loss caused you to lose much of the other profits you had earned).

Well, if it keeps up that way for you, I guess what can anybody say to that. Again, for me, it's all about consistent profitability, so if you're achieving that, all the power to you!
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