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Technical Analysis Fallacy

Quoting leighsww
I do note now, however, that you are not trading exactly as fti and that you are only using what you feel can be applied to your own style.
To be truthful, when I have traded, it has only been fti's method. But I have been extremely busy with family life and work for the last two or three months so what little time I have, I dedicate to this thread, but that means I don't have that much time to trade, so I generally don't.

As I can see that things may be easing up, I am going to start trading more regularly again so I am starting to consider how to use fti's approach although he has been vague and I still have a question mark over my head. Therefore I am attempting to get a better understanding from him.

His MM (in principle) is not new to me. When I first started trading, the thread I followed used averaging as standard and it was encouraged by those that followed it. What I would like to know, however, is what technique he uses to enter, exit, determine rescue and attack. Where to add and to take - effective how he dances. I can relate that to price patterns and my general experience but I would like to hear what he uses or what technical aspects he finds valuable. This is the missing piece for me (otherwise I think I have a good grasp of the rest).

Perhaps I need to wait for the three kingdoms and other things to come? More live dancing and practice?
Quoting MickD
When I saw .5 lot (assuming a std lot) I thought it was a bit big too. The way I've been using the demo account was to divide it by 100 (even 1000 for 100k) so I had 100 troops. With 2500 this would give me a scout of $25. Yes the amounts are small but it's all about the %ages and getting used to the dance for now.

In regards to demo account I totally agree, it's been more of a 'getting around to it' thing than anything else for me, it's a busy time of year.
As you pointed out, it is too easy to get lazy, Once this happens you get out of step very easily!
To put it simply, lets say you have $2500 in your account. 0.5 lots is $5 per pip. fti recommends risking no more than 10% for beginners or 30% for experienced traders (I think both are high).

At $5 per pip, 10% is $250 meaning you have 50 pips to play with. Not a lot really if in rescue mode. I'd suggest, for a scout, nothing larger than a mini-lot at that level. $1 per pip gives you 250 pips of maneuver and I would stick to the less volatile pairs (such as EUR/USD). GBP/JPY will swallow that for breakfast.

But, I would still recommend starting with the micro-lot.
Quoting Zoran
To put it simply, lets say you have $2500 in your account. 0.5 lots is $5 per pip. fti recommends risking no more than 10% for beginners or 30% for experienced traders (I think both are high).

At $5 per pip, 10% is $250 meaning you have 50 pips to play with. Not a lot really if in rescue mode. I'd suggest, for a scout, nothing larger than a mini-lot at that level. $1 per pip gives you 250 pips of maneuver and I would stick to the less volatile pairs (such as EUR/USD). GBP/JPY will swallow that for breakfast.

But, I would still recommend starting with the micro-lot.
Thanks Zoran
Quoting Zoran
0.5 lot size is very large to start with in my opinion. For someone going live for the first time, that $2,500 will probably get chewed up fairly quickly.
Quoting MickD
With 2500 this would give me a scout of $25.
ACK, my scout at .5 lot was only 50 cents per pip. Now I am trading 1 lot for scout so that's approx. $1.00 per pip (well, about .94 cents, since the EUR/JPY isn't exactly $1.00 per pip).

LOL, I just realized that my .5 lot might not be the same as your .5 lot, lol. With my broker .5 lot = $5,000 (I'm using 100:1 leverage). I started out my account with $5,000. Before using fti's method, my commissions alone ate up over half of my account, lol. That was mostly due to too many stop losses being taken out before the PA went my way to hit my take profit target. Because of using stop losses, I had to enter many, many more trades than I should have been (overtrading).

I never used to quantify just how much the commission was taking out until I went longer term (previous to meeting fti). When I finally did all the calculations on that, I was flabbergasted with how much I was spending on commissions. That was far too high a commission ratio. That's why now I calculate how much commission my trades are costing me, and if I can keep it to 5% (or under) or at the max 10% of my profits, I'm happy with that.

As far as what my account is now, lol, well I haven't yet blown my account after a year of trading, but hopefully from here on, using fti's method, I'll be steadily increasing it back up and especially to where I can start using house money to trade with. This reaveraging is really where you truly can have "no loss" trades if implemented well.

When my hubby saw what I had done a few days ago, he said ... "hey, you doubled your account" and then he got out the calculator and started to do the compounding to see what it would take to reach $1,000,000, lol (I thought that was pretty cute, hehe). Anyway, he was very excited for me that I did so well in just a few days of trading and especially because he could see the brilliance of reaveraging. However, the doubling of the account was not anything huge, cuz I'm still only working with a 4 digit account, lol, but he was proud of me nonetheless.

For me, I don't base my positions on a percentage of my account. LOL, I know some of you will gasp at that. This is my mindset ... I put into my account what I could afford to lose, it was money that I wouldn't lose sleep over should I suck at trading and blow the account, lol. It's the same mindset people need to have when going to gamble at the casinos. If you gamble and get upset and all stressed out when you lose what you came with, then you shouldn't be gambling what you couldn't afford to lose. Trading is the exact same to me. Especially, when one first starts out, what you put into your trading account should be $$ that you won't hurt over if you lose it.

I'm not saying this is the right way to do things, but it's the way I am choosing to do it, thus I don't really calculate how much percent of my account I use for scout, etc. BUT, I do base what I enter on how much I can spare for rescue and attack troops to not get me in a stressful situation. I watch my margin amount to judge how much I can risk per trade. Thus, I only trade ONE currency pair and dance to only ONE dance at a time (I don't babysit more than one baby!).

Also, I lock-in profit (lighten the load) every-so-often during a run, if I get the "feeling" by the PA that a small pullback may occur, so that's all part of my MM, too.

Anyway, I'll discuss more about this in a later post, but I figured I'd better clear that up about how much is the .5 lot that I am referring to, lol.
Quoting leighsww
With my broker .5 lot = $5,000 (I'm using 100:1 leverage).
Ahh, that's where the confusion lies. You were referring to mini-lots = $10,000. A lot is 10 times larger ($100,000) and a micro-lot 10 times smaller ($1000).

Starting with 5 micro-lots is quite reasonable.
hey leighsww,

thanks for your reply to my PM.....much appreciated

I probably don't trade like fti but I have really learned a lot from fti in regards to trading by not letting positions go as a "loss" any more without a good hard fought battle, and preparing my battle plans (including contingencies) before entering any position.

I can only dance from Frankfurt open to a little more than halfway through the London session and I basically trade GBP/USD and yen pairs off of the 1H zoomed out to the 15/5M charts using Skunny style trading so in my rescue missions I will sometimes (but not always) play the other way till my rescue mission area comes back down from the 138 or 162 fib area before enacting it in full force. For me......the combination of using Skunny style fibs, fti MO, and proper MM have made a HUGE!!!!!!!!!!! difference in my trading success.

Glad to see you back on the thread providing simpletons like me with your simple and easy interpretation of fti's teachings.
trading naked.......
Just finished reading this thread from start to end.

These are my observations -

Firstly the title is misleading in that it needs more defining. For instance are "all" technical analysis techniques a fallacy or only "some" techniques. There are very reliable TA techniques which give high % wins and there are low reliability techniques - this does not mean TA overall is a fallacy. It means there is no holy grail - nothing works 100% but if something gives you 60-80% wins and you learn to manage the other 40-20% losers then you are on the road to a job which is extremely fulfilling and enjoyable and gives you freedom.

So no matter what system or technique one uses to trade, the most important factors are in fti's original comments -

Quoting fti
I suggest three very important ingredients. One is " Market Structure ", the other is "YOU", then Capitalisation.
These 3 points are the holy grail so dont look any further master these 3 points. It will take time but in the end it will be worth the effort. I dont know anyone who has passed these 3 stages without a mentor. Hopefully fti will guide you through this process, it will take time but just stay the course.

This is my take on these points.

1. Market structure is any system you use that gets you into the market, from Dancing with the ladies to Ticker Tape reading to astrology. If as a trader you open a chart, then you are using technical analysis - full stop. Everyone needs a reason to enter a trade so chose one or more tools and learn them back to front. This is the easy part.

Quoting Zoran
What I would like to know, however, is what technique he uses to enter, exit, determine rescue and attack. Where to add and to take
From what I have seen so far, fti is a techincal analyst and he uses (maybe subconciously), his years of studying various TA techniques to form this so called gut feeling so that he can dance with the ladies. Even though he mixes some fundamental analysis, all of it is combined to get him into the market.


2. "You" point is to learn about your inner self for instance to control your emotions when trades are both good and bad. This is a long journey and only through time and practice will one learn his/her limits. Controlling your greed and fear is another holy grail. The cable and euro trades were a mess (imho) and too emotional, there was no need to stress in such a battle as the original idea of shorting was correct and averaging is fine as long as its controlled. With the proper trade management and money management your emotions are never a problem. Account size is very important. Over leveraging with small accounts is death to controlling emotions.

3. Capitalisation - This is the most important factor of fti's 3 "ingrediants". It is just pure suicide to think you can make it as a fx trader with $1000-$10,000 accounts. Think of it as a business and any business which is underfunded is doomed to fail. A trader has to be funded with at "least" $50k and trade with no more then 10:1 margin. When this is mastered then margin usage can go up. If you can leave a trade open overnight and sleep with your normal lot size open, you are trading at a safe margin level. Capitalisation will help keep your emotions under control. Combine all the above 3 points and you are on the road to a very enjoyable business.

Mentoring is a hard job
Keep up the good work fti !
Quoting MickD
Thanks Zoran
NP Mick, my attempt at reading your mind. Yes, you know what you are doing!
Quoting leighsww
Are you referring to you using short term rescue in longer term trades, or just in trading the short term in general? If the latter, hopefully as we do more sharing/discussing, rescuing trades will become much more comfortable for those who are uncomfy about doing them.
Hi leighsww,

I was referring to the short term in general. I use to call "short term" a trade that spans from a few days to a few weeks, as opposed to intraday trading.
On taking the wrong side in a short term trade, the rescue could easily extend to one or two weeks of painful and increasing drawdown, even if you are with the trend. There is much more pips margin for ups and downs. I have experienced this a lot . Recently, I changed to intraday, following FTI's teachings. Shorter drawdowns, quicker results, I believe I will hardly turn back to short term. Avoiding to go live in low volume markets (I am not doing very well in them) but furious markets have been rewarding.

Thank you for your reply on my mispelling. I will try to contact moderator. You may edit and improve my spreadsheet if you like. I think the calculations are correct.
Quoting Jairo
I use to call "short term" a trade that spans from a few days to a few weeks, as opposed to intraday trading.
LOL, I guess I'm not using the correct terminologies. I've been calling "short term" trading anything that's not held overnight, haha.

Okay, I guess I better refer to fti's method then as "intraday" from now on, so I don't further confuse people. Thanks for the correction
Quoting leighsww
LOL, I guess I'm not using the correct terminologies. I've been calling "short term" trading anything that's not held overnight, haha.

Okay, I guess I better refer to fti's method then as "intraday" from now on, so I don't further confuse people. Thanks for the correction
Hi leighsww,

No correction intended, lol. Maybe MY terminology is not the most adequate...
Okay, here's the various calculations that show 2 different scout sizes (.5 lot and 1 lot) and rescue troop sizes to obtain an X number of pips from break even. The reaveraged price is after the = sign.

RED = number of rescue troops
Numbers are rounded

If using .5 lot for scout and being 30 pips away ...

.5 @ 158.50 + 1 @ 158.80 = 158.70 (10 pips from break even)
.5 @ 158.50 + 1.5 @ 158.80 = 158.72 (8 pips)
.5 @ 158.50 + 2 @ 158.80 = 158.74 (6 pips)
.5 @ 158.50 + 2.5 @ 158.80 = 158.75 (5 pips)

If using .5 lot for scout and being 50 pips away ...

.5 @ 158.50 + 1 (rescue troop) @ 159.00 = 158.83 (17 pips)

17 pips away from break even is too far, in my opinion, to conduct safe and successful rescues, so I'd prefer to use one of the other below calculations to bring my basis to a more palatable range (either the 10 or 8 pips from break even calculations would be optimum).

.5 @ 158.50 + 1.5 @ 159.00 = 158.88 (12 pips)
.5 @ 158.50 + 2 @ 159.00 = 158.90 (10 pips)
.5 @ 158.50 + 2.5 @ 159.00 = 158.92 (8 pips)

--------------

If using 1 lot for scout and being 30 pips away ...

1 @ 158.50 + 2 @ 158.80 = 158.70 (10 pips)
1 @ 158.50 + 3 @ 158.80 = 158.72 (8 pips)
1 @ 158.50 + 4 @ 158.80 = 158.74 (6 pips)
1 @ 158.50 + 5 @ 158.80 = 158.75 (5 pips)

If using 1 lot for scout and being 50 pips away ...

1 @ 158.50 + 2 @ 159.00 = 158.83 (17 pips)
1 @ 158.50 + 3 @ 159.00 = 158.88 (12 pips)
1 @ 158.50 + 4 @ 159.00 = 158.90 (10 pips)
1 @ 158.50 + 5 @ 159.00 = 158.92 (8 pips)
1 @ 158.50 + 6 @ 159.00 = 158.93 (7 pips)

NOTE: There comes a point of what is called "diminishing returns" so keep that in mind when risking more troops to bring down the basis (ex: don't risk an extra trooper for only a 1 pip gain). If your currency pair makes a certain number of pip pullback moves easily, use the least amount of rescue troops to accomplish your mission (ex: for EUR/JPY, it makes 8 - 10 pip pullbacks easily in a short amount of time, so I would feel confident to use either the 10 or 8 pip range rescue calculations and not have to risk more than those amount of rescue troops).

Now, what if you've already put in a rescue and the market kept moving against you another 30 pips from the reaveraged price ...

1.5 (.5 scout + 1 rescue troop) @ 158.80 + 2 @ 159.10 = 158.97 (13 pips)
1.5 @ 158.80 + 2.5 @ 159.10 = 158.99 (11 pips)
1.5 @ 158.80 + 3 @ 159.10 = 159.00 (10 pips)
1.5 @ 158.80 + 4 @ 159.10 = 159.02 (8 pips)

3 (1 scout + 2 rescue troop) @ 158.80 + 2 @ 159.10 = 158.92 (18 pips)
3 @ 158.80 + 3 @ 159.10 = 158.95 (15 pips)
3 @ 158.80 + 4 @ 159.10 = 158.97 (13 pips)
3 @ 158.80 + 5 @ 159.10 = 158.99 (11 pips)
3 @ 158.80 + 6 @ 159.10 = 159.00 (10 pips)

... this is why you want to make sure that you try to get out your scout on the first rescue attempt if possible. Having to conduct multiple rescues costs a lot of troops!

Okay, I'll be back another time for a sample attack sequence.
hey everyone, i've been away for a couple of weeks so I haven't been partipating in the discussion as much, good to see you back leighsww.
I have a fair amount of questions to get myself back up to speed with you guys.

When in rescue mode and you successfully bring your unrealized balance back to break even, do you close your positions or do you stay in the position. If you close positions at that point it doesn't sound too profitable because the only scenerio of realizing profit is when your first scout (smallest position size) was successful. Now I understand you can add to this scout position by adding troups linearly (adding 1 scout at a time) when the first scout is successful. But if the scout is such a small position to start with how can many scouts return a substantial profit.
Hi all, fti thank you for sharing your wealth of experience, it has certainly prompted me to think outside the "square"...
Still i,m not prepared to throw out my technical analysis technique, which is based on Gartley formations and Fibonacci retracements/ extensions, and i'm generally happy with, (similar to the way Zoran used to trade), rather,
implement your way of trading to my current style, and i think i found a way..
I, like most of you, hate taking losses, it makes me feel inadequate and puts me on a negative spin....
I will not go into specifics as i think it's outside the scope of this thread, more something that suits me personaly...thank you again.
Biggest joker
leighsww,

Your example on your rescue skew is the same idea as what I use but my skew is slightly different and slightly more variably aggressive as I apply the fib sequence relative to the spiral displacement that is referenced closest to a PA reversal, as PA is the controlling factor. My second rescue, if needed, is head spinning aggressive, so good dancing is paramount.. You also used a fixed number of 30pips displacement, which I am guessing is just for the example. Please clarify if not. This is interesting to see how you have applied this rescue sequence with such great success.

Very interested in seeing your attack...Thanks for all your hard work when your personal life is so busy.

Cheers,
NP
Hi ALL
@ Leighsww,
thanks for your effort in showing all, the mathematics and skew characteruistices of showballing positions. You are mathematically correct. I am listening and will be providing you new perspectives as you progress.

@ ALL
Remember that what you are seeing is mathematics and skew characteristics at work. Its only part of the process, ie the rescue vectors. Please do not concluded that this is the holy grail to your riches. Like I said Its only a portion of the trade equation. Try and relate the given in trade scenerios and you will begin to appreciate its power, but do not neglect the pitfalls of the analysis as well. Think and rationalise its workings and discuss. I am watching.

regards
Hi ALL,

About an issue brought forward by some.
Time frame
-----------
intraday vs short term vs long term positions
In my mind there is no such things, if you refer my previous postings.
There is however only daylight and overnight (carry) positionings.

daylight is to mean that the position is actively managed. There is no distinction between that in relations to the sun or the moon, ie time of day.
A daylight trade could last for days, so long as you are actively dancing. It all depends on your stamina.

overnight is to mean for positions exposed when the trader is not actively managing. this positions can be for days weeks or months, where suits. These are really trend rides.

If you try to exercise rescues in overnight positions,
All I can say is GOOD LUCK.
You will need it very much, as you are not so different from gambling with calculated risk, nevertheless gambling. And normally, it would come with a pre-concieved view of where the markets are heading and what the longer trends should be.
If the short trend fails, then you are positioning for the long trend and should be right. If you are positioned against the long trend then actually you will tell yourself that you are are actually positioned for the even bigger picture. If all else fails , then the market is illogical and manipulated by the biggest boys.

A predictive stance of using ABC, XYZ indicators and divergence, convergence and crossings of lines and indicators.
All the mentioned lines and indicators would be of help to you in such an endeavor.
Further newer indicators , like hat and rabbits, my magic bullet, or when satan is crossing youranus, this and that , as well as whatever you might like to call it, can help you hold to your position exposure and composure. Also you may like to call it the Bigger Dance Steps, The Big Boys dance, Dancing with the big Bands or Sleep dancing to hold that it is in line with what fti taught.

In fact it is all self deception, but nevertheless, it is comfortable.
In all truthfulness all attempts to analyse have stopped except that it feels like "the dance". I mean, look, we have all ANALYSED and the market must come in our favour. Its just noise for now, so lets "BITE THE BULLET" like fti taught, and hang on for dear life, there's HOPE still, to come out shining.

Yes we like to trade short term positions, if thats not working , we can convert them to long term positions. and if thats no good still, we are actually positioned for the next millennium move. Look I've lots of $$. Anyways what goes up must come down and vice versa.

Then there comes along a nick's leeson and a kerveel and dang that fti, for teaching us how to average positions.
Actually the term is professionally known as "dollar cost averaging" and fund managers who are losing customers monies always uses this to rationalise their losses.

Isn't this what fti's teaching?

fti: HUH, really?? so rigid?? think and read carefully.

regards
Quoting leighsww

I was waiting to hear back from DutchAngel about whether her trade was done on longer term timeframe, because to be honest, when I saw her post on having to battle an 800 pip rescue for a week, I was very concerned. I'm sure she would not let herself get into that situation again in the future, however posts/shares of that nature and our discussions of it, helps others to learn and possibly (hopefully) prevents anybody else from doing the same.
Hi Leigh

Sorry took so long to answer, but try to keep discipline of working 9 to 5 even tho work from home (easier said than done). I was trading Gbp/jpy on the hourly chart. I was interday trading then and let profitable trades run for a few days at a time.

However, at the moment I am trading 5min tf and have traded intra day. I sleep a lot better knowing i will have no nasty surprises in the morning.
Hope isn't a viable investment vehicle.
Quoting Northpro
Your example on your rescue skew is the same idea as what I use but my skew is slightly different and slightly more variably aggressive as I apply the fib sequence relative to the spiral displacement that is referenced closest to a PA reversal, as PA is the controlling factor. My second rescue, if needed, is head spinning aggressive, so good dancing is paramount.. You also used a fixed number of 30pips displacement, which I am guessing is just for the example. Please clarify if not.
Northpro ... this is not a rescue "sequence". It's just a table of calculations for people to get an idea of how many troops are needed to rescue scout if they want to be "X" amount of pips away from break even.

I'm just giving examples of calculations that they need to make to figure out at what pip amount they can afford to be away from break even and depending on their account size, how many rescue troops they will have to expose in order to be those many "X" amount of pips away from break even.

Maybe I am misunderstanding what you mean regarding "sequence"?

The following would be a scenario rescue "sequence" for me - I'm going to use the .5 lot scout (instead of the 1 lot scout), for this example ...

If a .5 lot scout was entered at 158.50 and the market went against me, I would wait until I see a possible pullback. If that pullback was approx. 30 pips away (let's say at 158.80), then I might put in a 1 lot rescue troop to bring my basis to 158.70. That would then make my basis only 10 pip away from break even.

Should that first rescue attempt not make the break even point and instead keep heading in the wrong direction, then a 2nd rescue attempt may need to be implemented. If pullback was another 30 pips away (just for ease of calculations), then I'd enter 3 lots for the 2nd rescue to reaverage and bring my basis to 10 pips from break even.

At this point I would have 4.5 lots in the trade.

If I'm undercapitalized to not be able to enter any more rescue missions, I could do several things depending on what the PA is currently looking like ...

1) could exit ALL troops including scout the minute I get to break even + small profit (to include the spread and commission amount) should I want to just complete the rescue and start a new dance;

2) if there's a good feeling from the PA that the trade will resume in my direction ...

a) I may lessen the load at break even + small profit and leave some troops in to continue the trade, then enter attacks when the market continues in my direction.

b) leave them ALL in and go for a larger profit, then take profit (lessen load) when PA is pulling back, then enter attacks once PA resumes in my direction.

I don't preplan areas where rescues or attacks happen (I don't use fibs or any of that stuff), I strictly enter rescues and attacks when the PA shows signs of either pulling back or resuming in my direction after small pull backs.

I won't be able to setup an attack sequence tonight, but I'll try to do so as soon as I can get to it. I'll try to attach a chart so it's easier to follow along with.
Quoting fti
There is however only daylight and overnight (carry) positionings.

daylight is to mean that the position is actively managed. There is no distinction between that in relations to the sun or the moon, ie time of day.
A daylight trade could last for days, so long as you are actively dancing. It all depends on your stamina.

overnight is to mean for positions exposed when the trader is not actively managing. this positions can be for days weeks or months, where suits. These are really trend rides.
Oh, I like your definitions much better. Clear and simple, no discrepancies. I will refer to trading as "daylight" and "overnight" from now on (at least in your thread, since people here will know what we're talking about, lol)

Quoting DutchAngel
I was trading Gbp/jpy on the hourly chart. I was interday trading then and let profitable trades run for a few days at a time.

However, at the moment I am trading 5min tf and have traded intra day. I sleep a lot better knowing i will have no nasty surprises in the morning.
Ah, okay, thanks for clarifying (you had a tough fight, and boy did you have balls of steel, lol)
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