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The Ultimate Fallacy in Technical Analysis

  • #21
  • Feb 11, 2008 10:34pm Feb 11, 2008 10:34pm
Quoting fsiltd
*cough* Micro$oft Winblows *cough*


I couldn't resist, sorry!

to mess too deep will violate the copyright.... ( EULA ....as if )

sorry, i am lazy in some extend, if one thing is broken beyond my ability to repair, i'll phone a friend, before taking 50 : 50 chance touching anything, (asking the audience doesn't solve anything for most of the time)... just press reset button, reinstall or buy a new one

good luck in detailing
  • #22
  • Feb 12, 2008 2:51am Feb 12, 2008 2:51am
Quoting Leugimp
but how can you possibly contribute to the usefulness of something that you dont personnaly find any use in.
Why don't you read my thread and find out? The link is in the post that you replied to.

When I really understood them, that's when I quit using them.
  • #23
  • Feb 12, 2008 9:51am Feb 12, 2008 9:51am
I have been trading GBP/JPY the devil in person over almost a year now out of my 20 months in fx.

When I started fx, i used to think that indicators and stuff is everything and even took to fibonacci like all others on 5 minute charts and messed up big.

In this past 1 year I have worked pretty hard on writing my own version of th e fib indicators and locating a set pattern in GJ with excellent success rate.

GJ does follow a fixed pattern, the only thing is to observe over a period of time what the pattern is, and what it does on which days and what time.

i have been discussing GJ trades with my friends in yahoo conference and taught then how to see it, with good results.
  • #24
  • Feb 12, 2008 3:25pm Feb 12, 2008 3:25pm
good stuff

I believe in some of the principals behind fib retracement levels. But I believe more in just.. well.. retracements

The problem with fib levels are there are so many of them. So in a sense, it has to be proven correct at some point during a retracement. If it doesnt pull back to the 23% it's certain to bounce off the 32% or the 50% or the 68%..

Try this..
Draw fib lines randomly.. yep, just close your eyes and move your mouse within the parameters of a price trend (obviously). And observe.. Notice how even drawn without any precision it can still line up and show valid levels of price support.

My point is not that fib lines are useless or have no meaning. What I am trying to say is fib lines are just a tool. Without fib lines people would be too subjective in picking their entry points. With the lines for possible entry points already drawn on your chart you do not have to second guess yourself when the time comes to pull the trigger and enter your trade.

What is important is the logic behind fib lines. When a trader uses fib lines he just buying on a retracement. And by knowing that there is sound logic behind your strategy can make it a lot easier to trade with confidence and most importantly discipline. Also, it becomes relatively simple to adapt and adjust your strategy to changing conditions and evolving markets.

I could go on and on, but I have to leave the hotel now, and will not have internet access for several hours...



Quoting forexlion
I have been trading GBP/JPY the devil in person over almost a year now out of my 20 months in fx.

When I started fx, i used to think that indicators and stuff is everything and even took to fibonacci like all others on 5 minute charts and messed up big.

In this past 1 year I have worked pretty hard on writing my own version of th e fib indicators and locating a set pattern in GJ with excellent success rate.

GJ does follow a fixed pattern, the only thing is to observe over a period of time what the pattern is, and what it does on which days and what time.

i have been discussing GJ trades with my friends in yahoo conference and taught then how to see it, with good results.
  • #25
  • Edited 8:04pm Feb 12, 2008 7:53pm | Edited 8:04pm
Imagine the tenacity required by Bonacci's Son {Leonardo} to follow his thought proccess through to where he got it!

I can't fathom the dedication required for that kind of vocation.

I certainly can appprecite it though.
For those that are not aware, Fibs {Sons} occurr all through the building blocks of Nature. Darwin's or HIS.
{Check out the math on the location/size of Your Ears, Eyes, Nose...And of course, Nautilus, Marijuana....(and you thought Art was intangible)}

From all of this, I only have one regret.
Why couldn't he have been born in 1970 instead of 1170 and be a fan of FX now.
{we could ask him to post his statements... heh... heh...}

Firstly, I agree. Have a Blind Person draw a bunch of lines on a chart and at least some of them will show promise.

The Reason for the Post.

Most Fib enthusiasts {at least I think so} expect S/R @ ~ 50%. ie. Consolidation. Because they have seen it in the past and probably use it as confirmation that they have their Principal Points in the right location. {Chart stagnates between 43 & 56% Fibs.}

{Moving Outside the Box}
Is it therefore within reason that "The Current Consolidation" is hovering around the 50% Fib of the Current Move?

{clue}
I say Yes.


...
  • #26
  • Edited 8:03pm Feb 12, 2008 8:02pm | Edited 8:03pm
Two pips I just wanna add to this if I may:

First
Quote
{we could ask him to post his statements... heh... heh...}


Secondly, I use alot less fibs on my charts lately to what I used to. I used to go stupid drawing swing ups and down etc. etc. Just a huge messy chart.
The point is, the ratio's all eventually return to each other. You can draw a fib from the swing high/low of a year ago on a chart, and leave it there. Then draw some more recent ones, and I'll bet my house they touch/overlap in at least two places. Confluence? Whatever it's called.
The point, I was getting to :, is what made me personally more successful with fibs is one simple fact...

Expect a reaction at every line.
Let price action guide your decision from there.
Carpe Divitiae
  • #27
  • Feb 12, 2008 9:10pm Feb 12, 2008 9:10pm
When I first got into trading I used to mess w/ all the indicators (I got hundreds in my MT folder) and once I started to look at what exactly made the majority of them up - I had to let them go. This led me to fibs, elliot, gann and the rest. Watching waves roll into the beach and the flight pattern of Canadian geese, while enjoyable didn't really help my trading. Again had to let them go.

The above are a part of the education a trader must go thru and though I do not use them I am thankful for what they taught me.

There are only a few items I need; - High, Low and Current price.
This is what works for me and is what I use.
If Excel formulas and stat analysis equations can be classed as 'indicators' - then I say the fallacy is in the tool you use indicators with.
In trading, there is no bullshit. You either make money or you don't.
  • #28
  • Feb 12, 2008 9:32pm Feb 12, 2008 9:32pm
Quoting superdezign
good stuff

I believe in some of the principals behind fib retracement levels. But I believe more in just.. well.. retracements

The problem with fib levels are there are so many of them. So in a sense, it has to be proven correct at some point during a retracement. If it doesnt pull back to the 23% it's certain to bounce off the 32% or the 50% or the 68%..

Try this..
Draw fib lines randomly.. yep, just close your eyes and move your mouse within the parameters of a price trend (obviously). And observe.. Notice how even drawn without any precision it can still line up and show valid levels of price support.

My point is not that fib lines are useless or have no meaning. What I am trying to say is fib lines are just a tool. Without fib lines people would be too subjective in picking their entry points. With the lines for possible entry points already drawn on your chart you do not have to second guess yourself when the time comes to pull the trigger and enter your trade.

What is important is the logic behind fib lines. When a trader uses fib lines he just buying on a retracement. And by knowing that there is sound logic behind your strategy can make it a lot easier to trade with confidence and most importantly discipline. Also, it becomes relatively simple to adapt and adjust your strategy to changing conditions and evolving markets.

I could go on and on, but I have to leave the hotel now, and will not have internet access for several hours...

problem is that GJ follows only specific fibonacci patterns, and trying to find patterns in other forms is meaningless.

If you use daily fibonacci ratios and look for a pattern there then it is almost useless.

GJ follows only daily series, weekly ratios and weekly fibo pivots.

daily series for intra day 1 hour charts and weekly for 4 hour charts.
  • #29
  • Feb 13, 2008 4:42am Feb 13, 2008 4:42am
Every craftsman/woman uses tools. The more experienced will caress their tools and learn as much as possible about the tools.

A price level on a chart is an indicator of where price was at a specific time. From there, things start to get complex But really, some people would look at a price chart and say, "what are those numbers on the side of the screen for?"

You people who claim to trade without indicators are just expressing your inner desire to live in a nudist colony. Shame on you! IMHO
  • #30
  • Feb 13, 2008 6:30am Feb 13, 2008 6:30am
Quoting Micro-MiniMe
You people who claim to trade without indicators are just expressing your inner desire to live in a nudist colony. Shame on you! IMHO
That could be it, MMM. You know who the most popular guy in the nudist colony is, don't you? The one that can carry a dozen doughnuts and 2 cups of coffee....

Now I'm going to really cross the line....

I all too often get this inkling that people look for an "external" reason to enter a trade. It's not easy to take risk when the outcome is uncertain. If an indicator, or a fib line, or the phase of the moon says to do it, then that person doesn't have to make the decision with no agreement from an outside entity, even if it's one that doesn't really make sense. That explains the poplularity of systems: "if guruman says that when this and this and this look like they do now, it's a good trade, that's good enough for me (click)."

The best example I've seen of the craving for agreement from an outside entity was in a recent thread started by somone who worships at the church of fundamentals. My rant here:

http://www.forexfactory.com/showthre...61#post1844661

The most intelligent post I've seen on using indicators, I quoted here: http://www.forexfactory.com/showpost...9&postcount=33

And by "fundamentals", I'm quite sure that in this context Sizzler meant the "basics" of how an indicator works.
  • #31
  • Feb 13, 2008 6:56am Feb 13, 2008 6:56am
Quoting blueruby
The most intelligent post I've seen on using indicators, I quoted here: http://www.forexfactory.com/showpost...9&postcount=33

And by "fundamentals", I'm quite sure that in this context Sizzler meant the "basics" of how an indicator works.
Nice! Well articulated view point by Sizzler.
Wish I had read that a few years ago before I started experimenting with spaghetti on my charts! Now I'm riding the 'Dragon' with nothing more than Pivots, SMAs and fibs. The difference now is I know what each indi can tell me and what it can't tell me. BTW I concider news releases a form of indicator also, even though Sizzler may have been refering to indicators.

Before I read my charts or enter a position, I check the latest news, future news times, long range charts and of coarse, Jupiter must be aligned with Mars in the seventh house. Ooops! Flashback!OK forget the astrology part.
  • #32
  • Feb 13, 2008 1:28pm Feb 13, 2008 1:28pm
Quoting Micro-MiniMe
...BTW I concider news releases a form of indicator also...
For what my minuscule opinion's worth here, I agree.

I think many of these debates could have been avoided if they just bloody called "them" something else, not "indicators"

The very definition of the word, assumes some sort of "predictive" quality, and as we all know, many of them do in fact just the opposite.

I'm not trying to educate anybody, I know better than that :, but just food for thought. Save you a trip to dictionary.com

indicator
noun
1. a number or ratio (a value on a scale of measurement) derived from a series of observed facts; can reveal relative changes as a function of time
2. a signal for attracting attention
3. a device for showing the operating condition of some system

Investopedia Commentary
In the context of technical analysis, an indicator is a mathematical calculation based on a securities price and/or volume. The result is used to predict future prices. In an economic context, an indicator could be a measure such as the unemployment rate which can be used to predict future economic trends.

WallStreet Words
indicator
A variable used to forecast the value or change in the value of another variable. For example, changes in the producer price index are used to forecast subsequent changes in the consumer price index. Likewise, some financial analysts believe a change in the money supply is an indicator of the direction of the stock market.

Just to reiterate, the very definition of what has become known as indicators in the context of forex, I personally feel as been very skewed.
By whom, I don't know. But they are more an indication of what has been, than what is to come. It's possibly just the nature of this market.

I underlined the above line, as I think it stresses what (hopefully) most of us allowed to post in this room already know. And blue/sizz so eloquently stated.
If we already know how to trade, from having observed a series of facts, such as price movement/action, market sentiment amongst our fellow participants, news, economic reports, and the like, then I think the "Ultimate Fallacy in Technical Analysis" is ignoring the fact that the squiggly lines are just a graphical/visual representation of what we already know. I even dare say, our own experience could be classed as an indicator of how we are likely to progress our trading careers going forward from this point in time. {even though mines lagging like the rest of 'em :}

Personally, I can't always recalculate the mathematical equations/formula's that make up the few I use, especially since I've tweaked them a little. Not 'cause I don't know how they were calculated to begin with, or are particularly thick, but it seems like double handling data every time. Having my workstation do it for me, and even draw the line for me is an immense help. That's what it's there for, just another tool in itself that allows me to do my job more efficiently.

Even you completely stark-naked trading traders are using "them", whether you like to admit it or not. Or it could be that you didn't even know you where.
Ignorance is bliss.

{Reading this back to myself, it's seems to have kinda turned into fighting talk! :-D. Sorry, that is not my intention. What the hell, I'll post it anyway}
Carpe Divitiae
  • #33
  • Feb 13, 2008 4:10pm Feb 13, 2008 4:10pm
Quoting fsiltd
Personally, I can't always recalculate the mathematical equations/formula's that make up the few I use, especially since I've tweaked them a little. Not 'cause I don't know how they were calculated to begin with, or are particularly thick, but it seems like double handling data every time. Having my workstation do it for me, and even draw the line for me is an immense help. That's what it's there for, just another tool in itself that allows me to do my job more efficiently.

{Reading this back to myself, it's seems to have kinda turned into fighting talk! :-D. Sorry, that is not my intention. What the hell, I'll post it anyway}
For what it's worth: I can recalculate the math behind the Simple moving averages and fib lines and pivots I use, but that's only because I'm simple like them. I guess that's why I shy away from the stuff that looks like spaghetti.

Fight Talking! That's a good one! Well, if things get to tough you can allways give Chuck Norris a call.
  • #34
  • Feb 13, 2008 4:23pm Feb 13, 2008 4:23pm
Quoting Micro-MiniMe
For what it's worth: I can recalculate the math behind the Simple moving averages and fib lines and pivots I use, but that's only because I'm simple like them. I guess that's why I shy away from the stuff that looks like spaghetti.
Noted. But depending on your trading timeframe, do you want to recalculate everytime? I can see the benefit of "calculating into the future", so to speak. So that you can guestimate where the MA will be based on price movement if you're using it for, I don't know, S/R, triggers etc. But that's why I have a computer. And don't really use MA's.

And I wouldn't quite call you simple. Weighted Linear maybe...

Quote
Fight Talking! That's a good one! Well, if things get to tough you can allways give Chuck Norris a call.
Yeah, that's like "what you say about my mamma!?"
Man, if only I could call Chuck every now and then!

PS. We gotta stop taking over this thread and steering it from it's course. Sorry superdezign
Carpe Divitiae
  • #35
  • Feb 13, 2008 4:28pm Feb 13, 2008 4:28pm
Quoting fsiltd
PS. We gotta stop taking over this thread and steering it from it's course. Sorry superdezign
Ya I agree. This is a topic worth hashing over, as it's allways good to re-examine your foundation as a trader. Thanks for the opportunity to think out loud superdezign.
  • #36
  • Feb 13, 2008 7:37pm Feb 13, 2008 7:37pm
Quoting Micro-MiniMe
For what it's worth: I can recalculate the math behind the Simple moving averages and fib lines and pivots I use, but that's only because I'm simple like them. I guess that's why I shy away from the stuff that looks like spaghetti.

Fight Talking! That's a good one! Well, if things get to tough you can allways give Chuck Norris a call.
It does not matter if you can calculate the math behind stochastics or MACD. That is not what I am trying to get at here. It makes no difference at all whether you can do the math yourself or have a computer do the math, and as was stated before, have a "visual representation" of whats happening in the market. What matters is if you understand what the picture means and the logic behind it all.

For example. Lets say you are looking at a 13-20 stochastic cross and your strategy says goes long when your two lines cross up and short when they cross down. Well, what does that mean? Lets start with the math. Knowing the math can help us understand the function of the indicator, but can only clue you in on the logic and principals.

Heres the math, (stay with me here, I swear I have a point), and we can figure out that stochastics measures the momentum in a stock through this formula:

%K = 100[(C - L14)/(H14 - L14)]
C = the most recent closing price
L14 = the low of the 14 previous trading sessions
H14 = the highest price traded during the same 14-day period.

%D = 3-period moving average of %K

Now that we know how the indicator functions, we can try and decipher the logic and principals behind the squiggly lines.

Im not going to do that all here, but you have to look at where buy and sell signals are generated, try and determine why they are generated (logically) and whether its based off of sound principals.

I can justify every bit of my trading plan, that said, I KNOW my strategy is robust and I can believe in it for the rest of my trading career with only minor adjustments. And those adjustments are made automatically as the market evolves.

More people should break down their strategy like so, just to see if what they are depending on financially is worth their buck.

Even though I do not believe in technical indicators that are based off of math formulas because parameters have to be set for them to work and price does not have to work within a parameter setting, I just wanted to get my point across more clearly through this example.
  • #37
  • Feb 13, 2008 7:38pm Feb 13, 2008 7:38pm
Quoting Micro-MiniMe
Ya I agree. This is a topic worth hashing over, as it's allways good to re-examine your foundation as a trader. Thanks for the opportunity to think out loud superdezign.
my pleasure
  • #38
  • Feb 13, 2008 7:41pm Feb 13, 2008 7:41pm
Quote
More people should break down their strategy like so, just to see if what they are depending on financially is worth their buck.
What's the expression... Nugget of Gold!
Carpe Divitiae
  • #39
  • Feb 14, 2008 9:44am Feb 14, 2008 9:44am
Let's take an easier one as an example: momentum oscillator.

Let's say we set the number of periods to 14. Then the value of "momentum" would be the most recent bar's closing price divided by the closing price 14 bars ago, multiplied by 100 to give a percentage.

So you have a comparison between two snapshots, 14 bars apart.

But if you look at the chart, you can visually compare the most recent close to all of the last 14 bars' closes, and beyond. You can tell if the market is ranging or moving, and you can see how long each has been going on, and how fast it's moving if it's trending. The 12 bars in between will tell you what happened in between.

What is the momentum number telling you that you can't see by looking?

Furthermore, what is sacred about the 14th bar back? What does that tell you about what the market is doing right now? Market characteristic can change in 2 or 3 bars.

The same could be said about stochastic. Stoch is slightly more sophisticated, in that it compares the current bar close price to the range of prices over the specified period. It includes the highest high to the lowest low. Again, you can not only do this visually, but you can also know which highs and lows (long wicks?) you want to ignore.

The mind can integrate data and make judgements in a way that makes indicators look like stone-age toys.

I will add that nothing would please me more than to have an indicator, or set of indicators, that would tell me what to do, or even just help in the trading decision process, but I haven't found that yet. My development as a trader doesn't seem to be heading in that direction, but I haven't ruled it out.
  • #40
  • Feb 14, 2008 9:54am Feb 14, 2008 9:54am
The mind can integrate data and make judgements in a way that makes indicators look like stone-age toys.

I will add that nothing would please me more than to have an indicator, or set of indicators, that would tell me what to do, ore even just help in the trading decision process, but I haven't found that yet.[/quote]


Blue,

Why would you want to have any indicators? It seems that you have solved the problem..."the mind....etc."

regards
daytrading
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