Charts, time frames and indicators! Oh My! | Forex Factory

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Charts, time frames and indicators! Oh My!

  • #1
  • First Post: Feb 6, 2010 5:35pm Feb 6, 2010 5:35pm
Hi traders,

I want to try and start a thread based on my thoughts around the common assumptions around charts, time frames and indicators being useful for predicting price movement.

I am sympathetic with any new trader who gets caught up in this way of thinking as I went through the same as a newbie trader.

I will post more soon,

Mark
Economists have forecast 9 out of the last 5 recessions
  • #2
  • Feb 6, 2010 5:38pm Feb 6, 2010 5:38pm
Looking forward to reading.
  • #3
  • Feb 6, 2010 5:42pm Feb 6, 2010 5:42pm
Quoting tjfxtrader
Looking forward to reading.
Thanks, I am about to watch this http://www.pbs.org/wgbh/pages/frontline/meltdown/view/

and then to bed, will try and post tomorrow, but have a day with my kids tomorrow so probably tomorrow night. Hope that is ok.

Mark
Economists have forecast 9 out of the last 5 recessions
  • #4
  • Feb 7, 2010 5:54am Feb 7, 2010 5:54am
First a bit of a preamble to frame what I am going to talk about.

I believe that the high percentage of traders fail because they have no edge. No amount of money management, discipline or psychology will turn a losing trader into a winning trader, if he doesn't have an edge.

An example of this is playing roulette, the longer you play roulette the more chance you have of losing, so the best odds are to bet everything on one spin, you cant use money management to overcome this fact.

Is there an edge using purely technical analysis?

First I need to define technical analysis.

For this discussion I am defining it as trading by only using the history of price, I also include any thing that is the derivative of price, so this includes the following.

Price patterns (or price action),
All indicators derived from price (RSI, Fib, Bollinger Bands etc).
Trading regarding the trend,
Support and resistance trading.

It does not include,
News trading,
Mispricing trading,
Insider trading,
Tape Reading, (I know this is price but it is based on (near)current price)
Or other trading using something outside of price/
Economists have forecast 9 out of the last 5 recessions
  • #5
  • Feb 7, 2010 6:20am Feb 7, 2010 6:20am
Tape reading is what has happened in the last few seconds?

How is that different from trading the m1 looking at each tick as it comes? Tick activity as the by product of increased order flow gives good hints?

And that's all we can trade, hints, to increase probabilities. I don't get it...

You say tape reading is different because it's so 'current' but it just doesn't make sense. The market is fractal, therefore:

 

  1. Such 'current' price action, can only go as far as a few minutes at most.
  2. The most 'current' 5-10 minutes, can only go as far as another 5/10minutes...
  3. The last 8 hours, can go as far as another 8 or so hours


You see? What you regard as so up-to-date is infact subjective, and is only truly learned by pure chart time... believe me

  • #6
  • Feb 7, 2010 6:59am Feb 7, 2010 6:59am
Quoting Sim
Tape reading is what has happened in the last few seconds?

How is that different from trading the m1 looking at each tick as it comes? Tick activity as the by product of increased order flow gives good hints?

And that's all we can trade, hints, to increase probabilities. I don't get it...

You say tape reading is different because it's so 'current' but it just doesn't make sense. The market is fractal, therefore:
[list][*]Such 'current' price action, can only go as far as a few minutes at most.
[*]The most 'current' 5-10 minutes,...
Tape reading to me is trading using the order book as well as the last few ticks and trading the orderflow.
Economists have forecast 9 out of the last 5 recessions
  • #7
  • Feb 7, 2010 7:17am Feb 7, 2010 7:17am
Yeah isn't that what I said? Tick chart trading to mimick it is still possible without the order book
  • #8
  • Feb 7, 2010 7:31am Feb 7, 2010 7:31am
Quoting Sim
Yeah isn't that what I said? Tick chart trading to mimick it is still possible without the order book
The order book is information ahead of price, I don't know enough about tape reading without looking at the order book, I wouldn't class that as technical trading though.
Economists have forecast 9 out of the last 5 recessions
  • #9
  • Feb 7, 2010 7:46am Feb 7, 2010 7:46am
The tape itself is really quite short term.. and the skill to tape read is very technical

It's literally tick chart trading at specific prices where order volume becomes imbalanced, what you see and how u react to it...just like each and every larger timeframe.

I still don't understand how you can say people trading price patterns are gambling only? People have made millions from it
  • #10
  • Feb 7, 2010 8:39am Feb 7, 2010 8:39am
You're currently arguing about highly subjective stuff. BTW, I'm not dead sure, that you're arguing.
''That's all it takes really - pressure and time''
  • #11
  • Feb 7, 2010 9:17am Feb 7, 2010 9:17am
don't think we are i'm just bringing the OP's attention that it is subjective, as you are

which is the problem traders don't seem to see through..

i.e. many short term traders see long term as too lagging, and long term see m1 as noise

it's dumb. the market is made up of waves upon waves, small making big. everything can be traded, in all the same principles.

'noise' can be traded with small tp and sl. i can prove it

long term can be traded with wider tps and sls. others can prove it. saying otherwise is literally going against truth
  • #12
  • Feb 7, 2010 1:09pm Feb 7, 2010 1:09pm
I have made my points and that is what I believe.
Economists have forecast 9 out of the last 5 recessions
  • #13
  • Feb 7, 2010 1:19pm Feb 7, 2010 1:19pm
Quoting markmm
First a bit of a preamble to frame what I am going to talk about.......
I believe that the high percentage of traders fail because they have no edge. No amount of money management, discipline or psychology will turn a losing trader into a winning trader, if he doesn't have an edge.

An example of this is playing roulette, the longer you play roulette the more chance you have of losing, so the best odds are to bet everything on one spin, you cant use money management to overcome this fact.

I agree 100%, FWIW.


Is there an edge using purely technical analysis?

IMO we must first answer the question: Do markets move randomly all the time?
(there have already been plenty of threads on this very topic)

-- If the answer is YES, then no amount of TA can ever make one profitable. ALL entry and exit strategies will have a net expectancy of zero (actually negative, if we consider costs, which parallels your roulette analogy).

-- If the answer is NO, then TA, being a study of price, can potentially be used to identify areas of non-randomness. From which it should be possible to devise a method of entries and exits to exploit it.

With one proviso: with games like roulette the odds are fixed, and calculable in advance. With the markets, the best one can do is assign levels of statistical confidence to historical test results. Hence TA, at best, makes a statistically based assumption that what's happened in the past is more likely than not, to recur in the future. This added uncertainty begs the question: What guarantee is there that an edge is durable (i.e. will stand the test of time)?

To explore these issues, we must back up one further step, and ask: What drives price? What is the likelihood that the nature of these drivers, and any non-randomness that they create, will change over time? And to what extent is our edge 'in tune' with these drivers? But now we are outside the bounds of the original topic: TA.

Anyway, that's the way that I see it. Sorry if I've gotten ahead of the discussion. I'll stop here.
  • #14
  • Feb 7, 2010 2:36pm Feb 7, 2010 2:36pm
Quoting hanover
I believe that the high percentage of traders fail because they have no edge. No amount of money management, discipline or psychology will turn a losing trader into a winning trader, if he doesn't have an edge.

An example of this is playing roulette, the longer you play roulette the more chance you have of losing, so the best odds are to bet everything on one spin, you cant use money management to overcome this fact.

I agree 100%, FWIW.


Is there an edge using purely technical analysis?

IMO...
Excellent points hanover, I agree with you completely. My belief is that the price is random when looked at from the point of view of TA.
Economists have forecast 9 out of the last 5 recessions
  • #15
  • Feb 7, 2010 3:02pm Feb 7, 2010 3:02pm
Quoting markmm
Excellent points hanover, I agree with you completely. My belief is that the price is random when looked at from the point of view of TA.
Question: Why is it then that many people that trade technicals alone are very consistent profitable traders?
  • #16
  • Feb 7, 2010 3:24pm Feb 7, 2010 3:24pm
I've already asked, he puts it down to luck...
  • #17
  • Feb 7, 2010 3:24pm Feb 7, 2010 3:24pm
Quoting tormo
Question: Why is it then that many people that trade technicals alone are very consistent profitable traders?
I have never seen evidence of this, im talking years not a few months, the ones that are are using something outside of price. If someone provides evidence I would be very surprised.

The closest I have come to finding anything is pin bars ala J16. But on their own they are again 50/50.
Economists have forecast 9 out of the last 5 recessions
  • #18
  • Feb 7, 2010 4:29pm Feb 7, 2010 4:29pm
Quoting markmm
Excellent points hanover, I agree with you completely. My belief is that the price is random when looked at from the point of view of TA.
Fair enough, but if not price, the next question IMO is: What other data is needed, in order to trade profitably?
-- Volume?
-- Order book/market depth?
-- Fundamentals/economics?
-- Astrology?
-- Intuition?
-- 'Insider' information from banks, institutions, market movers?
-- Something else?

Or is profitable trading nothing more than luck?

If the answer is a knowledge of "the psychology (or whatever other driving forces) underlying price movement", then that merely brings us back to my previous question – how does this manifest itself? To whatever extent the answer is "in price", TA is viable (although an understanding of the underlying drivers would likely give one greater confidence).

Can anybody say with 100% certainty, that TA can't be made to work profitably? If Joe Citizen hasn't been able to find a profitable TA-based methodology himself, from the zillions of possible permutations with which chart-based data can potentially be combined, does that really prove that nobody else can, either? Is it possible that there might be smarter, more dedicated, less risk-averse folk out there than Joe?

Conversely, if a trader has a perceived edge that has thus far proven profitable, can he say with 100% certainty, that the markets will continue to behave in such a way as to make the edge viable in 5, 10, 20 years from now?

And how many years, or how many trades, must he remain profitable, in order to safely make the assumption that he even has a genuine edge?

I'm neither knowledgeable nor bold enough to categorically agree or disagree with the statements that are being made in this thread. I'm merely asking what I see as being relevant questions.

IMO, the best a technical (or indeed any) trader can do is stack as many independent (potential) edges in his favor as his knowledge allows, and then manage the resulting trades as his experience likewise allows. The bottom line is that one is either willing to embrace whatever risks – both known and unknown – are inherent in trading, and proceed regardless. The alternative is to look for other sources of income.
  • #19
  • Feb 7, 2010 7:20pm Feb 7, 2010 7:20pm
Eloqeunt as always bro
  • #20
  • Feb 7, 2010 8:07pm Feb 7, 2010 8:07pm
Quoting markmm
I have never seen evidence of this, im talking years not a few months, the ones that are are using something outside of price. If someone provides evidence I would be very surprised.

The closest I have come to finding anything is pin bars ala J16. But on their own they are again 50/50.
My belief is that price is not random from what ever view you look at it, technical or as a market as a whole. It might be hard to see why its moving but I think its possible to catch glimpses with TA alone and profit with it over the long run.

For every movement in price there has to be a reason and like Gaston said in this post
Quoting Gaston
Reason opposes randomness, and as such discounts it.
So for example if someone were to have a basic concept about why and when price might move and be able to see this technically, then this gives us an edge, right? After all isn't an edge only something that has a higher chance of happening over something else? If we combine that edge with a few more basic technical tools (I dont mean indicators) to increase our probabilities, then I would say its possible to profit from TA alone over the long term.

I also believe that when markets change its the randomness that changes, the movement of price, not why and when, which is our edge. So over the long term our edge will always be there. The only question is whether we will be there mentally.

I am only starting out in this game and looking where I belong so I would not believe everything. This is what I feel right now and will try to build from that.

tormo
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