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"You cannot make money (in the long run) from a price chart alone"

  • Post #1
  • Quote
  • First Post: Edited 4:13pm Jan 13, 2011 10:57am | Edited 4:13pm
(Before you get defensive I am not stating absolutes just quoting something I was told by allegedly one of the best traders on this forum.)

"You cannot make money (in the long run) from a price chart alone"

Well.. of course you CAN but in terms of getting a true edge as in TRUE INSIGHT/ Valuable information from a price chart, I have been told by one of the most respected and looked up to trades (I won't mention any names) here that it is not possible...

Seeing as a price chart is a big part of my trading I of course did not want to believe this but recently I'm beginning to think that this may be true.

I'm not one to believe much of what I hear as many simply don't know what they're talking about even if they think they do. But still... This guy is well respected.

Of course I can't confirm or deny either way I was just hoping to spark some debate.
Time hides Nothing
To kick it off I want to talk about economics of competitive markets and long run equilibrium

In a competitive market where there are no barriers to entry and thus new traders are free to enter and exit the market, economic profits are competed away in the run back to equilibrium as profits attract new entrants and hence the profits are competed back down to equilibrium.

The same goes as losses are incurred in a market and participants leave the market, participants leaving cause profits to go back up to the long run equilibrium.

This example is based mainly on normal business activity in "the real world" but if you think of it in terms of trading edges and market crashes it seems to make sense to apply the same line of thinking to trading..

So... with that said, you hear of people talking about how edges stop working over time and its not hard to wonder why.

Just some food for thought
Time hides Nothing
When are people going to learn that using absolutes is a suckers game in most things in life, much less in trading. The fact that one person told you something and you actually believe it without any proof doesn't bode well for you and a trading career.
Quoting Dopey
When are people going to learn that using absolutes is a suckers game in most things in life, much less in trading. The fact that one person told you something and you actually believe it without any proof doesn't bode well for you and a trading career.
AS I said in the first post - I was only told this I didn't say I believed it. But on the same token Dopey just cause someone says something it doesn't necessarily make it untrue either.

I haven't stated any absolutes and I was expecting for people to get defensive.

I'm going to invite the person who told me this to comment as it may give this thread some weight. But he doesn't post here much

I agree with you though, absolutes are a head fk on this forum someone who failed with indicators but succeeded with PA will tell everyone that indicators don't work, When what they really mean is "I never succeeded using indicators, and I can't prove that they work"
Time hides Nothing
Does that include using only a chart but being able to interpret correctly the underlying drivers of the various price moves due to experience/understanding?
I sense I touched a nerve so I'm going to offer a second opinion...

I recently had the opportunity to get some mentoring from a guy with allegedly 30 years experience ion the markets..

In our first exchange I was surprised to find in the email he sent me a template with indicators attached.

Unfortunately I haven't had the chance to have much in depth contact with him ( due to issues that are of a private nature) apart from learning the basics of his method which is purely momentum based. We had many discussions though and although being constantly skeptical he was out for my money after 2 months I can pretty much confirm this was not the case.

But there you go, the order flow god telling me that price charts can provide no advantage whatsoever and then the market veteran swearing by indicators.

Like Dopey said there are no absolutes I was simply trying to start some discussion and try and break away from the norm a bit.

So despite the provocative nature of the thread title its just a discussion about trading.

I'm not stating anything as fact but was just hoping for some exploration into this crazy game we all play.
Time hides Nothing
i cant speak for any one else, but i was able to make a lot of fast money breaking every rule in the book and doing what evey body said you shouldn't. now i'm learning to do it 'properly' allegedly, and like your tag says i'm finding it to be 'the hardest way to earn an easy living'.

i've changed the way i'm trading because my attitude to risk changed as my account grew from something i could afford to loose to something i dont want to loose. i've met/spoken with lots of traders over the years and i think this is a crucial area for self examination.
bull in a china shop
point being, that your more likely to succeed if you have a good attitutude towards taking risk.

its not just about a price chart.
bull in a china shop
As a man with an academical background ( a rare occasion here ) I find it funny when markets are viewed from traders perspective only. The main economics engine is interest rates, these small flies called speculative traders are just trying to steal what's on the table, getting beat up again and again. Nobody cares about you traders, big money must work and they will be put where the return potential is best. Charts analyzing is also very subjective matter as its in human nature to observe and create patterns in his mind which give him an evolutionary edge. I myself am trading only through charts and been consistently winning, using only my own created indicators over the 2 year trading.
The simplest indicator is price itself, how it reacts to previous support & resistance levels, supply & demand. Thats how floor traders trade without charts.

If indicators, that are derived from price can increase your probability of being correct on the next move that price makes, then yes they are useful. If not they are just decoration.
Follow the Money
You can still make money just with charts. But it is not as efficient as using 1 or 2 more indicators combined. That's my take on the matter, period.

(For those who feels that they have to reply regarding "indicators are lagging" and that "indicators are simply just showing you what just happened"... Save your breath and GO GET SOME MORE EXPERIENCE YOU NOOBS!
In the end, when you look at the available evidence, the 'debate' or argument is just not really that interesting or convincing from either side.

We know for a fact there exists traders who over their lifetime were profitable using solely technical analysis or fundamental analysis. Others use both to some degree or another. Within each framework, technical or fundamental, we know that different traders have had success using different techniques. After all, both are subjective to an extent (technicians may use different indicators, fundamentalists may interpret data releases in different ways).

So either there are a number of traders who are complete statistical outliers for the entirety of their trading careers, being profitable using a technique where "you cannot make money in the long run", or the markets can be beat from a variety of approaches, including chart analysis. I think when you consider that certain traders have been able to teach their methods successfully to other traders, you've basically got replication which makes the idea that some traders have just been really really lucky over their careers extremely unlikely.
Quoting CrucialPoint
You can still make money just with charts. But it is not as efficient as using 1 or 2 more indicators combined. That's my take on the matter, period.

(For those who feels that they have to reply regarding "indicators are lagging" and that "indicators are simply just showing you what just happened"... Save your breath and GO GET SOME MORE EXPERIENCE YOU NOOBS!
haha yeah I always chuckle when you hear those VSA guys talking about Spot "volume" like its superior to any other indicators when in reality its the same dam thing just displayed in a raw format and not averaged or the like...

I'm a recent indicator hater convert after spending some time being shown how it can be applied successfully, when used right an indicator can be no more lagging than the price bars themselves, anyway
Time hides Nothing
  • Post #14
  • Quote
  • Edited 3:38pm Jan 13, 2011 2:52pm | Edited 3:38pm
Quoting CindyXXXX
haha yeah I always chuckle when you hear those VSA guys talking about Spot "volume" like its superior to any other indicators when in reality its the same dam thing just displayed in a raw format and not averaged or the like...

I'm a recent indicator hater convert after spending some time being shown how it can be applied successfully, when used right an indicator can be no more lagging than the price bars themselves, anyway
Volume traded at the bid and ask provides a huge advantage in trading imo. Unfortunately, this info is not available in Forex but is available in Forex Futures. If you are trading just price based indicators (which is all you can do in Forex), you are missing a stack of other info and are thus not getting the full picture of a market. Being able to analyze average trade size and seeing where the amateaurs and professionals come into the market alongside professional accumilation and distribution is extremely useful. All that being said, successful trading boils down to trading style, experience and market knowledge imo.

In Forex it is not uncommon to see traders attempting to trade with a bunch of price based indicators all correlated with price, all showing basically the same thing which I find totally illogical. I believe the more uncorrelated information you have the better market picture you will have.
Quoting Porkpie
Volume traded at the bid and ask provides a huge advantage in trading imo. Unfortunately, this info is not available in Forex but is available in Forex Futures. If you are trading just price based indicators (which is all you can do in Forex), you are missing a stack of other info and are thus not getting the full picture of a market. Being able to analyze average trade size and seeing where the amateaurs and professionals come into the market alongside professional accumilation and distribution is extremely useful. All that being said, successful...
Excellent post porkpie, exactly the type of thing I was after. "Non correlated information" that's a very useful and logical thought. Well done and thank you
Time hides Nothing
I posit that in this "efficient market era", it is still possible to make money watching the ticker alone.
The nail that sticks out gets hammered back in
Here's something I wrote a few weeks back in a different thread:

For many, the "forex market" (and many other markets for that matter) is defined by a screen with a price chart on it and with lots of indicators to choose from, provided by the retail broker, where there is a secret to be decoded and a "profitable system" to be discovered.

Within these confines it is a 2 dimensional game, with less than a 50% probability of success (the spread assures you of that), where decision-making is guided by false assumptions within a system that is fundamentally flawed for/by the retail trader. "System" here referring not to a trading system, but the operating environment which the trader creates for himself/herself. The majority of contributions on this website are dedicated to fruitless pursuits within this closed and flawed system.

So how do you open up the closed system to allow yourself to think outside the box? It is probably not an easy question to answer, and no doubt there are different ways to tackle the problem, but my thinking immediately to turns firstly to the acquisition of detailed knowledge about the way the market(s) operate, who participates, why and when, what the participants seek to do and what the outcomes are in terms that can be exploited by the humble retail trader...

Here I am not suggesting that charts and indicators cannot assist a good trader to be consistently profitable, but what I am suggesting is that traders who confined their market studies ONLY to charts and indicators are far less likely to become consistently profitable, and there is clear evidence of this littered all over this website, especially in the "Trading Systems" section....
Quoting Hedginghog
Here's something I wrote a few weeks back in a different thread:[indent]For many, the "forex market" (and many other markets for that matter) is defined by a screen with a price chart on it and with lots of indicators to choose from, provided by the retail broker, where there is a secret to be decoded and a "profitable system" to be discovered.

Within these confines it is a 2 dimensional game, with less than a 50% probability of success (the spread assures you of that), where decision-making is guided by false assumptions within a system...
NP HH and have a vouch

But what if with the indicators its more that they are simply VASTLY misunderstood, the same way order flow and the rest is also misunderstood.

Indicators are convenient for a green light red light type system which requires not much thought and the majority of indicator systems are like this. Perhaps in this very way they are deceiving and taken for granted,

If you've ever had a look at Volume spread analysis this goes quite in depth about what the volume is actually saying and how high volume in one situation may mean a completely different thing in another situation.

Indicators use the same "tic" data as the volume bars but i have seldom seen any system that takes an indicator into such depth and combination WITH the price. And at the same time the volume indi is simple tic data, an indicator which uses some type of average should surely take a greater deal to master and interpret sufficiently.

Spuds MTF stochs are the only thing that springs to mind that comes close to what I'm trying to describe. There may be others that I don't know of but I don't spend ant time in the systems thread these days.

With that said like you mentioned combining indis with other information surely couldn't hurt either

Just a thought
Time hides Nothing
Hi Cindy,
heres some crazy thoughts if you would like some

http://www.forexfactory.com/showthread.php?t=275529

Your friend is an Albert Einstein, telling Issac Newton that his method cannot work.
Quoting CindyXXXX
(Before you get defensive I am not stating absolutes just quoting something I was told by allegedly one of the best traders on this forum.)

"You cannot make money (in the long run) from a price chart alone"

Well.. of course you CAN but in terms of getting a true edge as in TRUE INSIGHT/ Valuable information from a price chart, I have been told by one of the most respected and looked up to trades (I won't mention any names) here that it is not possible...

Seeing as a price chart is a big part of my trading I of course...
Cindy, I'm guessing that the trader you're referring to is D........

Anyway, I just wanted to suggest the following........ Supposing a trader tries in vain for X years to find a chart-based method that's profitable, but then learns something completely different (for example, an orderflow-related technique) that leads to his eventual success. Now that he's profitable, there's no need for him to continue with his chart-based research. Hence he reaches a personal conclusion that charts are impotent, while the other method is pure gold.

However, there may be others who never discover the 'other method', and simply persevere with technical analysis long enough until they find some combo of trend, line studies, indys, trade management, whatever, ...... that's profitable.

That's one reason why I don't believe it's possible for anybody to generalize by stating categorically that XYZ doesn't work. The most truthful statement that anybody can make is that they haven't yet found a way of making XYZ work profitably for them.

Just my 2c.

David
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