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Price action is dumb, and you're lazy for thinking otherwise

  • #21
  • Jul 25, 2011 4:46pm Jul 25, 2011 4:46pm
Quoting superdezign
Sure thing

Yes time is a variable, and if you use time with price then you are a momentum trader
I see where you're coming from but I would have to disagree.

Your argument in the first post (the first time I quoted you) hinges on the fact that price action is not valid as a result of the existence of one variable.

My point is that your argument is fundamentally flawed.

I'm very interested in your opinions, however I'm eager to see more sound reasoning.

I do not consider myself a momentum trader.

Yesterday I typed a rather lengthy post detailing my trading method, I can either PM it to you or post a link here, although I'm sure you're not interested
  • #22
  • Jul 25, 2011 4:57pm Jul 25, 2011 4:57pm
Quoting frankkn
I see where you're coming from but I would have to disagree.

Your argument in the first post (the first time I quoted you) hinges on the fact that price action is not valid as a result of the existence of one variable.

My point is that your argument is fundamentally flawed.

I'm very interested in your opinions, however I'm eager to see more sound reasoning.

I do not consider myself a momentum trader.

Yesterday I typed a rather lengthy post detailing my trading method, I can either PM it to you or post a link here, although I'm...
If you would be willing to post it that would be cool, then I can pick apart pieces of your system and break it down to get to the logic behind it, if there is any at all (not saying there is or isn't, just curious to see).

I just didn't want to ask/suggest/nor tell anyone to post anything about their methods, because I just want to have a discussion, not lead people to think I want to steal their ideas.. I have my own ideas, and I like them..

Anyways.. Im interested.. lets see it

Regarding the one variable debate:

Candlesticks, let break those down for a second...
You select your timeframe then what you have done is segmented the data into sessions. The sessions have an open/high/low/close.. The candlesticks summarize the data which PA traders use as buy and sell signals. Does it matter where on the X scale of your chart that it occurs? No.. it could occur today, tomorrow, whatever.. That doesnt make a difference. So therefore time is not a variable that impacts price action..

Go
  • #23
  • Edited 5:11pm Jul 25, 2011 5:05pm | Edited 5:11pm
Quoting superdezign
Candlesticks, let break those down for a second...
You select your timeframe then what you have done is segmented the data into sessions. The sessions have an open/high/low/close.. The candlesticks summarize the data which PA traders use as buy and sell signals. Does it matter where on the X scale of your chart that it occurs? No.. it could occur today, tomorrow, whatever.. That doesnt make a difference. So therefore time is not a variable that impacts price action..

Go
Firstly, I would like to thank you for the intelligent and civil discourse.

Next, in regards to the quoted text: the two-variable nature of candlesticks is inescapable in your example because in order to designate open and close you must incorporate time, unless you're talking about tick charts.

Third, here is my trading methodology. I am copying and pasting this from Romancing the Price thread. I'll color it green to keep this thread consistent lol.

To any reader of the thread, including the OP: please do not hesitate to tear my methodology to shreds with constructive criticism. It can only make me a better trader.

Just wanted to share some thoughts

When you're a beast of a trader like IF, Orbital, Kenny, or Emene your intuition can guide you when it comes to trading SD levels. Like Orbital mentioned in his excellent post above, he would miss lots of trades by waiting for engulfings.

I am a conservative trader, and as such the safety that an engulfing brings me helps me a lot in my trading. It is almost like a safety net that helps me manage my trade more efficiently. I am only looking for a handful of trades per week, because my goal is to hit only a few percent (each week).

My goal is to trade for a living by trading other people's money. Before I make that move I would prefer to have a couple of years of consistent returns, and surprisingly enough Investors do not require very high returns. I personally know a body of investors that would do back flips for 2% per month (averaged out over a longer period of time, of course).

The reason I mention this is because I want to highlight the reason I'm interested in trading the way I do: with confirmation, only from strong levels, and with as high a risk:reward ratio as I can manage.

Sometimes this means taking no meaningful trades during a week, and other times it means taking several trades per week. The bottom line is that I want a trading method that will help me attract investors with significant capital, while at the same time will allow me to trade in a way that is sustainable for decades. I highly doubt that I would be happy scalping until I'm 50, so I've strived for a method that delivers to me consistency, low risk, and is something that I am willing to devote decades to.

To elaborate on how my trading style has come to fit these ideas I'll highlight the major aspects of my approach:

1) I consider macro cash flows. Money flows into different markets depending on the environment, this effects the movement of exchange rates. (not that this is a trend defining rule, I just keep it in mind to better understand the psychology of the market moving institutions)

2) Next, I look at my daily SD map and consider the distribution of liquidity. By this I mean where are institutions likely to have limit orders that have not been filled (limit orders providing us liquidity, this can be identified using SD analysis). These levels also will commonly be prices where traders take profit, providing us with further orders.

3) Now I identify areas where stops may be located, I look at this on H1. These may be levels that parasitic traders gun for, and levels that larger players may use to fill their huge positions (they have large volume and need the stops for liquidity)

4) Finally I look for entry SD levels. M30 is where I start and I refine these levels with M15. Once these are identified I set sms alerts for these levels and focus on other things in my life. Sometimes I don't get any sms so I don't trade.

5) I'll put on 1/3 of my position if I see a nice M5 pin in these areas. The other 2/3 goes on if I see an engulfing I like here. I don't take all pins/engulfings, this is subject to gut feeling and is difficult to explain. Read Orbitals example with the broads and the blow for more on intuitive gut feeling regarding price action entry at SD levels (brilliant btw, youth of figure skating fuck dude)

6) I only take trades that offer me at the minimum 2x my initial risk. I underlined initial because that is the distance between my entry and my stop, and rarely represents my realized risk. This is another intuitive aspect for me. I reduce my exposure using my gut. This can effect your realized risk which is a more accurate picture of your r:r

7) I exit based on market structure. I usually set my TP and set sms alerts for my stop (usually at BE by this point) and my target. After this I walk away.

These are the things I do to provide me with a trading model that I am willing to trade for as long as necessary.

I'd like to reiterate two things: reducing risk, and realistic profit goals. You don't need to hit mad returns every day to attract drooling investors.





http://www.forexfactory.com/attachme...3&d=1311305452
  • #24
  • Jul 25, 2011 5:11pm Jul 25, 2011 5:11pm
Logic? not being funny, but what are you trying to say here...are u saying that you've reached a stage where you understand the million variables that potentially affect trading on a daily/hourly/minute basis...or are you mocking the few who have gained understanding of 1 or 2 variables?

a cell in the human body has a million reactions per second, do i need to understand them all to allow me to even exist?

Do i need to know how my watch works to be able to tell the time, or how a plane stays in the air for me to go on holiday...nonsense!!!

to succeed in trading, you need to personally quantify what success is to yourself, success can then be achieved using indicators (provided you know their weaknesses), using supply and demand, using technicals or fundamentals...

but saying to us its logical that currency X at certain price will be unsustainable due to effect on exports, savings, pension funds, mergers, and the other million variables...

perhaps you have reached a stage where knowing the maths behind eveything, but you cant teach someone instinct/gut feeling/luck...
  • #25
  • Jul 25, 2011 5:11pm Jul 25, 2011 5:11pm
@frankkn

As much as I wanted to use the quote button, it seemed a little daunting having all that text sit above mine..

Ok first things first.. He referred to SD levels, which I am guessing he means "support and resistance"

Lets shoot for the question why...

Why does an SD level give you an edge? Tell me this and ill explain why it doesn't..

Your turn
  • #26
  • Jul 25, 2011 5:17pm Jul 25, 2011 5:17pm
Quoting superdezign

Why does an SD level give you an edge? Tell me this and ill explain why it doesn't..
A demand level to me is a level that demonstrated to me that the balance of buyers and sellers was vastly outweighed by buyers.

When price returns to this level, there may be unfilled orders that remain. Also these levels may serve as profit taking levels by other traders.

As I mentioned in the green text I'm not looking at every level for entry.
  • #27
  • Jul 25, 2011 5:19pm Jul 25, 2011 5:19pm
S & D...the way i look at is, think of bartering...its not an edge...but if you've bought goods at $100, chances are someone got it a bargain of $80, and chances are that theyre will be always some nut who wants to buy at $200, but in reality there will be plenty of pple willing to buy at $150...why would i wanna find the one nut willing to pay $200, when i can easily get out where everyone wants to buy/sell...so i made $50 instead of a hundred...or am i thinking too small and thats your purpose of this discourse
  • #28
  • Jul 25, 2011 5:23pm Jul 25, 2011 5:23pm
Quoting monkey@forex
Logic? not being funny, but what are you trying to say here...are u saying that you've reached a stage where you understand the million variables that potentially affect trading on a daily/hourly/minute basis...or are you mocking the few who have gained understanding of 1 or 2 variables?

a cell in the human body has a million reactions per second, do i need to understand them all to allow me to even exist?

Do i need to know how my watch works to be able to tell the time, or how a plane stays in the air for me to go on holiday...nonsense!!!...
Nope, I havent even begun to know all the millions of variable, what I fear is that people use indicators and don't realize what they are getting themselves into, even though they are willing to put their hard earned money on the line. I am not calling anyone out here. I don't have life figured out. But my realization is that the logic and principals (if there are any) of technical analysis are flawed in more than one way, and most people have never asked themselves if they truly know why something works or it doesnt.

Sure, you dont need to know every fiber in your body to live, however, if your friend suddenly stops breathing wouldnt it be nice to know CPR? If your plane's engines fail wouldn't it be just swell if there was a mechanic on board that could possibly do something about it?

It is not vital that you know every piece of everything, but to understand how something works sets you up for success in that field. It doesn't matter what it is.

A mechanic doesn't need to know the chemical make-up of a piece of iron, but if he knows the melting point he would know whether or not he could use a welding iron on it...

And no.. to succeed in trading bla bla bla.. dont give me that stuff you read out of a trading book you picked up from barnes and nobles. This isnt a motivation feel good thread, we're here to discuss why/if things work/dont work and to see if people really know what theyre doing out there. To succeed in trading you make money, end of story. Let's cut the marshmellowy feel good stuff..

And you said "...saying to us its logical that currency X at certain price will be unsustainable due to effect on exports, savings, pension funds, mergers, and the other million variables..."

My rebuttal: I.. never said that...

And you said "...perhaps you have reached a stage where knowing the maths behind eveything, but you cant teach someone instinct/gut feeling/luck..."

My response: Nope, just calculus.. That's about as far as I go.. And gut = your collective sub conscience recalling past experiences.. You touch a stove, you know it's hot ect.. Never said you could teach that, nor do I think it is vital in trading

Your turn sir
  • #29
  • Jul 25, 2011 5:23pm Jul 25, 2011 5:23pm
Quoting superdezign
@frankkn

As much as I wanted to use the quote button, it seemed a little daunting having all that text sit above mine..

Ok first things first.. He referred to SD levels, which I am guessing he means "support and resistance"

Lets shoot for the question why...

Why does an SD level give you an edge? Tell me this and ill explain why it doesn't..

Your turn
Support and Resistance

will just take support for this example..


Support is a level where there was an overwhelming amount of buy orders and a lack of sell orders.. thus for the buyers to be filled price must move higher to where sellers are... higher

"support" levels offers an edge especially upon first return because there is often a significant amount of buyers waiting to enter at and below these levels

support and resistance is a stupid way to refer to supply and demand as most terms in the trading world


Your turn
  • #30
  • Jul 25, 2011 5:25pm Jul 25, 2011 5:25pm
I'm late meeting some people, supposed to be there in 6 minutes and it's about a 15 minute drive. Hopefully I can engulf the traffic.

Please feel free to 'disprove' any and all parts of my trading while I'm gone I will happily read and reply when I get back

Keep it classy fellas
  • #31
  • Jul 25, 2011 5:32pm Jul 25, 2011 5:32pm
[quote=superdezign;4808533]@nasir.khan

Haha thanks for the grammatical correction,

Havent slept in a few days..

As for the pin bars... They mean literally nothing. They would mean something if every market participant was staring at the same chart at the same time and we made all our decisions on the spot, but that is not how it works.

I have studied order flow, for a long time actually... and I found that it is too arbitrary to base a system on. Please prove me otherwise!

Reply to bold area:

I think that's wrong! According to Sam Seiden, you dont need everyone to buy at a level for prices to move up, but as soon as the last sell orders are filled, price will move up. So a lack of sellers will move prices up, not necessarily because everyone is buying.
  • #32
  • Jul 25, 2011 5:33pm Jul 25, 2011 5:33pm
Quoting monkey@forex
S & D...the way i look at is, think of bartering...its not an edge...but if you've bought goods at $100, chances are someone got it a bargain of $80, and chances are that theyre will be always some nut who wants to buy at $200, but in reality there will be plenty of pple willing to buy at $150...why would i wanna find the one nut willing to pay $200, when i can easily get out where everyone wants to buy/sell...so i made $50 instead of a hundred...or am i thinking too small and thats your purpose of this discourse
Hmmm your logic has a few holes in it when applying it to markets..

Who is to say $80 for whatever you are buying a bargain?

I get how SD levels work, you look for a level price has bounced off of and buy there, and I know it gets a little more complex than that, but I am assuming we've all heard of SD levels.

But stocks don't just move from one price to another for absolutely no reason. People have incentives.

Lets say prices made a high at 100 and are going back down to 80 where the last SD level was (low extreme, ect).. Well, as soon as it hits those levels and trades there all the market is saying is that the stock has no positive momentum, or at least not enough to trade above 80 yet. So you are buying at what is almost an equilibrium price in the market, which gives you really no edge at all.

Counterpoint?
  • #33
  • Jul 25, 2011 5:37pm Jul 25, 2011 5:37pm
[quote=pipexplorer1;4808708]
Quoting superdezign
@nasir.khan

Haha thanks for the grammatical correction,

Havent slept in a few days..

As for the pin bars... They mean literally nothing. They would mean something if every market participant was staring at the same chart at the same time and we made all our decisions on the spot, but that is not how it works.

I have studied order flow, for a long time actually... and I found that it is too arbitrary to base a system on. Please prove me otherwise!

Reply to bold area:

I think that's wrong! According...
Correct there only has to be more buyers than sellers at any given point in time for prices to move up, however, there are always people sitting on the sidelines. And the problem becomes, when do those people join up, and what side will they choose? When dealing with TA you arent necessarily looking at what an FA trader would look at, and vice versa, so both parties are entering the market at points that might seem odd to the other party. But their buying and selling decisions affect one another.

For example, an FA trader with a lot of buying power might dump his entire position where a support level is that TA traders like to buy at. That puts a lot of pressure on that price level that could knock the price under a support area, which to most TA traders would invalidate that level, however, the only reason it was made invalid was due to a decision that did not have much to do with that being a support level.

It boils down to the randomness and is that is what makes it almost impossible (remember.. this is only in my opinion) to be a TA trader. This is important, when TA traders depend on objectivity and precise R:R ratios to determine the success of their systems and methods..
  • #34
  • Jul 25, 2011 5:39pm Jul 25, 2011 5:39pm
My point wasnt suggesting that one should be totally ignorant, but over exceeding knowledge can induce analysis paralysis...

as for feel good factor? marshmallow feeling? the whole objective of trading is to make money...however self quantifying leads to objectives and goals...i may be happy with $100-$1000 dollars a day, should i feel unsuccessful if someone else made $100,000 on that same trade?

I understand your arguement that without knowing the strengths and weaknesses of your methodology, that you will never truely realize the potential or downfall of your method...personally, i have limitations timewise, mentally and resources to seek the understanding that you elude to that each trader should have...

if it works it works, if it dont, then it dont...
  • #35
  • Jul 25, 2011 5:42pm Jul 25, 2011 5:42pm
I would also like to dedicate this post to all the traders who have thanked me for being "civil"

I am doing my best not to offend anyone, and I am glad most people realize that. I feel like this can be a learning experience for everyone, including myself, and I want it to stay friendly.

If you take any part of my posts as "sassy", please understand, it is probably just my random obscure attempt at humor, I am not trying to get anyone upset.

Onto the next post...
  • #36
  • Jul 25, 2011 5:46pm Jul 25, 2011 5:46pm
Quoting superdezign
As for the pin bars... They mean literally nothing. They would mean something if every market participant was staring at the same chart at the same time and we made all our decisions on the spot, but that is not how it works.
Were you talking about something like a H&S pattern, trend line, or S&R level, your argument would be 100% accurate. Failure of large numbers of participants to subscribe to a particular outcome will engender a failure of the suggested outcome to materialize because there is no underlying microstructure basis for the suggested outcome of those patterns to occur on its own.

Unfortunately (for your arguments anyway), pin bars (specifically) are an altogether different animal. Unlike the example technical factors above, there IS an underlying microstructure basis for their formation.

To understand that microstructure basis requires a rather lengthy discussion, but it can be summarized as: Pin bars occur as a byproduct of large traders hunting stops. They are a "footprint" of that activity and as such, very much DO mean something. Namely that a stop hunt has occurred.

If I can digress for a moment; I'd like you to note that this invalidates your first assertion.

Anyway, as the byproduct of core microstructure processes, the behavior of pin bar traders has little to no impact on the eventual outcome of a pin bar event. Large traders hunt stops in order to accumulate price advantaged positions. Therefore, subsequent to a stop hunt (pin bar formation) one can have a reasonable expectation that (the much better informed) large traders have cause to believe price will move counter to the direction in which the pin bar formed. Furthermore, having accumulated a large position at the stops (which caused the pin bar mind you), large traders have an inherent incentive to both push prices in their desired direction and defend against any move contrary there to. As such, whether price action traders participate or not there is a statistically meaningful likelihood that the suggested outcome of a pin bar event will occur.

Please note that we have now invalidated your second assertion.

And as far as your overarching assertion that traders have no hope of success unless they understand the "why" of their systems; well I think we can call that one busted as well. Maybe 1 in 1000 price action traders understand that the above is the reason why pin bar trades are long term profitable. Yet there are many multiples of that ratio that successfully trade pin bars. One need look no further then the James16 thread to see the evidence in support.

So I pretty much have to disagree with you on all counts.

Sorry.

Quote
I have studied order flow, for a long time actually... and I found that it is too arbitrary to base a system on. Please prove me otherwise!


No offense, but somehow I doubt that you have studied it much at all. If you had, not only would you have found that there are many specific exploitable opportunities, you wouldn't be making the patently foolish statements you are.

Luck be with you.
  • #37
  • Jul 25, 2011 5:50pm Jul 25, 2011 5:50pm
Quoting superdezign
Hmmm your logic has a few holes in it when applying it to markets..

Who is to say $80 for whatever you are buying a bargain?

I get how SD levels work, you look for a level price has bounced off of and buy there, and I know it gets a little more complex than that, but I am assuming we've all heard of SD levels.

But stocks don't just move from one price to another for absolutely no reason. People have incentives.

Lets say prices made a high at 100 and are going back down to 80 where the last SD level was (low extreme, ect).. Well, as soon...

i think forex and stocks are very different...who says $80 is a bargain? only the information you have available to you...if the information is invalid, that is what a stoploss is for...sure, the stock could stay at $80 for 5years, or you wait for news and it breaches $85 and you jump on board...i guess that is momentum trading...point is...you can only act on the information you have, to predict is futile...
  • #38
  • Jul 25, 2011 5:53pm Jul 25, 2011 5:53pm
Quoting Darkstar
Were you talking about something like a H&S pattern, trend line, or S&R level, your argument would be 100% accurate. Failure of large numbers of participants to subscribe to a particular outcome will engender a failure of the suggested outcome to materialize because there is no underlying microstructure basis for the suggested outcome of those patterns to occur on its own.

[color=black][font=Verdana]Unfortunately (for your arguments anyway), pin bars (specifically)...
wait what!?! DS, I am kinda in shock you attribute pin bars specifically to stop hunting..

I would imagine there are several different situations that result in a pin bar and not simply stop hunting





I think this thread is beginning to show how everyone has a different way of doing things and everyone is going to in general, argue there trading method while disputing others methods.
  • #39
  • Jul 25, 2011 5:55pm Jul 25, 2011 5:55pm
monkey@forex;4808722 My point wasnt suggesting that one should be totally ignorant, but over exceeding knowledge can induce analysis paralysis...

Knowledge is power, I have never seen learning too much as a problem, as long as you are creative enough, and rational enough of a problem solver/thinker where you can sort out what can be efficiently used, and what will hinder your trading.

as for feel good factor? marshmallow feeling? the whole objective of trading is to make money...however self quantifying leads to objectives and goals...i may be happy with $100-$1000 dollars a day, should i feel unsuccessful if someone else made $100,000 on that same trade?

No, but all I am saying is
Success= profit (money made - initial account value) > $.01 ... Failure = loss (money lost - initial account value) >$.01... If you start getting technical, yeah that statement is not true, but for the most part it is. So therefore success in trading is obtaining profit. I am not saying set goals, because you can't force trades to happen, and you can't force what outcome you will receive.. But that is not what we are discussing, that is a whole other topic entirely.

I feel like a lot of books, seminar speakers, ect will tell you dont feel unsuccessful if you can't do this or that, just to keep people interested in trading, but let's be real here, everyone on this forum wouldn't mind a system that banked them 5k, 7k, 10k, ect a day.. Everyone's goal is the same, make money, and make as much as you can.

I understand your arguement that without knowing the strengths and weaknesses of your methodology, that you will never truely realize the potential or downfall of your method...personally, i have limitations timewise, mentally and resources to seek the understanding that you elude to that each trader should have...

If you lack time and have serious mental limits then you probably shouldn't be trading in the first place. Just like anything in life, you have to be a creative thinker, and dedicate a lot of time into something to get good at it. ESPECIALLY when you're playing a game where the LARGE MAJORITY fail miserably..

if it works it works, if it dont, then it dont...

That would be worthwhile advice if I haven't seen so many terrible systems work for a while, a decent while, then fail, and lose their operator tons of money...
  • #40
  • Jul 25, 2011 5:56pm Jul 25, 2011 5:56pm
Well I guess if i broke my system down to the very basics I only need to know two things.

1. Where has price been.
2. Where is price now.

If I have those two bits of information I can make a decision to trade.

Why does it work? Other than the 5 years of staring at charts until my eyes bleed I guess it works because it's the only two variables you can know for sure.

By the way I don't use indicators.
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