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

  • #81
  • Jul 25, 2011 7:45pm Jul 25, 2011 7:45pm
Quoting eurotrash
I agree with the OP (not that PA is dumb... PA is just PA, it's what's done to and with it that's dumb).



I disagree about the pinbars. A PB simply shows that, from x minute to y minute (or hour, day), the market went up and then went down. Or vice versa.
[list=1][*]That can happen for other reasons, e.g. market moving in a direction due to x, then y happens and the market makes an about face. Voila, pinbar.
[*]I'm sure we can all imagine a scenario where the market is moving up due to some real reason, orders (buy stops) are triggered...
Thanks for the post euro!
  • #82
  • Jul 25, 2011 7:46pm Jul 25, 2011 7:46pm
Quoting newyear498
or look past there chart in general, not that I'm not guilty of negating fundamentals myself.. :/
I got back to you in your PM btw
  • #83
  • Jul 25, 2011 7:46pm Jul 25, 2011 7:46pm
Quoting ha-pattern
That's a heck of a lot of mistrust.
If a TL or Gann Fan aligns with most of the chart exactly, there's only, fairly high % that the device used will work.
and then we come to the question.... why do you believe there is a high % that the 'device' will work?
Congratulations ScalaFX for coming out of the closet!
  • #84
  • Jul 25, 2011 7:50pm Jul 25, 2011 7:50pm
Quoting superdezign
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).
Still waiting my friend.

If you can't do it I'm certain that there are others here who can at least give me some sort of constructive criticism


BTW:

It has been a while since a thread has had this kind of energy, I'm looking forward to learning from everyone as there is some real potential here.
  • #85
  • Jul 25, 2011 7:56pm Jul 25, 2011 7:56pm
Quoting MaryJane
Excellent book, agreed. But it's enough for me to know that majority of swans is white; the rest is risk management.


I don't want you to disclose anything about your system, but just one question: Is your approach systematic? i.e. are all the pieces of your decision framework objective and quantified? If there's ANY discretion involved (including judgement of fundamentals), and if yes, how do you logically (and objectively) reason that subjective part? Upon consistency of own psychological factors? That would still be subjective, or not?...
Someone knows what they are doing! Very good questions!

Yes it is all objective. I based my system around one very simple statement, actually started with a large drawing board and all I wrote was:

When demand is greater than supply prices go up

and took it from there.. building upon that.. 5 years later I am the trader I am today. My method continues to evolve, and I stay active on trying to improve it whenever I get a chance, but all in all I can justify every decision I make...

What I love most about it is that it does not qualify under any real definition of FA or TA, it sort of exploits the market from a different perspective

Like what I told newyear in the PM I sent him...

I got to where I am today by asking the question "why" everytime I came across something I was unfamiliar with...


I was doing research a while ago and read that supply and demand functions are based in calculus, so I went to the book store and picked up two calculus text books and learned it.

That is the sort of dedication I think it takes to really become a good trader. I think, from the research I have done, that TA is sort of the "lazy approach" to trading. Because every indicator I looked at, every thing that claimed to be TA turned out to be flawed in some way or another. I could debunk any TA system, so I moved past it. Not saying certain parts about TA aren't valid, but I think people for the most part overlook those parts...

I am just here today to see if anyone could shed some light on the logic of TA...

PS - I think i picked up "Evidence Based Technical Analysis" a while ago, but never really buckled down to read it. I have read so many trading books I sort of just scan them now until I get to chapters that I think offer me something unique to learn.. Most of them say the same things..
  • #86
  • Jul 25, 2011 7:58pm Jul 25, 2011 7:58pm
Quoting frankkn
Still waiting my friend.

If you can't do it I'm certain that there are others here who can at least give me some sort of constructive criticism


BTW:

It has been a while since a thread has had this kind of energy, I'm looking forward to learning from everyone as there is some real potential here.
Ok, Ill look over it again now... Sorry, I had to keep up with all the other posts...

Give me a few minutes and ill have something for ya
  • #87
  • Jul 25, 2011 8:01pm Jul 25, 2011 8:01pm
Quoting MaryJane
Excellent book, agreed. But it's enough for me to know that majority of swans is white; the rest is risk management.
Spot on hot scone.

The mistake was for people to believe all swans are white just because they had not seen a black one. (Actually plenty of people had seen them, they just didn't live in a country where there was a stock exchange!) Since the discovery of Australia we now think all swans are either black or white, just because we have not seen a pink one. lol

But if all the swans in the world were to be randomly paraded in front of you, (lol again) and you had to bet on white, black or pink, with good risk management .. .. well

The point of the book to me is "do not treat your assumption as facts just because they have not been proven wrong." Your quote above is spot on.
Good Trading
  • #88
  • Jul 25, 2011 8:08pm Jul 25, 2011 8:08pm
Quoting superdezign
Ok, Ill look over it again now... Sorry, I had to keep up with all the other posts...

Give me a few minutes and ill have something for ya
Completely understandable I don't know if I've ever seen such a quick barrage of posts, you seem to be up to your armpits here

aud:

Hot scone holy shit hahahaha
  • #89
  • Jul 25, 2011 8:14pm Jul 25, 2011 8:14pm
Quoting aud
Spot on hot scone.

The mistake was for people to believe all swans are white just because they had not seen a black one. (Actually plenty of people had seen them, they just didn't live in a country where there was a stock exchange!) Since the discovery of Australia we now think all swans are either black or white, just because we have not seen a pink one. lol

But if all the swans in the world were to be randomly paraded in front of you, (lol again) and you had to bet on white, black or pink, with good risk management .. .. well

The point...
Yeah, problem is most people dont even have a theory about what color swans are in the first place... They take the "who cares, if it's a swan its a swan" approach..

Money management is important, but a lot of times that is just good for lowering your "risk of ruin"... Dont get me wrong, extremely important, but you can't base your trading method off MM alone..
  • #90
  • Jul 25, 2011 8:24pm Jul 25, 2011 8:24pm
I trade short term charts using technical analysis. I use Bollinger Bands, EMAs, RSI and Stochastics. I know what each does. I know that a very high percentage of the time, price does the same thing in relation to my indicators, thus giving me "signals" that I interpret as to the validity of them based on experience.

I also day trade stock and index options, and use similar indicators to help me determine the direction of price movement for the next day. If the before-market futures indicate the same direction, it is normally a good play.

I trade multiple full lots and routinely close a trade in less than 30 minutes in currency and I trade 25-200 contracts for options and routinely close within a couple of hours. It is not unusual to go 40-50 trades without a loss. Do I lose money? Sure, sometimes, but that is when you try to minimize the amount.

By watching the charts, I know when price does certain things in relation to the Bollinger Bands or RSI or even the EMAs, it will routinely follow a historical-type (and thus predictable with a fairly high degree of accuracy) "pattern". It is those "patterns" that I use to make money.

I do not use just one indicator, but several to give me a picture of what will most likely happen. So the defintions of each of the specific indicators are not what I use to determine a trade, but the overall picture that the indicators show will most likely happen.

It is by the use of the very technical indicators people often rave about being worthless that allow me to make a great deal of money. I don't think using indicators is for everyone, but I do know that knowing the meaning of trading terms does not make you a good trader.

Can I explain why price historically follows the same "pattern" in relation to my indicators? Generically, yes I can. Precisely, probably not. Perhaps I am not smart enough to do that, but I am smart enough to recognize when it is happening and use that knowledge to my advantage. And that is what trading is all about.

Just my 2 pips....
  • #91
  • Edited 9:00pm Jul 25, 2011 8:32pm | Edited 9:00pm
Quoting superdezign
Yes it is all objective......
Thanks for reply. I just asked since e.g. most people running threads is the Systems section are convinced their system is objective, while in fact it's very far from truth. My definition of objective system? Can be automated, at least to great extent. Glad to hear you have found your objective edge.

Quoting superdezign
I am just here today to see if anyone could shed some light on the logic of TA...
As a noob, I personally can't help much with that. I went through some PA/SR methods and ended up with SD zones (basically Seiden-style) as areas of possible entries and exits, so the same stuff as franknn is trading (cheers, excellent post btw, I even didn't complete Red's thread yet.. I'll join the party later on when I'll have something to say). I couldn't get used to exact pip levels - tried s/r lines (BRV-style), pivots, fibs, murrey math.. nothing exploitable for my nature, except perhaps in last few hours @5/15 chart.. I simply need zones. Yes and sometimes I take PA (pins, engulfings) into account, patterns like wedges.. stophunting patterns... I'm just aware of these animals and it helps. Loads. I have to admit I'm adding another factor - the way price behaves in extreme areas (tickwise) - that's pure screentime reflection atm, may seem discretionary but I'm pretty sure it is quantifiable and I'll definitely work on it with tick data to get some usable framework.. long way to go, possibly years. So my answer is yes, I certainly know what I'm after at least (and it's not the money, at least not in 1st case, lol).

Quoting superdezign
PS - I think i picked up "Evidence Based Technical Analysis" a while ago, ....... Most of them say the same things..
This one is a bit different.
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  • #92
  • Jul 25, 2011 8:33pm Jul 25, 2011 8:33pm
Quoting frankkn
Completely understandable I don't know if I've ever seen such a quick barrage of posts, you seem to be up to your armpits here

aud:

Hot scone holy shit hahahaha
Yeah no kidding!

So, I was going through the system that you posted, and I pretty much broke every rule down, what I thought about it, ect... Then I deleted everything I wrote...

Oh god why???

well, It wouldn't help you... or me... haha

What I am going to tell you next might though...

1.) You keep zooming in on shorter and shorter timeframes, and the markets are already random enough, but when you zoom in on shorter and shorter timeframes all you are doing is adding more and more noise to your chart, price movements that have no relevance whatsoever can be easily seen on 1M and 5M timeframes.. Not saying there is a golden timeframe to use, but when you set a parameter, like a timeframe you have to have a real good reason for using that timeframe or any parameter for that matter.. You should think for a while about what you are really looking at one a chart, try and figure out what information has weight to it and what information should be ignore, when it should be ignore, ect... A lot to think about, but hey this isnt suppose to be easy..

2.) There are a lot of rules you have that you just randomly assign to your system. The one I saw the most was the 2:1 R:R ratio... Which makes sense from a statistical standpoint, where you put up one unit of risk for 2 units of reward. But that take profit point does not make sense, because the market has to reach your take profit target a certain percent of the time, and I get the feeling that there has not been much research/testing done on whether or not it hits that target enough, and if it does, why does it consistently reach this target of yours? and does it make sense?

3.) Last thing, there is no way to prove that there are potential limit orders at whatever price you choose. If that fact is where you are going to derive all the demand you need from the market to turn a trade into a profit, then you should understand exactly why you place those limit orders where you do. And as always, how logical are these price levels, can you explain in detail why these these price levels (whatever prices you assign for your limit order) are the best places for an entry? What is going to drive the demand to the market at these prices?

This method (at this point in time) is the equivilent to walking in a room with an uzi and holding down the trigger while spinning in circles, you'll hit something every once and a while, but it will have nothing to do with your gunmanship.

You have some valid stuff in there too, but criticism is what you asked for sir...

Trying to play "where's the bank" is a game I gave up a long time ago, but break this method down a bit, try and stay away from setting parameters, understand what the charts really mean, and you might pick up on something I missed. Hopefully you do!

Let me know what you think...
  • #93
  • Jul 25, 2011 8:36pm Jul 25, 2011 8:36pm
Quoting MaryJane
Thanks for reply. I just asked since e.g. most people running threads is the Systems section are convinced their system is objective, while in fact it can't be far from truth. My definition of objective system? Can be automated, at least to great extent. Glad to hear you have found your objective edge.


As a noob, I personaly can't help much with that. I went through some PA/SR methods and ended up with SD zones (basically Seiden-style) as areas of possible entries, so the same stuff as franknn (cheers, excellent post btw, I...
You are headed in the right direction.. You ask the questions you should be asking, and you haven't just settled on any old system because you get a few good trades from it..

Let me know if you need any help whatsoever, I like how you think, and it would be fun to keep in touch.. PM me whenever!
  • #94
  • Jul 25, 2011 9:00pm Jul 25, 2011 9:00pm
Quoting moneymaker2
I trade short term charts using technical analysis. I use Bollinger Bands, EMAs, RSI and Stochastics. I know what each does. I know that a very high percentage of the time, price does the same thing in relation to my indicators, thus giving me "signals" that I interpret as to the validity of them based on experience.

I also day trade stock and index options, and use similar indicators to help me determine the direction of price movement for the next day. If the before-market futures indicate the same direction, it is normally a good play....
Hmm

Thing about using all those indicators at one (Bollinger Bands, EMAs, RSI and Stochastics) is that they pretty much all measure the same thing..

Bollinger bands are a little different, but they are merely an SMA with other averages placed X standard deviations away from the original SMA... Just tells you if price is going up or down a little more than it usually does. Which will change depending on the volatility of the market, and without any excess demand entering the market..

If you use EMA's, Im guessing you either use a cross or a retrace to a particular EMA...

My thing about crosses -- they lag like it's their job, and by the time you get a signal all sorts of demand has been spent on the market. I dont see an edge here.

My thing about retraces -- an EMA is an SMA that puts weight on certain prices of the SMA, however basically it measures the average price over a given period, which if you think about it, an average price is more or less an equilibrium price, and if you buy at an equilibrium price you are not buying with any real demand backing you.

Plus they all use parameters, which is form fitted and optimized for a certain time period in history, which sported a certain volatility that will eventually change, and then your parameters are no longer valid.

What I do not understand is how in a market with random events these formulas with fixed parameters can assist you?

I want more than 2 pips, give it to me
  • #95
  • Jul 25, 2011 9:00pm Jul 25, 2011 9:00pm
Quote
1.) You keep zooming in on shorter and shorter timeframes, and the markets are already random enough, but when you zoom in on shorter and shorter timeframes all you are doing is adding more and more noise to your chart, price movements that have no relevance whatsoever can be easily seen on 1M and 5M timeframes.. Not saying there is a golden timeframe to use, but when you set a parameter, like a timeframe you have to have a real good reason for using that timeframe or any parameter for that matter.. You should think for a while about what...

Interesting. My choice of time frames has come from my personal experience, no back testing or anything like that.

I do hold the belief that when price reaches a level I'm considering for entry (according to the method I've outlined, generally M30) a M5 engulfing demonstrates to me that the anticipated imbalance exists. Of course this is not always true and is also subject to "gut feeling" as I don't take every engulfing as mentioned in my green post.

I don't look at every M30 level, as I've explained in my green post how I decide which ones I'm interested in.

If the level I've identified demonstrates to me that there is an imbalance in willing demand/supply through for example an engulfing that I "like" I tend to win more often than I lose. Of course I don't have years of evidence to back this up, as I'm only 23 and have been at this for only a couple of years.

Quote
2.) There are a lot of rules you have that you just randomly assign to your system. The one I saw the most was the 2:1 R:R ratio... Which makes sense from a statistical standpoint, where you put up one unit of risk for 2 units of reward. But that take profit point does not make sense, because the market has to reach your take profit target a certain percent of the time, and I get the feeling that there has not been much research/testing done on whether or not it hits that target enough, and if it does, why does it consistently reach this...

The 2:1 thing is to keep me focused on profit margin. I want to make sure that my position has the potential to make me more than I am risking. As I explain in my green post aside from making sure I have a reasonable profit margin, I want to be able to look back and say that my average winner is at least several times larger than my average winner.

Also per my method, my target is set based on market structure. I generally will target opposing supply levels if long, set sms alerts, and go do something fun with people in the "real world".

Quote
Last thing, there is no way to prove that there are potential limit orders at whatever price you choose. If that fact is where you are going to derive all the demand you need from the market to turn a trade into a profit, then you should understand exactly why you place those limit orders where you do. And as always, how logical are these price levels, can you explain in detail why these these price levels (whatever prices you assign for your limit order) are the best places for an entry? What is going to drive the demand to the market at...

I failed to specify that I enter at the market upon the close of the specified bars, not on limit.

The logic to me, is that these levels are levels of imbalance. I choose the levels based on discretion as well as the rules I've mentioned. The PA tells me if the imbalance exists. Both the levels and PA are largely influenced by intuition.

As far as what is going to drive the price to these levels, price may never reach my levels. If this happens I don't trade. The only idea I have at this point as to why these levels are "driven" for is parasitic stop hunters, as many times my levels also have stops just below. The reaction here I can use my gut feel and interpretation of price action to see if the stops were used to fill larger positions.

Quote
This method (at this point in time) is the equivilent to walking in a room with an uzi and holding down the trigger while spinning in circles, you'll hit something every once and a while, but it will have nothing to do with your gunmanship.

Sounds like a BLAST.

My neighborhood is riddled with bullet holes, I really enjoyed this one. I once made a thread in the lounge about motorhead but that is a different topic entirely (never saw him again btw)

Quote
Trying to play "where's the bank" is a game I gave up a long time ago, but break this method down a bit, try and stay away from setting parameters, understand what the charts really mean, and you might pick up on something I missed. Hopefully you do!

Let me know what you think...

These are the kinds of comments I was hoping for, thank you for taking the time to read and respond while you are nipple deep in ruffled feathers.

Please elaborate on what you mean by "where's the bank".
  • #96
  • Jul 25, 2011 9:10pm Jul 25, 2011 9:10pm
Quoting frankkn
Interesting. My choice of time frames has come from my personal experience, no back testing or anything like that.

I do hold the belief that when price reaches a level I'm considering for entry (according to the method I've outlined, generally M30) a M5 engulfing demonstrates to me that the anticipated imbalance exists. Of course this is not always true and is also subject to "gut feeling" as I don't take every engulfing as mentioned in my green post.

I don't look at every M30 level, as I've explained in my green post how I decide which...
If you think just by setting your take profit at a price point 2x the size of your stop loss is from your entry increases your "potential" profit then answer me this...

Why not set it 15X away and then you have a 15:1 ratio!?!??!

You - "Well because it would never hit it"

Me - "What are the odds that it will hit a 15:1 vs your 2:1 and, could be the same, you don't know for sure since I bet you never thought about a 15:1 ratio. And those statistics aren't good enough, why does a 2:1 work better? (if it even does)"

And let me tell you something about imbalances, they really only last for a heartbeat, especially on those really small timeframes you jump in and out of, and it is almost impossible to predict where price will end up if there is an imbalance..

Oh, and wheres the bank, its just trying to pick out support and resistance levels... not recommended..

Let me know what you think
  • #97
  • Jul 25, 2011 9:24pm Jul 25, 2011 9:24pm
Quote
If you think just by setting your take profit at a price point 2x the size of your stop loss is from your entry increases your "potential" profit then answer me this...

I set my target based on market structure. As I've explained, what I mean by market structure is opposing supply zones (in a long example). The 2x risk is something I consider before entering a trade to make sure that my realized reward has the potential to be larger than my realized risk. I don't set my TP at 2x my risk. You can look at it like this: if my chosen target supply zone is at 1.5x my risk I don't take the trade. Hope this clears this up

Quote
And let me tell you something about imbalances, they really only last for a heartbeat, especially on those really small timeframes you jump in and out of, and it is almost impossible to predict where price will end up if there is an imbalance..

The imbalances that I'm looking to trade aren't on the really small time frames, unless you consider M30 to be really small. I only use M5 for proof that the imbalance exists.

Interesting that you say it's impossible to predict where price will end up if there is an imbalance. The way I look at it is, I identify a level where there recently was an imbalance, then I look for further confirmation that the imbalance does in fact exist. When I determine that the imbalance exists I enter. Next I try to reduce my exposure according to my gut feel. The effect this is it makes my realized reward much greater than my realized risk.

Quote
Oh, and wheres the bank, its just trying to pick out support and resistance levels... not recommended..

Although support and resistance traders consider their SR to be supply and demand zones, I would not consider the levels I identify to be SR. I can see how one may argue this but to me it is largely subjective
  • #98
  • Jul 25, 2011 9:38pm Jul 25, 2011 9:38pm
Quoting superdezign
What I do not understand is how in a market with random events these formulas with fixed parameters can assist you?

I want more than 2 pips, give it to me
The way I see to make money trading is to do the best you can at predicting what price is going to do. For me, I have found that predicting shorter term price moves is a lot easier than longer term (days or weeks). When I first got into trading years ago, there were no forums like this (thank goodness, or I would have been told I can't do what I'm doing by people that can't do what they're doing!), so I learned on my own, trial and error. I found some people that traded better than I did and picked their brain. When I got as good as they were, I left them and found others that were better. I am a firm believer that you need to learn something from someone that has actually done it and is at a higher level of -whatever- than you are. I came to the conclusion that making money in the markets, no matter what market, is based on the ability to predict the direction of price with a fairly high degree of accuracy.

Think of this in terms of bass fishing: sometimes the hottest bait in the spring is a chartreuse shallow diving lure. Now nothing in nature actually looks like that, so you are not imitating a natural food source like shad, but by gosh, it sure puts fish in the boat!! You may not know why they like it, but you use that knowledge to your advantage. Just like the price doing pretty predictable things in certain instances. And it is those instances that I use the indicators to tell me are coming. The individual events that cause the markets to move may be random, but the overall effect doesn't always appear to be.

I use BB as the "fencing" around the price....when price gets way out of the fence, it gets back in pretty quickly (like the EUR/JPY just did!). EMAs, like you said, act as the next logical support and resistance levels. Though it may only be for a few minutes, that may be just enough to pull in those profits.

RSI, at the extremes, help you to see at a glance if the pair or stock is overvalued or undervalued, and like the BB fence, price doesn't like to stay at the extremes very long.

My goal is to make the most money I can in the shortest time possible....so I trade aggessively and only trade the high probability trades. So far, it has worked for me.

Okay, that's at least 4 pips worth....
  • #99
  • Jul 25, 2011 9:43pm Jul 25, 2011 9:43pm
Quoting frankkn

I set my target based on market structure. As I've explained, what I mean by market structure is opposing supply zones (in a long example). The 2x risk is something I consider before entering a trade to make sure that my realized reward has the potential to be larger than my realized risk. I don't set my TP at 2x my risk. You can look at it like this: if my chosen target supply zone is at 1.5x my risk I don't take the trade. Hope this clears this up



The imbalances that I'm looking to trade aren't on the really...
Yeah, I saw the chart from your first post about your method..

In order to call those "supply zones" you have to make a few assumptions that I'm not sure we can verify...

The most important being that the ratio of buyers to sellers is still the same at those levels (which is highly unlikely, since the marjority, and most forward sellers have already made their move, their actions have been absorbed, and thus goes the market.

Also the variables that made that a supply zone to begin with have changed, the most important variable being time.. that last statement is super important btw

The biggest catch 22 is if there is/was truly an imbalance you will probably not see those price levels again, if there isnt, you will probably trade in, over, all in those levels for some untold amount of time.
  • #100
  • Jul 25, 2011 9:45pm Jul 25, 2011 9:45pm
Quoting superdezign
Let me know if you need any help whatsoever,...
Well, I have a bad habit of having to find out everything on my own, but thanks however, for kind words and generosity.

i'm gonna play this where's the bank game,
there's a nice one in GBPUSD, just 50 pips above us,
will watch for bull exhaustion signs if she gets there,
maybe i'll rob some pips there soon, maybe not,
probably yes.

may this thread continue in a constructive manner, best of luck bye.
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