Debate on technical tools

What i wan to accomplish with this thread is to, discuss ideas on trading and how to efficiently use our resources to make sound, discretionary trading decisions. So discussion input, and clarifications are welcomed.

we all hear the old cliche 95% of traders fail, and some how everyone seems to believe there is a hidden EDGE, a secret that eludes traders from obtaining their goals. i believe however that there in fact is no secret and that the so talked about edge does not exist.

through out the trading world there is countless strategies, systems, theories, and all in my opinion have at their core one fundamental flaw. THE PREDICTION OF PRICE ITS SELF, that cannot be predicted.

i am not going to give a lecture here on market structure, but if you knew how money is created and how we came about our wonderful free floating currencies, this becomes more obvious, money is not just a financial instrument, it is a political instrument. the Federal Reserve who can print dollars, the very standard of measurement, in the system whether you are trading EUR/USD or CHF/YEN (usd/chf vs usd/jpy) its all dollar based. the Central Banks, Inter Banks, Corporations, institutions, hedge funds etc are all moving money around some times for profit sometimes not intentionally for profit, but they all want to reduce risk.

now we somehow got fooled into thinking that elliot wave, harmonics, patterns, formations, bollinger bands, stochastics, moving averages, macd, parabollic sars, etc can predict when why an institution is hitting the book with massive blocks of orders, or an Bank moving their reserves.

i dont believe technical tools are useless i just want to debate on the PROPER use of them.

starting with the moving averages, calculating x amount of candles, to average a price. but why? is it that we want to know what the average price of the last 12 is ? dont tell me interactive support and resistance, or smoothing effect, if you take away that anoying lagging line of the and just use the AVERAGE what does the average really tell us?
momentum? acceleration from the average price?
we could do that with candles alone? standard deviation? like a bollinger band measure of volatility? a perspective of high or low price?

what are RELEVANT measures, that we need to know about the market we are trading, an environment where oncoming price feed moves quotes in either direction with our candles painting a picture on a chart, and chopping it into blocks of time creating ARTIFICIAL time frames that in reality do not exist.


my contribution to this debate is that in order to make rational, discretionary trading decisions we need to know.

volatility= variation in price over time, to know what are the realistic deviations

capacity= probable or possible sustainability of an environment or how many pips is realistic to extract from the market.

conviction in order flow = strong opinion or prevalence in orders which appears as direction in the charts (bull ,bear, ranging)

velocity= related to range and usual pips traveled per trading day/hour etc

momentum= acceleration/deceleration of quotes moving away in either direction (big candles smaller candles) between selling and buying pressure there is a stall in direction or a delay that can be exploited

looking forward to sharing views and ideas

an important measurement i failed to mention is the measurement of risk.

how can we measure risk, mathematically risk is defined ast

R=(probability of event)(expected loss)

If you can not use whatever it is you chose to use (by "you" I mean a trader, not you specifically) to predict the direction of price movement, then you are basing your trading outcome on luck. When I get into a trade, I am very confident, barring any unplanned news, that the currency pair in question will move a certain direction. Since I am looking for smaller pip-size movements (10+), the short term movements become easier to predict.

I know you don't want to hear it, but MAs DO act as interactive support and resistance. Just looking at a chart will show that (though you must understand how the different time frames relate to one another and have the proper MAs to begin with).

BTW: If you are just looking for a suitable method for you to use, just say that. You will get a much better response of people trying to help you than if you hide under the guise of "debating" why something works for someone else. People get tired of trying to help others and it turn into a "Prove-it-to-me-by-showing-me-exactly-how-to-trade-and-show-me-all-your-statements-and-charts-and-give-me-your-password-to-your-account-because-I-don't-want-to-put-in-the-time-and-effort-myself-"-type of discussion.

My recommendations are to 1) be careful or you will subconsciously make trading harder than it really needs to be, 2) remember that trading can not always be broken down into mathematical formulas, and 3) keep an open mind on what works and what doesn't. I can't tell you the number of times I have shown people some of the things I use and they tell me it doesn't work....and I keep making money day in and day out with it. Don't let your ego keep you from becoming financially independent!

My 2 pips.....

no its actually a debate or discussion
on proper Use instead of the current mantra of marketing magic bullets

i mean, your smaller targets are hit because they might be within market capacity itself, and as long as you have a feel for direction, trades are easier to manage. understanding momentum and where orders are likely to go within the next 10 pips by intuition does work, i believe you are profitable.

moving averages and their lagging lines fit the criteria of illusion of support and resistance due to their accommodation to price itself expo-facto.

i do have a big ego and that is a flaw in and within itself however i am not looking for help on how to trade i have my own firmly held theories that my self have observed. i am looking for intelligent conversation as most people i talk to have no clue about trading and cannot offer much discussion on the matter

Good deal!! I look forward to be a part of the discussions...

for example profiting from volatility many traders use different tools that are all in fact one and the same in concept

Bollinger Bands, which have simple moving average, standard of 20 with deviation of 2, in order to understand this tool one needs to know what a standard deviation is, a variance. and what the bands attempt to profit from is actual future volatility.

by criteria of oversold over bought same as the stochastic tool, but why does it fail? in my opinion traders looking for bounces, and strategies on the band fail to realize that is only a tool that has no predicting quality but measurement of as i said before actual future volatility, this is why it works well in ranging markets.

it is the same as Support and Resistance, except that the trader follows the volatility in a actual current volatility style, and profit from the deviations with out the illusion of the moving average and future volatility prediction.

yet volatility whether actual current or actual future, still doesn't predict the behavior of the interbanks, and central banks as well as institutions, investors, hedge funds and corporations. hence the break in this levels as price direction itself is not predicted by volatility predicting methods

However it is imperative to know, what is possible, and what is probable as far as price variations goes, in order to objectively know and understand when our opinions and estimations on market convictions are wrong in other words when the direction estimation was wrong and in fact we are trading against the so call trend.

s/r traders call this a break in support or resistance
bollinger band traders call this walking the band

i call this being screwed

A lot of trading is watching and seeing how things move and react. These things tend to repeat over and over. Take BB, for instance....think of them as a fence, with price not wanting to be outside that fence for very long. So when price gets outside the "fence" it wants to get back in pretty quickly. Using that knowledge, you can use the BB to "predict" what price is most likely going to do and the level at which a safe trade can occur.

(NOTE: I trade pretty short term with a 10+ pip goal. I have found it much easier to predict 10 pip moves than 100 pip moves...)

Sorry for the chart resolution, but I have since figured out how to make them better in the future.

let me ask you why are you using EMA as opposed to WMA, SMMA, OR SMA? and why those settings?


i can understand your strategy perfectly, you are using bollinger bands to help you calculate standard deviations, as to know what is within the realm of normal price variance, and the strategy also takes advantage of momentum, as acceleration of price reaches exhaustion point, you shorted it anticipating a
normal correction.

so in essence you dont necessarily care to follow general market sentiment aka trend. you take advantage of short volatility.

but why the EMAs?

an EMA exponentially drops the last period and uses a very complicated mathematical algorithm to put more weight on the most recent candle. and on a 30 minute chart (5)(30)= 2.5 hours exponentially adding more weight to the most recent 30 min.
and 5 hours exponentially weighted, which in actuality would be something like 9.25 hr is i made my math correctly?

what is the actual rationale behind your strategy, which you proved it works, but how are you using your indicators to measure and take advantage of your utilization capacity

also if for example instead of a reversion to the mean, or correction, it was an actual bullish influx of orders accelerating away from your entrance point, how would you deal with it? what is you contingency plan?

Moneymaker2 I enjoy reading your posts and I would love to learn to trade profitably like you, I have a question if you dont mind.

Why did you go short when the bull candles went outside the BBbands>? The middle Bband was pointing upwards, how did you know it was going to pull back? On the same chart you have candles going outside the bands resulting in upward and downward trends. I read what you said about price wanting to stay within the bands..and the market ranges most of the time..so if you trade these little pullbacks then I assume you`d be right most of the time?? thanks alot

My most indispensable technical tool is definitely the moving averages. It takes years to learn how to trade with them profitably. There are dozens of nuances that are not readily obvious from just looking at a moving average. If you oversimplify the moving averages and just call them a lagging indicator that doesn't work, then you are missing out. I can't speak for other indicators; but there may be ways to profit from them also especially if you have been studying them for an extremely long time.

this is good but would you care to explain?

as far as i know a SMA can average the price for a given period of time
on a one minute for example a 60 sma averages the hourly a 1440 sma averages out the daily

simply the number average can help with
deviation from the mean, so a volatility tool is built in
can measure price momentum by acceleration from mean
can assist in identifying consolidation and distribution areas as it curves and catches up to price signaling a loss in order flow conviction
and signals the start of different market form as prices begin to be trades above or below the average (this can be done with out looking at the lagging line)

but what other uses do you find for them, so new traders can measure the market and stop blindly following tricks and regurgitated mechanical systems

MAs can only be appreciated after you have put in thousands of hours of screen time. Just hard work!!

I tried all of them, putting them on the charts using different time periods and different settings...I used EMA in stock trading, and EMA seemed to be the best at predicting the point where price will hover (ie support/resistance) in currency, too, so that is the one I have stuck with...

Nope. I didn't calculate anything. I saw price outside the BB, knew it wanted to get back in, and based on many hours of observation, knew it would go down to at least the first EMA, so it was a very safe, 10 pip trade.

Don't make this more complicated than it is...

Be careful you don't make this more than it is!! "Utilization Capacity" sounds great, but means nothing....Price was outside the BB, I knew it wanted to come back in, and the next stop would at least be the first EMA. Period. No big words, no calculations, nothing amazing about it.

A very eloquent way to say if it went the other way, what would I do? Simple...get out of the trade.

I can't express enough that a person can easily get so bogged down in the definitions and formulas and key words/tricky phrases that you lose sight of the goal, and that is to make money. You get no points for any of the other stuff.

You always need to check other time frames to validate what you are seeing on one. I use the 15 minute, 30 minute, 1 hour and Daily charts....they seem to work well as the first three are half of each other.

This is what it looked like on the 15 minute chart, which confirmed that it would go down.

the point of this thread is to know the logic behind why we use the technical tools we use and understand why they work

simply its out of the fence and wants to get back in, other traders would say it was overbought, it pierced the band.

but if you take away the band.....other traders would come to the same conclusion but WHY???

as i stated above my rationale behind your strategy is simply that you are profiting from extremes in deviation = volatility
and you are expecting a correction after an acceleration= momentum

(2 of what i believe essential for profits) so in essence your strategy which does work, measures the volatility and momentum of price

The simple MA has been my only techical indicator for some years now. Not the cross over. lol. Just plain simple MA.

It simply gives me an idea of bearing. A lot of traders do not really consider an SMA an indicator in the sense of trade trigger, etc.

Being basically a counter trend trader, it's been indispensable.

King.

Which is easier to grasp?:

1) i can understand your strategy perfectly, you are using bollinger bands to help you calculate standard deviations, as to know what is within the realm of normal price variance, and the strategy also takes advantage of momentum, as acceleration of price reaches exhaustion point, you shorted it anticipating a normal correction, or

2) When price gets outside the BB, (overbought or oversold), it wants to get back inside.

As I mentioned before, I recommend that you don't make trading harder than it needs to be. I have seen many people suffer from acute Analysis Paralysis....

I know people able to explain, in detail, why the chart looks the way it does and why price moved over time the way it did.....and it took them several years to be able to do that.....and nearly every one of them were still trading demo or microlots. You can't spend your trading career getting ready to get ready...I am not saying it is not important to know the basis for how you trade or how your indicators work or what they mean or even why you chose to get into a trade.....just don't lose sight of why you need to know that: so you can trade profitably.

In trading, you get no points for trading with or without indicators. You get no points for being able to calculate EMA by hand. You get no points for knowing the technical aspects of why price is above the BB or RSI is above 90. You get no points for being smarter than everyone else. You ONLY get points for making money!!

Good trading....

This seems to be blowing over everyone's head. Can we talk about S/R instead redlion? I don't really know shit about indicators so I can't add to that discussion.

If you don't mind I'd be interested in hearing your opinion on S/R first.

as i said earlier i believe that prices cannot be predicted, but the behavior of price obviously can be anticipated. i personally focus on measuring the market to tell me tangible information as to base my trades. i believe there are patterns in the behavior of price movement.
direction
volatility
velocity(momentum, acceleration)

In my observations, the reason behind why, support and resistance, supply and demand zones, Bollinger Bands, work has to do with deviations, and price variations from the mean.

while Bollinger Bands concern themselves with forecasting actual future volatility
Support and Resistance profits from ACTUAL CURRENT VOLATILITY, it doesn't calculate standard deviations like the BB,

what it does is it draws a range in price variations, at resistance which is no resistance at all it is simply extreme point in volatility in the higher end of price and support is just the inverse.

but in reality s/r have no predicting quality, in and of itself, a trader needs to also look at conviction of order flow or direction as seen in a graphical chart.the market is either ranging, bullish, or bearish, identifying the prevalence in orders or direction of the market in addition to probable price variations is crucial.

s/r traders place stop loss orders above S/R areas? why? because they expect them to be away from volatility and expect to profit from mean reversion.

that is why velocity, momentum, which price action traders focus on. volatility which BB, S/R, supply demand, traders focus on, and direction which MA traders focus need to be combined.
as well as a solid contingency plan, in case of price moving against our positions.

Mine and your trading style are wildly different(I rely heavily on prediction) but I do think we share a similar opinion on S/R. I don't know anything about supply/demand zones or BBs or why people use them and I don't see a point in commenting on your trading style so I'll get the center of the discussion.


Doesn't that depend on what type of predictive quality you are looking for? Would you agree that S/R has a predictive quality in that bounces will consistently occur at S/R levels? I'm of the opinion that edges are blatant. This is the single most blatant edge I've noticed with S/R and exactly why I use it. I'm never looking for an S/R level to predict direction but I am looking at them for an entry once I've determined my directional bias.

E.g. Show me a bounce and I'll show you an S/R level it bounced off of. I understand this exercise is hindsight but that isn't the point. The point is that bounces happen at a S/R levels. I know there are times when there's no S/R level to reference but I use other strategies for these situation.