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Technical Analysis alone will not give you an edge

  • #61
  • Oct 31, 2015 1:38pm Oct 31, 2015 1:38pm
Trading profitably is EASY, very EASY. The very difficult part of trading is the arduous process to make profitable trading EASY - so easy you don't have to do a thing, nothing!
  • #62
  • Oct 31, 2015 1:40pm Oct 31, 2015 1:40pm
Quoting skyway
Trading profitably is EASY, very EASY. The very difficult part of trading is the ardous process to make profitable trading EASY - so easy you don't have to do a thing, nothing!
Yes. It is like planting a seed. You don't have to do anything but put the seed in the ground. The rest just happens and you enjoy the result.
You cannot be extraordinary by being normal
  • #63
  • Oct 31, 2015 4:42pm Oct 31, 2015 4:42pm
you are right ,to apply mathmatical theory to something like the market ,find its random ,then suggest tech analysis dose not work on that basis shows
no understanding of what the market is , analysis is about Human Psychology in one form or another


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Quoting mirrfx
forex price movement is never random event due to this factors/results in play.Some points included by early responders. 1. Forex Traders and investors are human and they influence the ups and down movement of price.Overall price movement is the reflection of trader's emotion,logics,belief,habits,mistakes,success,projected beliefs,greed,fear etc etc. 2. It is a continuose auction events and this events are influence by demand and supply forces 3. Human psychology and behaviours are fairly predictable because human beings are creatures of habits.The...
On-site guru & also FF member's' psychiatrist, when not drinking tea
  • #64
  • Oct 31, 2015 5:15pm Oct 31, 2015 5:15pm
Quoting the redlion
Good evening my fellow traders, I have been a student of the market since 2011 when I joined FF. The entire concept of investing, and obtaining profit through fluctuations in price movement has fascinated me. I have not been fortunate enough to blow accounts as many of you have, I enjoyed relative success in the markets earlier on which fueled my hubris. I erroneously surmised that observing charts, learning patterns, using some sort of money management system and discipline was responsible for my success. I have studied Technical Analysis tools...
There are many knowledgeable people in this world. Knowledge has value if you use it for the benefit of yourself or for others. Unfortunately, many people use it to prove that something can not be done. In this case knowledge has no value because knowledge is bounded. Therefore it can not be used to prove that something can not be done. There are probably only two kind of people successful in this business, those who use their knowledge only for their own benefit, and those who know nothing but can see clearly.
  • #65
  • Oct 31, 2015 8:58pm Oct 31, 2015 8:58pm
it is all thesame , is it a plane ? , is that a bird , the beauty by the beholder . Ta is the basic crap , it dont pass , dont get to what ever the bets .
  • #66
  • Oct 31, 2015 9:11pm Oct 31, 2015 9:11pm
Quoting alphaomega
I personally don't believe in true randomness, and chance..... When a person say that something is random what he actually is saying is - "I don't understand this". That's the truth. We don't really understand how the world works! I see that you have done your home work and you put some real effort to investigate in attempt to find the truth. But I think that you are digging in the wrong place.(like most traders) You will not find anything in the price history, because there is nothing there...... You know "Allegory of the Cave" ? Where the prisoners...
Correct me if I am mis-interpreting your argument, it seems to me you are in agreement with my claim. Technical Analysis alone and by that I mean any type of historical price data plotted in a chart along with any other derivative there of, does not bring an edge. What you are alluding to here is Fundamental analysis, the drivers that cause the behaviors of the participants. The economic activity of the country including exports, current account balance, interest rates, and monetary policy. If this is your point, I agree with your view. I will also claim however that Fundamental analysis falls in the same trap of predicting by attempting to correctly anticipate behavior... and as we all know we cannot account for all variables that will drive currencies.
AVT INVENIAM VIAM AVT FACIAM
  • #67
  • Oct 31, 2015 9:19pm Oct 31, 2015 9:19pm
Quoting kprsa
I only use technical analysis. It works well. I am not rich, but trading gives an additional ice-cream money. I think you complicate too much. Here is a proposition for a ridiculously simple technical system that should make money (as it makes sense). Timeframe and instrument acording to one's preferences. You use two indicators based on moving averages (!). Price and volume oscillator. Both operate using a difference of two moving averages of price or tick volume, respectively. The parameters of the oscillators should be set to the same value....
I think you are Jumping the gun on this one, you have assumed the market has persistence.... trend, how do you know that?

here is where the Hurst exponent, I though would be useful to actually test this hypothesis, However from a sample size of 4227 log returns, it shows H =
> hurstexp(x)
Simple R/S Hurst estimation: 0.5614027
Corrected R over S Hurst exponent: 0.5815521
Empirical Hurst exponent: 0.5223035
Corrected empirical Hurst exponent: 0.5014898
Theoretical Hurst exponent: 0.5211121

you see I have ran many randomly generated, normally distributed data points that have yielded similar readings... which leads me to believe that the small H>50 readings I am getting may not be that significant.

as you can see on the plot of returns, even random data shows trend.... correct?

so if our market is in fact so chaotic, so unpredictable, that it acts so random-like as a random data then it would logically follow that we cannot profit.

you see to be able to BEGIN searching for ways to exploit the market we must first establish that it is in fact not random.
AVT INVENIAM VIAM AVT FACIAM
  • #68
  • Edited 11:15pm Oct 31, 2015 9:20pm | Edited 11:15pm
Nice thread Red :-)

One of the important messages emanating from the answers found in the responses is that your viewpoint on the degree of randomness shapes your underlying philosophy, belief systems and the way this is ultimately manifested in your trading behaviour.

I must admit that my philosophy lies in the camp of 'unpredictability through complexity' as opposed to randomness in the true sense of the word. This viewpoint stems from the extensive works undertaken during the reign of 'Efficient Market Hypothesis' whereby there was sufficient doubt cast on market predictability to suggest that while there may be some room to move for non-randomness during specific market events such as high impact news or crisis events, by and large that room for any non-randomness was limited to such an extent that only a concept of market drift could perhaps lie lurking somewhere in the otherwise random price jitters.

Despite my 'loathing' for the EMH, as being a trader, I am fully aware of my own inefficient practices, I at least have to respect the work that was done during this era of EMH as much of it was valid, despite the simplifying assumptions that were made. My gripe with the EMH however is similar to my gripe with other systematic science models or mathematical extensions that utilise simplifying assumptions to make calculations tractable. Inevitably these simplifying assumptions are the 'root causes' for the dillema and where new theories arise from recognising that in overturning the assumptions, a better more accurate representation of empirical evidence is found.

IMO systems can never be simplified or reduced to component parts as this inevitably ignores the inter-relationships and dependencies that are necessary pre-requisites for why there are systems in the first place. Systems are always gloriously complex, inter-related and evolving in nature. In an evolving organic system, what works today is not guaranteed to work tomorrow and in that sense my philosophy therefore shapes the way I trade and is expressed in my 'survivalist' tendencies and appreciation of the need to avoid 'noise' and predate on occassional fat tails of non-randomness from collective irrational market behaviour when markets cease being efficient from time to time.
  • #69
  • Edited 9:49pm Oct 31, 2015 9:34pm | Edited 9:49pm
Quoting the redlion
you see I have ran many randomly generated, normally distributed data points that have yielded similar readings... which leads me to believe that the small H>50 readings I am getting may not be that significant. as you can see on the plot of returns, even random data shows trend.... correct?
That's good thinking Red. It actually is those small deviations from randomness that interest me and what (IMO) delivers 'alpha' over the long term for specific styles of strategy that address this possibility. If there is some small non-random element in the price data, then that's all you need to compound wealth, but your trading strategy needs to be specifically configured to trade any apparent drift and this is where your methodology needs to depart from traditional technical analysis and venture into more statistical methods. Here is an interesting read on the subject.

For example a long term CAGR of say 1-3% over say a 20-30 year period per instrument on average when employed in the context of a diversified minimally-correlated portfolio of say 30 to 40 instruments provides the necessary compounding grunt 'bias' to lead to significant wealth accumulation provided that drawdowns can be managed over this timeframe.
  • #70
  • Oct 31, 2015 10:01pm Oct 31, 2015 10:01pm
Hi Red, it's been a long time since we last spoke, and I hope you are well. I agree with you on at least one point, that TA, alone, is insufficient in providing an edge. However, randomness is not the issue. There is a structure to every currency pair, and within that structure, there are repeating patterns that occur within the structure. Understanding structure allows you to predict movement; TA helps you determine if you are entering trades with or against the big market movers. That's not to say that currency markets do not behave in a random manner (i.e., when they are ranging) from time to time, but it's important to know that the "decision" to range is not random, and when the market begins to move, it is not the result of a random act. Everything happens for a reason. And once things start to move, a standard set of processes and procedures are used to move the market, and that's what establishes the patterns and tendencies that some of us trade. No need for statistics to determine the validity of the market, but they are helpful in measuring your trading performance against standard market patterns. Good trading, Red.
  • #71
  • Oct 31, 2015 10:15pm Oct 31, 2015 10:15pm
Quoting GEfx
Hi Red, it's been a long time since we last spoke, and I hope you are well. I agree with you on at least one point, that TA, alone, is insufficient in providing an edge. However, randomness is not the issue. There is a structure to every currency pair, and within that structure, there are repeating patterns that occur within the structure. Understanding structure allows you to predict movement; TA helps you determine if you are entering trades with or against the big market movers. That's not to say that currency markets do not behave in a random...
Hi Friend, I think I was not very clear with what I mean by random. An infinite random sequence is ∞-distributed, in which any possible finite sub-sequence of numbers is uniformly distributed. I did not mean that Minute, hourly, daily, monthly log returns pop out of no where with no apparent reason.

Quote
There is a structure to every currency pair, and within that structure, there are repeating patterns that occur within the structure. Understanding structure allows you to predict movement
; what you said right here is very interesting. The patterns that you mention if indeed have the capability of being predictive you could very well pin point them and run statistical data on the probability of negative/positive movement given XYZ pattern. Now if what you say is that for example the hawkishness of the FED / Dovishness of the ECB is what is probably causing the decline in the EURUSD... then the pattern itself would not be predictive as macro economic conditions are ever changing.
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  • #72
  • Oct 31, 2015 10:20pm Oct 31, 2015 10:20pm
Quoting Copernicus
{quote} That's good thinking Red. It actually is those small deviations from randomness that interest me and what (IMO) delivers 'alpha' over the long term for specific styles of strategy that address this possibility. If there is some small non-random element in the price data, then that's all you need to compound wealth, but your trading strategy needs to be specifically configured to trade any apparent drift and this is where your methodology needs to depart from traditional technical analysis and venture into more statistical methods. Here is...
My trading philosophy is very similar to yours actually... but I chose to make this assumptions that white noise with drift is the normal conditions with systemic shocks causing deviations from intrinsic value that in turn creates opportunity for profit, However I am making assumptions with some empirical backing due to research.

When I test a random-like data using the tools that we have available and we can determine the data is random in a statistical sense then I test the market and I get similar results but my desire for it not to be so tells me that he market is somehow different...seems like i am not being honest with myself. This would be called special pleading. This is why I started this thread, to engage in a healthy and hopefully productive discussion with members here which I respect and value their opinion.
AVT INVENIAM VIAM AVT FACIAM
  • #73
  • Edited Nov 1, 2015 5:58am Oct 31, 2015 10:35pm | Edited Nov 1, 2015 5:58am
Quoting the redlion
{quote} My trading philosophy is very similar to yours actually... but I chose to make this assumptions that white noise with drift is the normal conditions with systemic shocks causing deviations from intrinsic value that in turn creates opportunity for profit, However I am making assumptions with some empirical backing due to research. When I test a random-like data using the tools that we have available and we can determine the data is random in a statistical sense then I test the market and I get similar results but my desire for it not to be...
Hi Red. We definately are on similar wavelengths and I appreciate your analysis in your opening post as at least it puts a bit of objectivity into my opinion. One of the more interesting ideas that I have read about is Perry Kaufmann's efficiency ratio which I am considering using in the arsenal for diversified trend following.

Here is a podcast with Perry where he discusses the 'efficiency ratio' that you may find interesting.

Have a great weekend :-)
  • #74
  • Oct 31, 2015 10:54pm Oct 31, 2015 10:54pm
Within the confines of structure, which does include FA, patterns repeat themselves, and continue until they stop (duh). The patterns are your set ups, but the trades are up to you.

Edit: If you look at the follow on chart of the CHF, all the down move was also predicted and traded.
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  • #75
  • Oct 31, 2015 11:01pm Oct 31, 2015 11:01pm
Quoting Captain Jack
Thanks for starting this thread as your content is of interest to me.. I hope you don't mind that one of the "bullshit" spreaders has arrived, because I have totally different beliefs than you and I support those views by results. For my introduction, I would like to say I have zero background in statistical analysis unlike yourself. I do feel this gives me a great basis for my beliefs because my views are not formed based on scientific formula and calculations, but by observations and practice. I worked as a coal miner for 37 years. During this...
if I am using corrupt or false data then ... my analysis would be invalid... do you know something I dont know? Is FRED data corrupt?

I am actually interested in your market predictions... please show me a pattern that you believe it is successful and I can run some analysis on it to see the validity of it.

in a post in December 2012 I posted http://www.forexfactory.com/showthre...=398204&page=2
Quote
Purchasing Power Parity should have the EUR/USD at 1.2023 due to from 2007-2011 using http://data.worldbank.org/indicator/PA.NUS.PPPC.RF
averaging the EZ countries it takes approx 1.11 dollar to buy a $1 worth of goods in the EZ. I averaged the price of the EURUSD since 2007-2011 and adjusted it by -11% to come up with the exchange rate at which 1=1 and that is = 1.2023
​

Attached Image (click to enlarge)
Click to Enlarge Name: uroprediction 2012.jpg Size: 141 KB


Incredible right? ..... I don't think i can consistently show statistical significance in predicting ability.... otherwise I would be rich; "a broken clock is right twice a day" right?
AVT INVENIAM VIAM AVT FACIAM
  • #76
  • Oct 31, 2015 11:09pm Oct 31, 2015 11:09pm
Quoting GEfx
Within the confines of structure, which does include FA, patterns repeat themselves, and continue until they stop (duh). The patterns are your set ups, but the trades are up to you. Edit: If you look at the follow on chart of the CHF, all the down move was also predicted and traded. {image} {image}
This was the SNB sterilized intervention where they put a floor on the euro right? .... just like I profited on the JPY intervention as the BOJ stated usd/jpy at 70 was hurting exports and they would intervene to ease pressure. at the time the AUD/JPY had a good carry trade due to interest rate and it was a very profitable time.

These examples however are the systemic shocks ... not the norm... I think they are more in tune with my claim that TA alone does not bring an edge. Piggy backing on the announced intervention of a central bank that is willing to use it's reserves is a lot wiser than going against it.
AVT INVENIAM VIAM AVT FACIAM
  • #77
  • Oct 31, 2015 11:54pm Oct 31, 2015 11:54pm
Quoting the redlion
{quote} if I am using corrupt or false data then ... my analysis would be invalid... do you know something I dont know? Is FRED data corrupt? I am actually interested in your market predictions... please show me a pattern that you believe it is successful and I can run some analysis on it to see the validity of it. in a post in December 2012 I posted http://www.forexfactory.com/showthre...=398204&page=2 {quote}​ {image} Incredible right? ..... I don't think i can consistently show statistical significance in predicting ability.......
You should have already received a message from me with a link to the image of the map. If you did not, let me know and I'll send it to the email address you have listed in your profile. I sent it to you based on your interest in the other thread so that you could follow along with it's progress.

-CJ-
A man is not defeated when he is beaten, he is defeated when he quits.
  • #78
  • Edited 12:13am Nov 1, 2015 12:03am | Edited 12:13am
Quoting Captain Jack
{quote} You should have already received a message from me with a link to the image of the map. If you did not, let me know and I'll send it to the email address you have listed in your profile. I sent it to you based on your interest in the other thread so that you could follow along with it's progress. -CJ-
AUD/JPY? I was distracted by the blond with the bulls eye......Very interesting target


*edit**

can I post it here and discuss or is it for my eyes only?

it looks like you are reversing the bullish impulse wave on the left side to project a bearish corrective wave (an inverse mirror pattern) am i correct?

but most importantly how do you figure the sell orders will be predominant in that environment? (I am not a JPY or AUD trader) are you making this assumptions due to China's slow down in demand for raw materials? how did you arrive to that particular conclusion?
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  • #79
  • Nov 1, 2015 12:10am Nov 1, 2015 12:10am
Quoting the redlion
{quote} AUD/JPY? I was distracted by the blond with the bulls eye......Very interesting target
LOLOL! I was sent that by a friend when we were discussing targets one day... guess some house work is in order, but it was also linked to a dropbox file. There are some other patterns of note on the "blond" site as well...

Yes, AUDJPY is the map I will be trading with a live account and I might add that AUDCHF is the fraternal twin to the same pattern. Both patterns are in the small retrace after the last high...


-CJ-
A man is not defeated when he is beaten, he is defeated when he quits.
  • #80
  • Nov 1, 2015 12:44am Nov 1, 2015 12:44am
Quoting the redlion
{quote} AUD/JPY? I was distracted by the blond with the bulls eye......Very interesting target *edit** can I post it here and discuss or is it for my eyes only? it looks like you are reversing the bullish impulse wave on the left side to project a bearish corrective wave (an inverse mirror pattern) am i correct? but most importantly how do you figure the sell orders will be predominant in that environment? (I am not a JPY or AUD trader) are you making this assumptions due to China's slow down in demand for raw materials? how did you arrive to that...
These maps are based on pattern recognition alone... fundamentals take no part in it. What will occur is that the "news" this week, will drive price along that path, but in reality, the pattern drives the news....

Since I am trading it live I would request it be kept private for the time being. Once the bottoming structure is complete, the "W", you may do as you like with it. I could not prevent you from posting it now, but the charts I post are re-posted in many forums. I also know for a fact that my trades are mirrored in house at some of the brokers I use. This was told to me by 2 account managers during our discussions.

The maps are created in the manner I have stated, that patterns repeat, that "news" events are used as cover to drive prices, and that patterns repeat and mature across ALL time frames AND even across non correlated pairs. I showed this in the other thread when EURUSD printed a pattern several years before the same pattern appeared on EURAUD... I traded that map the same way I am trading the AUDJPY/AUDCHF map.

Most if not all of my orders will be with AJ as margin requirements are higher for AC... HOWEVER, one pair will lead and one will lag the other a bit, and I may take advantage of AC if presented in that scenario, should AJ bottom first... Then I will follow the progression off the bottom and upwards during the next 3-5 day cycle.

More or less - "the tail wags the dog"...

You can live next door to your neighbor for 25 years. You know he lives there and exists, but unless you have seen his face, you will never recognize him. Once you have met him and seen his features, you will recall them and you will almost always recognize him from that moment on. Patterns within the charts are the same. They exist and are there all the time, but if you are not looking for them, you will not recognize them. When they repeat, they are like the unseen neighbor, unrecognized. I know my neighbors well....

I trade the 3-5 day price cycles, created by market makers, broker/dealers and the banks. They follow their own patterns. My goal is for them to take my orders along for the ride, with their own. In my analogy, to pin my orders to the Fox's tail... when he runs, so do my profits.

-CJ-
A man is not defeated when he is beaten, he is defeated when he quits.
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