Technical Analysis alone will not give you an edge | Page 14 | Forex Factory

Options

Go to
Permalinks
Print Thread

Similar Threads

"You cannot make money (in the long run) from a price chart alone" 37 replies

An Edge for an Edge (System Development) 116 replies

Does an EA license Give You the Right to Give Signals? 2 replies

Give me premise or give me death.... 15 replies

How certain can you be that you have an edge? 79 replies

Attachments: Technical Analysis alone will not give you an edge
Exit Attachments

Technical Analysis alone will not give you an edge

  • #261
  • Nov 7, 2015 10:22am Nov 7, 2015 10:22am
Quoting goodfella90
{quote} ok, your asking a guy who can't remember what he had for tea last night what was sentiment for eur/usd on the 8th august. off the top of my head, i seem to remember that was around the time of the whole greek fiasco, although i'm genuinely trying to remember whether i went on holiday at the beginning of august or the end of july. so august 8th, complete guess, was that the referendum, if so i remember guessing that it would be a 'no' vote and i specifically remember the e/u rising as soon as the market opened on the sunday night. but i...
First, that's not what was driving the E/$ in August. Second, understanding structure requires work. Lots and lots of work. Those who do not dedicate time to understand fundamentals are doomed to see only randomness in the forex market, but if you take time to develop an understanding of fundamentals, the veil of randomness will be lifted. So, the questions on the table are: what caused the E/$ to rise about 500 pips in the month of August? And what caused it to fall off about 250 pips near the end of August? What was the sentiment at the beginning of August, what changed in the middle third of so of the month, and what changed at the end? This is the stuff that largely drives market makers, and if you don't know these things, then you have no hope of following them in any intelligent way, let alone try to anticipate what they will do next. Now I really have to go!
  • #262
  • Nov 7, 2015 11:11am Nov 7, 2015 11:11am
Quoting GEfx
{quote} First, that's not what was driving the E/$ in August. Second, understanding structure requires work. Lots and lots of work. Those who do not dedicate time to understand fundamentals are doomed to see only randomness in the forex market, but if you take time to develop an understanding of fundamentals, the veil of randomness will be lifted. So, the questions on the table are: what caused the E/$ to rise about 500 pips in the month of August? And what caused it to fall off about 250 pips near the end of August? What was the sentiment at the...

gefx, you mention that you had to look back at your students notes who presumably trade your exact strategy and then, after looking at those notes, proceed to ask me questions about fundamentals from months ago.

"what changed in the middle third or so of the month" seriously!!!!

what's the point of asking me questions you know i can't possibly answer.

i have a vague awareness of fundamentals but i don't make trading decisions off them and i don't have an implicit understanding of your system.

so i ask you,
1. what DID cause the eu to rise 500 pips then drop off 250 pips.
2. what were the fundamental factors at that time that caused this.

if you could post a chart marking areas of structure on the chart then underneath explain how fundamentals caused these areas to form that would be a good starting point.
  • #263
  • Edited 11:41am Nov 7, 2015 11:19am | Edited 11:41am
Quoting GEfx
{quote} First, that's not what was driving the E/$ in August. Second, understanding structure requires work. Lots and lots of work. Those who do not dedicate time to understand fundamentals are doomed to see only randomness in the forex market, but if you take time to develop an understanding of fundamentals, the veil of randomness will be lifted. So, the questions on the table are: what caused the E/$ to rise about 500 pips in the month of August? And what caused it to fall off about 250 pips near the end of August? What was the sentiment at the...
Very interesting thread, but unless we're trashing the idea(I am not) that the fundamentals are and will be reflected in the technicals, then while you may not have the very best edge possible, you absolutely "can" have a very good edge using technicals only. At the simplest level I know; buy dips, sell rallies. Of course use the tools to identify where price is "relative to"...including fundamentals if it helps.

To answer the driver question; it's likely the usual...perceived reserve currency strength/weakness... USDX. Unexpected weak usd numbers combined with healthy profit taking with a need of a retrace followed by unexpected continued weakness, no proof of strength from eur.

edit: Forgot to mention: from the technical perspective, if you look at the monthly chart, I don't know what else you need to see there's a huge amount of momentum reflected in the drop that ended in march. Downside probabilities high until price action proves otherwise.
Charts are limited in nature. What is the relative location?
  • #264
  • Nov 7, 2015 1:18pm Nov 7, 2015 1:18pm
Most people in these forums have no idea how to combine fundamentals with technicals. What really works is very counterintuitive. You have to take all available information (tech + fundamental) and find the right time to go against the crowd. Because the crowd is always on the wrong side of the trend.
You guys should understand that, 99% of the time, the price moves first, then the fundamentals comes out!
There's ALWAYS someone somewhere in the world who know the info before everyone else. Trading on inside information is the foundation of ANY market. The institutions and the big speculators buy and sell based on expectations and projections and try to guess in advance what might happen in the near future.(they want to position before everyone else) By the time the rumor become actual news, at least 60-70% of the trend is already over. The news usually represents a climax point and the beginning of the end of the trend.(this is where the crowd joins the show)
So a good understanding of the price action and the market micro and macro structure is the only way for the small trader to find edge and to beat the market.(you dont have the inside info) You have to anticipate the actions of other market participants. First you anticipate the actions of the big traders before the rumor become news, then after the news you anticipate the actions of the crowd, and in the end you anticipate the actions of big guys and the crowd together. When the retail traders buy during hot uptrend or news events, the insiders are taking profits! All these things and the interactions between different groups are visible in the price action. Each group we leave their mark in the price. The people who know what to look for and WHEN to look for it, will see the clues. For the others - price is random!
  • #265
  • Edited 1:37pm Nov 7, 2015 1:25pm | Edited 1:37pm
just worth saying that despite me posting these charts, im not just some guy obsessed with trading the randoms lol.
95% of my trading is done in the week, but if i have spare time on a weekend and i look at the charts and i see a trade i think is worth taking then i will take it.
and yes the chart below is live, 24hours a day, 7 days a week.

Attached Image (click to enlarge)
Click to Enlarge Name: rand5.png Size: 98 KB



shame that i don't trade gartleys.

Attached Image (click to enlarge)
Click to Enlarge Name: gartley.png Size: 101 KB
  • #266
  • Nov 7, 2015 1:34pm Nov 7, 2015 1:34pm
Instead of just discussing on theoretical basis only, lets examine how the major fundamental news/data this week affect the forex pairs. I think the effect of this week fundamental data on certain forex pairs has put the relevance of Technical Edge vs Fundamental Edge debate in perspectives.For long I was believing that prices had factored in all the fundamental news and that long term trend direction may not be changed by any news even if it is a major news.To large extent this is true also and every day many fundamental news are released on continuous basis and the prices had factored in the news before it is released.But there is risky times also like the effect of fundamental data on 5 November,2015 this week which changed the long term trend of prices in GBPJPY in 1 hour timeframes and lower to a high impact reversal of trends.However, if you see timeframes like 4Hr and daily timeframes,the news does not affected the long term price direction noticeably.So, if a trader is to be consistently profitable,one cannot neglect the effects of major fundamental datas and major news otherwise a great loss may be sustained that blow accounts or effected very large drawdown in equity.The mixed of FA and TA seems the perfect solution for any serious trader who wants to be consistently profitable longterm because whether we use TA or FA or both,we are essentially trying to reduce the risk of loss in trading!This is MHO
In the attached chart below,you can see how the major news affect the long term trend of GBPJPY.
Attached Image (click to enlarge)
Click to Enlarge Name: GJNFPDatasLTChgEffects.png Size: 26 KB
-CKB
  • #267
  • Edited 10:43am Nov 8, 2015 1:53am | Edited 10:43am
Quoting goodfella90
over thousands of hours of practice its possible that you will become more proficient in these assumptions being right through identifying certain patterns that occur within either random sets of data or real fx. as i've tried to show, random sets of data presented in a line chart also show repeatable patterns, infact the same patterns that occur in fx charts.
Referring to a 'price' chart generated by a perfectly unbiased RNG, where there is always exactly 50% probability of an uptick, and 50% downtick:
Sure, these charts will display trends and patterns (double tops, channels, wedges, S/R, whatever) as a matter of course, but I don't believe that they could be traded profitably -- beyond merely being fortuitous in the short term -- because there are no actual upside or downside biases at any point, and without 'inefficiencies', every possible trading system would mathematically have a long term expectancy of 0 (ignoring costs). The trends and patterns are one example of how the eye can be (to quote Taleb) "fooled by randomness".

Whereas behind real FX charts, there exist genuine 'behind the candle' inefficiencies such as those that I mentioned in my previous post, hence FX can potentially be traded profitably, to whatever extent the trader is able to exploit** them. As an example, if we consider a weekly move that has palpable macroeconomic backing, the latter creates a probable directional bias which a trader can exploit if he is able to act before the fundamental data gets 'priced in'. But this kind of bias is never going to exist with a RNGenerated chart. The patterns that exist in real FX charts and RNGenerated charts are qualitatively, even if subtly, different.

[**By "exploit" I mean on the basis of probability or bias. In NO WAY do I believe that price behavior can be predicted with absolute certainty, simply because markets consist of a mix of anonymous participants whose agendas are unknown to the trader.]
  • #268
  • Edited 3:11am Nov 8, 2015 2:46am | Edited 3:11am
Quoting hanover
{quote} Referring to a 'price' chart generated by a perfectly unbiased RNG, where there is always exactly 50% probability of an uptick, and 50% downtick: Sure, these charts will display trends and patterns (double tops, channels, wedges, S/R, whatever) as a matter of course, but I don't believe that they could be traded profitably -- beyond merely being fortuitous in the short term -- because there are no actual upside or downside biases at any point, and without 'inefficiencies', every possible trading system would mathematically have a long term...
I agree with you Hanover in general terms with certain perhaps subtle differences in what we regard as patterns of 'actual' substance or of having arbitrage potential as opposed to 'illusory' patterns of no predictive substance.

For instance, in my opinion it is impossible to argue that macroeceonomics are not driving the long term picture. As retail traders, we occupy a far lower timeframe than many other market segments that participate in the market. To see a long term trend of secular nature commencing at say point A and ultimately reaching a much higher point B in the course of an economic cycle of say 3-5 years, there is no doubt that fundamentals are at play on this time horizon and the reason why investors exist as participants, why commerce choose to hedge their bets in managing costs of doing business and why central banks participate in the market through market intervention practices.

Accepting this as an assumption means that in the long term, for fundamentals to drive a price from Point A to Point B, there needs to be a price tendency to get there.
Where I differ from you and perhaps others in our interpretation is that I feel that the only reliable pattern to use in determining how price gets from point A to point B is price tendency itself as opposed to any particular repetetive pattern. With efficient markets there is no certainty that we can rely on any particular pattern of substance as an indicator of where arbitrage lies in this general tendency. If there was a degree of predictability, the whole dynamic of why markets are established in the first place would be defunct. If all the arbitrage potential was conferred to the speculative trader as opposed to the far higher majority of alternate participants, then the fundamental purpose of a market would simply cease to be of benefit to the plurality of participants that exist there.

The problem with using any particular pattern of repetetive nature is that it is impossible to distinguish between a pattern of substance versus an illusory pattern so as a reliable tool for prediction, it just doesn't seem to stack up as an objective measure.

Assuming for a second that markets are 'roughly' efficient and that specific patterns hold no reliable measure of this actual tendency, then while timing is unclear of how the price behaviour is manifested, the only objective measure to use is to summate all possible patterns exhibited in an extended timeframe of sufficient sample size to distil the overall tendency itself. The assumption is that we accept a very generalised expression of this tendency defined by an overall regression tendency within broad bounds of significant mean dispersion.

By adopting a loose 'catch all' pattern such as a very 'general overall trend' with significant freedom for uncertain movement, you can harvest the very uncertain price action that occurs throughout the general tendency without having to focus on any specific pattern of price movement, in the same manner that a long term investor exploits this overall general price direction.

Of course the returns through an approach such as this will never compete with the general return objectives desired by the retail community, but at least the approach is more realistic in the ability to derive actual long term sustainable returns from this market that may be offered by an efficient market to the speculator who feeds off any market inefficiency that otherwise may lurk in an overall efficient market.

In this manner, TA becomes more like FA but perhaps is better used in conjunction with FA as the precictive measure and the tendency as a confirmatory measure.
  • #269
  • Nov 8, 2015 4:01am Nov 8, 2015 4:01am
Quoting CindyXXXX
{quote} Did you consider the fact that maybe the market works the same on all levels. And that maybe there are different levels, not just one form of logic. That flows happen for the same reason that they don't. That randomness inevitably produces the desired result.. Maybe the market stays in a certain range until it has a reason to break it. That reason can only be a fundamental factor,, So what keeps it in that range? How does a dealer obtain the liquidity he/she needs for the client on a day to day basis? What happens when he/she/they obtain...
There are so many specific things to consider dependent on the nature of the participants involved and the timeframes operated on that the only one constant I can apply in this information overload is overall general price tendency on any one timeframe and how it relates to other timeframes using a top down approach. FA actually complicates things for me as while being a possible predictive measure, the assumptions are just so loose that I cannot objectively fathom it. As a result the only possible guide I have is how all information held in price possibly through autocorrelation extends into the future.
  • #270
  • Nov 8, 2015 5:00am Nov 8, 2015 5:00am
Quoting hanover
....... I'm not going to attempt to prove any of these points; doubters are welcome to disagree...... ...

Anyone who disagrees with, or doesn't understand this post, will never be a successful trader IMO. There is really only one way to profit in this game - that is to find and exploit factors which cause price to deviate from randomness. (Although there are various ways of doing this). Only a few things cause this, and you pretty much nailed all of them in this post.
si hoc legere scis nimium eruditionis habes
  • #271
  • Nov 8, 2015 5:46am Nov 8, 2015 5:46am
Quoting CindyXXXX
{quote} Just analyse my post man... No need for big words
I did and also looked at your chart.

I see things differently but from a statistical basis of tendency or drift. The result is that we are necessarily going to apply this info in different ways but at least I ensure that it is the statistics that are talking and not a subjective trend definition or subjective selection of timeframe. I don't anticipate the pattern within the drift but rather the overall drift and the current placement of price within drift for mean reversion opportunities which we may have recently experienced.

GBPAUD - MN
Attached Image (click to enlarge)
Click to Enlarge Name: GBPAUD MN.JPG Size: 104 KB



GBPAUD - D1
Attached Image (click to enlarge)
Click to Enlarge Name: GBPAUD D1.JPG Size: 105 KB
  • #272
  • Nov 8, 2015 6:34am Nov 8, 2015 6:34am
Quoting Copernicus
{quote} I did and also looked at your chart. I see things differently but from a statistical basis of tendency or drift. The result is that we are necessarily going to apply this info in different ways but at least I ensure that it is the statistics that are talking and not a subjective trend definition or subjective selection of timeframe. I don't anticipate the pattern within the drift but rather the overall drift and the current placement of price within drift for mean reversion opportunities which we may have recently experienced. GBPAUD...
Linear regression channels Coper?
"Holy Grail" exists - accepting where is the first step.
  • #273
  • Nov 8, 2015 6:42am Nov 8, 2015 6:42am
Quoting VaBikePacker
{quote} Linear regression channels Coper?
Yes Mate. :-)
  • #274
  • Nov 8, 2015 6:47am Nov 8, 2015 6:47am
Quoting Copernicus
{quote} Yes Mate. :-)
tracking "massive gradual change" is what I've found those to be really good for. A few computers ago and pre evernote/cloud storage (the point being I don't have images to share...) I used to keep a set of three channels in play: 1 from midnight 3 days ago (blue), 1 from midnight two days (yellow) ago and one from midnight today (red). I was doing this on a 30m chart and constantly moved the right side of each channel to the newest bar...

doing that really helped me see a lot of things.
"Holy Grail" exists - accepting where is the first step.
  • #275
  • Nov 8, 2015 6:54am Nov 8, 2015 6:54am
Quoting VaBikePacker
{quote} tracking "massive gradual change" is what I've found those to be really good for. A few computers ago and pre evernote/cloud storage (the point being I don't have images to share...) I used to keep a set of three channels in play: 1 from midnight 3 days ago (blue), 1 from midnight two days (yellow) ago and one from midnight today (red). I was doing this on a 30m chart and constantly moved the right side of each channel to the newest bar... doing that really helped me see a lot of things.
That's the way I look at it as well...tracking massive gradual change. It seems to work well in delivering modest returns across any liquid instrument and then I just diversify with low correlated instruments to compound returns and manage drawdown. Each to their own I suppose but it fits my personality and background well. :-)
  • #276
  • Nov 8, 2015 8:12am Nov 8, 2015 8:12am
Quoting goodfella90
{quote} gefx, you mention that you had to look back at your students notes who presumably trade your exact strategy and then, after looking at those notes, proceed to ask me questions about fundamentals from months ago. "what changed in the middle third or so of the month" seriously!!!! what's the point of asking me questions you know i can't possibly answer. i have a vague awareness of fundamentals but i don't make trading decisions off them and i don't have an implicit understanding of your system. so i ask you, 1. what DID cause the eu to rise...
No, I didn't say anything about "students notes". I said my notes. I don't have any students. But, I do keep copious notes on my trading activities. From my past experience in dealing with professional traders and the organizations they work for, it is critical to keep a log of all your trading activities, since someone else in your organization is taking notes on you.

As for my questions, I did ask them with only good intentions in mind. You really can't answer them? It's not possible to find out what was going on in the forex market just 3 months ago? You don't have access to a forex calendar? Bloomberg? Google?

Your reaction to my questions proves an important point. Most of the people who view the market as random don't know what's going on in the market and why things happen. If you do not know what is going on in the market (which means you are at least trying to understand the decision making elements of professional traders and market makers), then it makes perfect sense that you view the forex as random. For you, the market is truly random, and you should approach trading it as if it is random. Perception is reality. So unless you are willing to alter your perceptions, your reality will never change.

Good luck and good trading!
  • #277
  • Nov 8, 2015 10:35am Nov 8, 2015 10:35am
I can share some observations regarding randomness from my point of view.
I am scalper (for over 6 years) so I look for a few pips per trade and usually hold positions from a few minutes and up to 1 hour.
What I've noticed over the years is that price action tend to be alot more predictable and my win rate rises dramatically during periods of high volatility. And on the other side - The technical levels and the patterns tend to lose their effectiveness during quiet periods and very low volatility.
The best time to trade is during the most active hours of the day, when a lot of people watch the price action, and especially just after news releases.
This has to do with the reflexivity theory.
For example if the price makes new daily high in the after hours and only 100 people watch this event - you cannot expect any strong reactions. So the level of uncertainty is high and the level of opportunity is low(no edge). But if you watch the same event during the most active hours when 10 000 people watch the price at the same time - then strong reactions can be expected.
When we add the fact that over 60% of the total open exposure is always on the wrong side of the trend, plus the fact that most traders place their stops just above/below the price extremes, based on that you can build pretty solid strategy.
In a 100% random data no such relationships exist, and there is absolutely no connection between price, time, technical levels/patterns, and volatility. The non-random reflexivity factor does not exist in the random data.
  • #278
  • Nov 8, 2015 11:42am Nov 8, 2015 11:42am
Quoting Copernicus
Where I differ from you and perhaps others in our interpretation is that I feel that the only reliable pattern to use in determining how price gets from point A to point B is price tendency itself as opposed to any particular repetetive pattern. With efficient markets there is no certainty that we can rely on any particular pattern of substance as an indicator of where arbitrage lies in this general tendency. If there was a degree of predictability, the whole dynamic of why markets are established in the first place would be defunct.
For me it is not so much a (TA-based) pattern, or its repetitiveness, but the context, and the underlying cause of the pattern -- if the fundamental (and I use the word loosely) reasons for it can somehow be ascertained -- that is more important than the pattern itself. As a simple example, a bullish reversal candle in a support zone is more likely to have the anticipated effect if it also occurs (for example) in AUDJPY during a 'risk on' period; or in a macroeconomically supported uptrend; or in the wake of a news generated downspike that appears to have overshot 'fair price'; and so forth.

Quoting numbnuts
you pretty much nailed all of them in this post.
Bugger. I was hoping that you (or somebody else) was going to extend the list, to give me even more ideas to work with.
  • #279
  • Nov 8, 2015 12:58pm Nov 8, 2015 12:58pm
Quoting hanover
.... Bugger. I was hoping that you (or somebody else) was going to extend the list, to give me even more ideas to work with.
Well, off the top of my head I maybe know of one you didn't mention ..... the fact that major shifts in COT positioning almost always coincide with major moves in currencies, especially when COT is pulling back from extremes. It's not as easily exploitable as it initially appears to be, and much less predictable than CB policy, but it's one of the most obvious and self-evident signs of non-randomness in forex.
si hoc legere scis nimium eruditionis habes
  • #280
  • Edited 2:07pm Nov 8, 2015 1:52pm | Edited 2:07pm
Quoting numbnuts
{quote} Well, off the top of my head I maybe know of one you didn't mention ..... the fact that major shifts in COT positioning almost always coincide with major moves in currencies, especially when COT is pulling back from extremes. It's not as easily exploitable as it initially appears to be, and much less predictable than CB policy, but it's one of the most obvious and self-evident signs of non-randomness in forex.
COT is a lagging indicator so you can hardly find any real edge in it. Also the fact that it shows the exposure in the futures markets makes it even more useless. In FX the spot market is the main driver. The futures are almost irrelevant. The same info can be found in the retail exposure published by some of the retail brokers. In general any published volume/exposure related information in fx is incomplete useless and deceiving. You can actually make much better guess just by looking at the price action and the fundamental contex.
FX is the major playground for the international market makers. The top 15 major investment banks control the whole game. The moment some crazy risk event show up on the horizon, the market makers will instantly send the FX market to hell with the push of a few buttons. (do not forget the CHF crash, because this can happen with any currency at any time and in much bigger proportions.) This is the most manipulated and the most untransparent market in the world. You never really know what exactly happens behind the scenes, and when the shit will hit the fan.
But until this time comes, they are going to play the oldest game in the world in their day to day activities. It's all based on deception. Take the lows, take the highs, run the stops..... the same thing every day. It's very easy to expoit this pattern, but most people are just too busy trying to predict the future. They want the "big wins"......the big trends..... and the sure thing.
0 traders viewing now