Modern Day Technical vs Pre 1997 Price Action

[barjon]

how many years of the 30 have been profitable Jon?

- most of them I'm glad to say.

ps: 'cos it's the same thing - if price starts hurtling down I don't stop to ask why, just jump out of the way if I'm long

 

[DionysusToast]

- most of them I'm glad to say.

Obviously - that's why you are blowing 20% of micro SB accounts trying out DOW/FTSE Stat Arb strategies.

"it's really cool because you don't have to be right about direction"

You sure it's not 30 minutes?

 

[barjon]

Obviously - that's why you are blowing 20% of micro SB accounts trying out DOW/FTSE Stat Arb strategies.

"it's really cool because you don't have to be right about direction"

You sure it's not 30 minutes?

well you gotta do something to pass the time. Anyway, I didn't say it was "really cool" although I did say direction was unimportant - which it is.

Why the beef? I do agree with you mostly about TA - stick any old line on a chart and it'll have a mesmerising effect if you're not careful - but it, as with alternatives such as those you use, does give you a reason to enter a trade albeit that it's where you go from there that puts bread on the table. I don't think it's fair to assume that just because the things people use don't have validity in your eyes that those people can't be successful in turning a bob or two.

cheers

jon

 

[DionysusToast]

Just winding you up Jon - but I do think it's really a shame that someone that's been at this for 30 years tells newbies that the cause of moves are unimportant and that the shape of moves is.

Lets say the ES has just run down 20 points. In this position, early shorts are going to be fairly happy to sit through a pullback. Even late shorts will sit through a bit of a pullback before puking.

Longs on the other hand - those guys that got long at the pullback point - well their trigger fingers are REALLY twitchy at this point. A 20 point drop and going long into it - very few people will stay in as it starts moving back down, hence the acceleration. As it gets pushed against them.

Now - let's say you have a 20 point drop a 3 point pullback and then it moves south again. We'll see acceleration as the buyers puke BUT what often occurs at the end of the move is a bunch of people (let's call them idiots) see this and FINALLY, after seeing the 20 point down move, these idiots finally start selling and guess what, they are selling into fresh air. Bidders pull out of the way and you see a fast and very final drop. At that point these idiots are trapped. I know it, you know it - even the idiots know it. There ain't no-one left to sell once the idiots do their thing. There's no real reason for an upmove, just a lack of people willing to sell, the idiots getting creamed and everyone seeing there ain't nothing but pain to the downside. Hence smart people start playing to the upside. Shorts that got the 20 points will cover & there's really no reason to consider a short any more.

Unless of course you think the trendline will still hold...

This is cause & effect. It's got nothing to do with candlesticks or indicators. Of course other causes could be fundamental but with fundamental causes, it really is tough to 'guess' the effect. It is often exactly the opposite to what common sense dictates.

 

[barjon]

...............Just winding you up Jon............

Well, that's a relief toastie

I don't think I said that the causes of moves are unimportant, or I didn't mean to anyway.

Would you not say, though, that the ES move you example is apparent on a chart and enough to let people make their decisions without fully understanding why it is happening? Since that scenario you paint repeats time and again so does the "pattern" on the chart?

jon

 

[DionysusToast]

This is not a pattern Jon. It's an understanding of what moves markets.

I could watch a doctor treat someone with a stomach complaint a few times. I could then attempt to treat the next patient with a stomach complaint the next way - and kill them.

It is just laziness to say "don't learn too much, just look for this pattern". Again we come back to people not wanting to make decisions themselves but to let some pattern/indicator/flashing light do the job for them.

 

[barjon]

..............It is just laziness to say "don't learn too much, just look for this pattern". Again we come back to people not wanting to make decisions themselves but to let some pattern/indicator/flashing light do the job for them............

Well, I didn't say that did I?

Do you agree, or not, that the ES scenario you painted would be reflected by the price action on a chart?

jon

 

[robster970]

Well, that's a relief toastie

I don't think I said that the causes of moves are unimportant, or I didn't mean to anyway.

Would you not say, though, that the ES move you example is apparent on a chart and enough to let people make their decisions without fully understanding why it is happening? Since that scenario you paint repeats time and again so does the "pattern" on the chart?

jon

So how does someone differentiate between this situation on a chart and the situation where heavy selling met heavier buying to create the reversal. On a chart they look 'equal'(ish) but in reality they represent two very, very different situations in terms of trading opportunity.

 

[barjon]

So how does someone differentiate between this situation on a chart and the situation where heavy selling met heavier buying to create the reversal. On a chart they look 'equal'(ish) but in reality they represent two very, very different situations in terms of trading opportunity.

You can't without the sort of understanding and background info that DT talks about, but you can make an assumption that it is one and jump ship quick if it turns out to be the other.

If you have kept seeing this sort of "pattern" (and I hesitate to use the word in the interests of DT's blood pressure ) and know that in the past it has mostly followed by doing this rather than that, then you can make the assumption that it will do so again. I suppose some clever chaps know exactly what's going to happen next, but that's beyond me - I just make assumptions and duck out if price doesn't follow through on the assumed expectation.

jon

 

[bbmac]

Jon, you pretty much describe what an edge is there in your last post, ie the pattern repeats and we know historically that it has provided a gain on x % of occassions it did so in the past over whatever sample size. Add to that proper MM and you have an edge.

I think you have to trade repeating patterns in the context of overall price action on the t/f (s) they develop on and higher. ...this context can increase the chances of a gain from trading a repeating pattern and therefore the overall strike rate of the edge.

For eg; very often I see a 1min reversal set-up (repeating pattern) when price is tanking south in a strong downtrend that extends more than 1 t/f higher (by a factor of X4 to 5) and I ignore it either staying in the southerly move (if in it) and/or waiting for a better set-up to get long with better confluence of potential support factors and supporting set-ups beyond the 1min t/f.

Context is important in trading repeating patterns, and understanding what is happening in the marketplace (ie behind the candles) 'cause' as DT describes it can be useful too, although not essential. Indeed for some trading repeating patterns it might represent or lead to paralysis by analysis.

In support/resistance trading the edge is derived by looking at price action around pre-identified previous near-term imbalances of supply/demand and demand/supply and other factors that are historically proven to cause such..the cause is simple: that buyers are known to buy at support/previous resistance (RBS) and sellers are known to sell at resistance/previous support (SBR) and the effect can be a rise in price from support and a fall in price from resistance.

G/L

 

[robster970]

You can't without the sort of understanding and background info that DT talks about, but you can make an assumption that it is one and jump ship quick if it turns out to be the other.

So the obvious one here is that in DT's example I'd probably see the lack of sellers coming through and go long knowing there is a short term trading opportunity due to the likelihood of mean reversion for a quick intraday opportunity.

In the latter example of big money buyers defining a big fat value area, that's a jump on point for a long ride swing trade until some responsive heavy weight selling piles into heavy initiative buying.

Identification of the cause allows differentiation and alternative trade selection at the same level. You're right chaps - it may not be essential but by christ it's useful.

 

[DionysusToast]

Well, I didn't say that did I?

Do you agree, or not, that the ES scenario you painted would be reflected by the price action on a chart?

jon

Not in the sense that you will be able to dumb it down, give it to a retard and have them trade it. You cannot take something subjective and use it objectively.

This is where people go wrong.I gave you something you could use subjectively and you want to turn it into a cookie cutter pattern and use it objectively.

Sort of - right, that explanation seemed reasonable, let's turn it into a pattern, switch the brain off and trade every occurence of the pattern without thought.

Tell you what Jon - name 1 pattern and tell me the probability of the outcome being one way or the other. Any pattern from your 30 years as a trader and give me the probability of a continuation or reversal.

In fact - why not let's throw that out there. Can anyone name a single observable pattern and tell us the probability that a continuation or reversal will occur?

 

[DionysusToast]

Jon, you pretty much describe what an edge is there in your last post, ie the pattern repeats and we know historically that it has provided a gain on x % of occassions it did so in the past over whatever sample size. Add to that proper MM and you have an edge.

OK - can you name a pattern as well as the percentage it will play out the way you expect it?

 

[DionysusToast]

This is kind of the point. That would not work, but then again nobody in their right mind would do that. Of course, I realise that people do.

Yet this is what 90% of the people on trading forums claim to do or aspire to do.

It's why everyone is so focused on patterns - they want a set of clearly defined (mechanical) rules to trade off with no ambiguity.

 

[bbmac]

OK - can you name a pattern as well as the percentage it will play out the way you expect it?

I keep excel spreadsheets that tell me the running strike rate of each of the set-ups (patterns) and set-up combinations (on two or motre t/f's) that I have seen devlelop during my trading sessions according to the rules that make up those particular set-ups, (whether I trade them or reject them.) This comprehensive sample of '...that I see develop during my trading sessions...' obviously omits those that develop when I am not trading and to this extent the stats are therefore limted.

As the set-ups /set-up combinations I trade are proprietary it is of no value posting them here...but knowing this information helps to keep track of whether each set-up (pattern) that makes up the trading edge is 'still working.'

I will however give a summarised example although it won't mean much to most:

A perfect 1min Reversal set-up supported by a perfect or known/tolerated imperfect Reversal set-up on at least the 5min t/f (that goes on to develop a 5min Reversal trigger candle) against a classic and/or general trend to the 1hr t/f @ B+ rated potential support or resistance has seen an 86% strike rate of a 1:1 min R:R outcome.

On the further points you and others make in posts below yours quoted above:

'....they want a set of clearly defined (mechanical) rules to trade off with no ambiguity.' This would be the holy grail and remove much of the 'should I shouldn't I' that newbie traders in particular suffer from at the point of entry/decision....For me I know my rules and on most occassions stick to them..and that's the point - an edge has to be clearly defined...if it is not or indeed if the trader does not have discipline to stick to the rules then there will always be more ambiguity than there needs to be.

Il Stonzo said: '...It's a big day in terms of one's development when one can look at a loser and say "That was a great trade....' This is very importnat and goes to heart of what an edge is...ie you can trade your edge and it fails - ie results in a loss...the distribution of successful and losing outcomes for any given set of variables that make up a trading edge are not known to us in advance - all we can do is play the edge if we are happy it meets our rules that define the edge, - if on that occassion it fails - ie results in a loss - so what.

G/L

 

[barjon]

Tell you what Jon - name 1 pattern and tell me the probability of the outcome being one way or the other. Any pattern from your 30 years as a trader and give me the probability of a continuation or reversal.

toastie

Ooof! I trade potential trend continuation after 3+ bar retracement. I will duck the %age probability for reasons that will become clear in the two examples.

First up ARM:

Early August and ARM is in swing downtrend and makes a 4 bar retracement that triggers a short.

Even though the trade was marginally profitable, you'd have to say the "pattern" failed because price did not go on to new lows and meet the assumed expectation.

It then makes an assumed change of swing trend to up - blue arrow - and the first 3 bar retracement after that met the continuation assumption but I didn't trade it because of the gap opening.

Then a messy 4 bar retracement and a long triggered which, although profitable, again failed to meet the continuation expectation.

Another 3 bar retracement from the level it did make and I'm in long again, although I've bent the rules a bit to do it - we'll see if I'll suffer for my naughtiness

Now AVIVA

On this one I merely show a failed short trade where price then went on to meet the continuation assumption briefly and then properly after the false start.

I'll leave you to look for other 3 bar retracements in the chart and judge for yourself how they fared .

Now there's absolutely nothing magical, nor particularly rational, about the so called "pattern" - all it does for me is to throw up levels where I choose to make an assumption and where I am prepared to risk a trade on that assumption.

jon

 

[robster970]

Many of the threads on T2W often remind me of the scene in Life of Brian where the members of the Judean People's Front were casting aspersions on the members of the Judean People's Popular Front and also the members of the Popular People's Front of Judea.

I bid you a good weekend gentlemen.

 

[counter_violent]

"Splitters"

 

[Shakone]

I don't believe in any certainties in this game, and so in the situation Dionysus describes, an alternative scenario is that the 'idiots' may enter, and then price just keeps on going, and the 'sitting on pedestals/arrogant' traders watch with regret about not getting in. It's never simple. But I do agree with DT in that cause is relevant. Yes the effect is most relevant to your bottom line, for obvious reasons. But knowing the cause can tell you when it's prudent to get into or leave alone trades that appear almost exactly the same on the charts.

 

[forker]

In fact - why not let's throw that out there. Can anyone name a single observable pattern and tell us the probability that a continuation or reversal will occur?

i cant show you a pattern that could be represented as a particular shape or set of candles. I can show you a pattern of price activity that occurs at levels of support\resistance that gives me a range of 6-8 times out of 10 success rate depending on the market situation.

paraphrasing patterns such that you have described isn't an accurate description. i agree with you on the cookie cutter analogy but only through experience. i am not saying it doesn't work for everyone because there could be a strategy out there that employs just the right mixture to get it working.

i am an fx trader and there is no such thing as the tape in the cash market that is representative of your trading methodology. that being said, banks have their strategies they employ which is so often visible by the nature of size and hastiness. there are variations of the pattern and trading them can be something that is stalked for hours and other times it takes shape in 30 minutes. i don't think i am the only one here that trades this way as some experienced folks have stated they trade the same.

i could show you 3 charts of trades and they will only mirror each other on the basis of being at support\resistance. So to give you cookie cut proof isn't possible unfortunately.