Charts: Reality or Artefact

[trendie]

This bothers me more and more.

There is a reality to the markets, that a specific size of transaction results in a market move. Government decisions on rates and such-like, as well as banks, also cause a real and specific, and qualitative move in prices.

We trade patterns, candletsicks, support and resistance, and MA bounces.

But, arent patterns, bounces, etc, artefacts of reality, rather than the reality itself?

A candlestick is an artefact of a price move, however it may be caused.
MAs are artefacts of price movements.
(last week, when I read that "price bounced off an MA", I cringed, I used to believe stuff like that, ages ago.)
Even double-tops and 1-2-3 reversals, for heavens sake, are artefacts.

How do you feel trading an abstract representation of reality, rather than reality itself??

I mean, when you're driving a car, you are driving your visceral experience of the vehicle, not the manufacturers recommended figures. Your experience of the stopping distance is based on your knowledge, not the manuals matrix of stopping distances.
When a dentist decides to drill a tooth, he is drilling a specific, unique event, not a standardised, ideal event taken from a manual.

Charts: reality or artefact?

Doing my head in, and the week hasnt even started.

 

[N Rothschild]

im beginning to believe less and less in charts

 

[Trader333]

But, arent patterns, bounces, etc, artefacts of reality, rather than the reality itself?

Yes and no in my view. The past no longer exists so from that perspective it is not real. However, the patterns could give prices where others are likely to enter or exit in sufficient volume (or have orders ready to trigger if price approaches these levels) to affect a likely move in present time. As such all you can do is use probability to determine what the likelihood is that price will react in a predictable way when it approaches these previous price levels.


Paul

 

[arabianights]

Overwhelming majority is complete nonsense. Hell, look at the relative frequency of professional traders in any of the popular threads here which inevitably end up about charts. Have you ever seen a JP Morgan research report talking about pin bars?

I've consistently said my edge comes from the bid offer spread and trading news but it's rarely picked up on.

 

[Glenn]

Markets are not technical all of the time, including intraday periods, which is why contigious backtests are useless, in company with most indicators.
When news comes through the door, technicals go out of the window.
If you can identify a technical period of time, trade it, otherwise keep out.
imho.
Glenn

 

[Calinor]

How do you feel trading an abstract representation of reality, rather than reality itself??

I'll give my 2 cents. How do you feel about living an abstract representation of reality? You think what you see with those eyes is reality? Are your thoughts real? Who even are you? Are memories reality? Do they actually exist? You can keep on with that, and confuse yourself more and more until you realise that everything you thought was real, isn't. What you say about trading doesn't seem any different to that.

The idea that the markets have a 50% chance of going up or down is actually quite crazy if you consider it. Why on earth would it be 50%? Why not 43%, 26% or 49.7% or whatever. Why the hell would a large number of people with their different motives produce something that of all the possible probablilities is 50-50, completely random and unpredictable? So once you accept that at different points, probabilities shift, then you wonder how to predict and utilise those probabilities. Some people like arabianights are fortunate enough to make money from the spread. For him it isn't necessary and probably not even worth it for him to spend large amounts of time trying to master technical analysis and a system based on it. For others that isn't a possibility, so they are forced to try to predict likely outcomes by other means.

When you think of prediction, you consider things in your life and try to guess what is likely to happen. This prediction could be with people, or on the road when you're driving or something else. Some people look for underlying reasons (fundamental), some people look at history, patterns and their experiences (technical) and so on. Both are actually quite sensible approaches.

So I think Trader333 hit the nail on the head.

 

[squall321]

there is no spoon

 

[0007]

Trading is all about probability and you can work it out in many different ways. Charts are an artefact of price just like speech is an artefact of brainthought. Price is an artefact of the market.

So what's the problem?

 

[everyonerich]

i created one group 'exercise' for my company to really understand what market really is. but doubt if my english able to explain it accurately. lulz

but since asking about charts, its just history of people bidding and asking prices, which only means one thing. chart shows the balance between buyer and seller. predicting the movement is entirely another story... that is why using history data of 'balance' between buyer and seller only makes most of the people lose because its the 'mid point' of the market. (thats why sometimes tech analysis works and sometimes dont - youre in "mid point!")

& want more information doesnt come for free..

 

[pedro01]

A lot of TA seems to me like a good way to waste a year figuring out how not to trade.

If you've ever been to an auction, you can see how the price of something gets bid up, sometimes beyond the point of rationality.

I am of the belief that price can have momentum and that this is expressed in the form of trends which pause for a breather periodically.

If that is true - then the chart does indeed tell you when you are in a trend as well as when you are in a pullback. It does not tell you with 100% certainty if the pullback is a pullback or reversal or the start of a trading range, although there are certain 'hints' that you are in a pullback as opposed to a reversal/range.

You can't be right all the time but you can be right enough of the time to be confident that this type of price action is non-random.

This is purely my opinion.

 

[trendie]

I've had a bit more time to think about it.

Having spent most of my working life in software (left-brain), I am used to "controlling" the situation, by analysing requirements, and creating/testing solutions. Even with the anology of driving, we are in control, and can influence the outcome of an event through interacting with gears/brakes, etc.

I think the thing that bothers me is that we cannot influence the movement of the market, (unless your arabianights or Gammajammer :cheesy: ), and thus, in some ways, are passengers.

I wonder if its that thats bothering me?

EDIT: I really must stop this "thinking" malarkey.
Is there anything I can take for it? (was listening to the BBC radio adaptation of "Brave New World", and would like some "soma". )

 

[Trader333]

I've consistently said my edge comes from the bid offer spread and trading news but it's rarely picked up on.

Duly noted


Paul

 

[meanreversion]

Even those who claim never to use charts, do some form of rudimentary analysis in their head. Arabiannights might think that the market is "topping out here" or "looks a bit offered" etc. This would be shown up by technical indicators, it's the same thing. The main benefit of charting is to quantify movement and momentum and thereby enter into a trade with a slightly higher probability than otherwise. Combine that with strict risk management and a decent exit system should lead to a profitable trading system.

 

[timsk]

Reading trendie's OP, I was immediately reminded of something that dbp repeated often:
"When working to locate potential levels or zones of support and resistance, it's important to focus on what Magee calls the "territory" -- the reality -- rather than the map, i.e., our representation of that territory. The territory is prices paid. Our maps are our representations of it: MAs, Fib ratios, MACD, patterns, price and volume bars, etc."
Tim.

 

[Jumpinjack]

We trade patterns, candletsicks, support and resistance, and MA bounces.

But, arent patterns, bounces, etc, artefacts of reality, rather than the reality itself?


Absurd! Surley if you find that a market has been trending higher and suddenly you find a candlestick with a large shadow at the top like a shooting star, the realtiy is that you will be cautious as will others about entering longs or even remaining long?

If you find a bullish falling wedge in an upwards trending market you will be looking for some sort of technical set up to determine the break out opportunity?

Thats the reality of working from charts!Unless you are a spot trader sitting in a large bank and find that the orders for selling euros are coming through then you might just take the other side and buy usd! That`s the other reality!

 

[meanreversion]

Chill out Jumpinjack, I think this thread is more an idle philosophical debate to pass the time rather than anything meaningful. By the way, I'm a Junior Member now.. is that real or just an artefact... I hope not the latter. What's the next step?

 

[Jumpinjack]

Chill out Jumpinjack, I think this thread is more an idle philosophical debate to pass the time rather than anything meaningful. By the way, I'm a Junior Member now.. is that real or just an artefact... I hope not the latter. What's the next step?

Who cares! Eventually you'll become a Legend in your own mind!!!
Only a joke - chill out

 

[meanreversion]

A leg end = a foot? I'm taking a bit of time out from the market at the moment, got stopped out on 3 positions this morning and waiting for signals to get back in. Oh sorry, I forgot, that's not real is it? Maybe my losses weren't real as well

 

[trendie]

We trade patterns, candletsicks, support and resistance, and MA bounces.

But, arent patterns, bounces, etc, artefacts of reality, rather than the reality itself?


Absurd! Surley if you find that a market has been trending higher and suddenly you find a candlestick with a large shadow at the top like a shooting star, the realtiy is that you will be cautious as will others about entering longs or even remaining long?

If you find a bullish falling wedge in an upwards trending market you will be looking for some sort of technical set up to determine the break out opportunity?

Thats the reality of working from charts!Unless you are a spot trader sitting in a large bank and find that the orders for selling euros are coming through then you might just take the other side and buy usd! That`s the other reality!

maybe!!

the shooting star or wedges are exactly the abstraction.

your description of the spot trader, who perhaps sees the "real orders" by real banks sees the "reason" for the shooting star or wedge, and is closer to the reality. and consequently, his/her trading is more profitable since the trades are taken based on real data.
for example, if I trade an uptrend move, I wont see the end nearly as quickly as the guy who sees the sell-orders. I suspect he will have the advantage of knowing the size of the orders, as well as the price they are to trigger at, thus giving some info as to whether those price levels will hold or not.

maybe this thread is idle speculation, but it is meant in earnest, even if the answer is arrived in a meandering fashion. so thanks for replies so far.

(I want the truth!
You want the truth?
Yes. I think I am entitled to the truth!
You can't handle the truth!!)

 

[Jumpinjack]

maybe!!

the shooting star or wedges are exactly the abstraction.

your description of the spot trader, who perhaps sees the "real orders" by real banks sees the "reason" for the shooting star or wedge, and is closer to the reality. and consequently, his/her trading is more profitable since the trades are taken based on real data.
for example, if I trade an uptrend move, I wont see the end nearly as quickly as the guy who sees the sell-orders. I suspect he will have the advantage of knowing the size of the orders, as well as the price they are to trigger at, thus giving some info as to whether those price levels will hold or not.


Firstly, the bank trader will not be looking at the charts! The research team will do that and they will point that out typically to the clients of the bank, and they will decide on a strategy, typically in Options. But the spot trader sitting there he has to deal with the orders and the price, so he sees whats coming and as it is EBS feed the price is a lot more alive typically jumping around so he also has the advantage of getting a feel for the market. He will get fx sales asking about price direction, feel, etc. But he has to deal with the orders, plus the banks own trading, so his reality is the price action not the shooting star, thats the reality of the chart, i.e., the history of the price action which as a chartist you have to deal with and which is a good reason why charts are simply there to give you very fast insight into any market and why investing is more profitable than trading! The last person you want to ask about market direction is a spot trader!!! Thats the reality.