Wall Street = Casino. Minus Sum Game.

[barjon]

Step 1 - People buy a stock based on fundamentals, this is the start of the move
Step 2 - The more savvy technical traders jump on the move
Step 3 - The trend is your friend traders jump on
Step 4 - People at step 1 get out.

TA is all about following a move.

If TA is about psychology, then how do swings S&R points created in times of war/crisis have any bearing on the psychology of traders later on ?

Thing is - it's the news that moves the stocks and the news will have a different psychological impact depending on what it is.

You have already stated that OF COURSE you watch the news, which means the news must move markets, otherwise you'd ignore it. Yet - how TA many people consider the news that created the moves that are looking at in the past ? I would guess not many.

So - how can current news be relevant and past news not relevant ? Hoe can it reflect psychology without considering the state of the economy, consumer confidence, wars, disease at the time ? Do these things have no impact on the state of mind of investors ?

It makes no sense.

DT

I think you've got your tongue in your cheek a bit

Why guess what impact some news is going to have on the market when you can watch the price action telling you? You don't have to know what the news is to know that something's afoot.

So far as swing s/r created in times of crisis is concerned. mmm, well maybe that's the point where people trapped by the crisis event breathe a sigh of relief and bail out when price gets back to their entry point. If there's enough of them it may be enough to tilt the balance, or it may not.

good trading

jon

 

[Splitlink]

And that's a good point. All I'm saying is that if your skill, knowledge and success is in pure TA systems, your return on investment (in the broad sense) is not likely to be bigger by incorporating an FA filter instead of improving your existing system with more TA, or writing a new one.

I have nothing against FA - in fact I'll quite happily use it in some automated systems - but it's not that easy to backtest an FA filter, and some people like their systems to be properly backtested

Why would one backtest FA?

Either the company is healthy, or it is not. Scanning a database and selecting shares by elimination of heavy debt, earnings growth and other items is not difficult. After that, one can read through the reports and assess the sector's future prospects. Takes me a few hours per week and, although I am no accountant , I don't seem to pick any duffers.

 

[Xeno]

Why would one backtest FA?

Either the company is healthy, or it is not. Scanning a database and selecting shares by elimination of heavy debt, earnings growth and other items is not difficult. After that, one can read through the reports and assess the sector's future prospects. Takes me a few hours per week and, although I am no accountant , I don't seem to pick any duffers.

Because according to this thread, everything apart from price/vol/time is FA, and that includes some things that are backtestable.

 

[DionysusToast]

DT

I think you've got your tongue in your cheek a bit

Why guess what impact some news is going to have on the market when you can watch the price action telling you? You don't have to know what the news is to know that something's afoot.

So far as swing s/r created in times of crisis is concerned. mmm, well maybe that's the point where people trapped by the crisis event breathe a sigh of relief and bail out when price gets back to their entry point. If there's enough of them it may be enough to tilt the balance, or it may not.

good trading

jon

Here's the thing Jon - which people ?

The Mutual Funds ?
The ETFs ?
Market makers/specialists ?
Technical traders ?

I doubt any of the above would be 'shaken' psychologically in this way.

In this case - who's left ? Who are all these people ? For the theory to fit, the TA traders would have to be a silient minority with their 'inside knowledge of crowd psychology' watching and waiting for the 'masses' to do their thing at these psychological pain points. If the TA traders aren't in a minority, they would overpower the moves that these 'psych traders' make ?

There is no evidence to support this case. There is however lots of evidence to suggest that the masses moving the price at these points are the technical traders themselves.

Could it not be that the prevelance of TA traders are causing this action in the first place ?

 

[montmorencyt2w]

The terrible irony of it all is that about an hour later, I took one of the dimmest trades I've done for a while thus exercising my 'finely honed' discretion in a completely cr@p way.

That's because you weren't using your discretion in the "right way" ....

 

[barjon]

DT

I think it would be fair to say that there are a lot of eyes looking as price arrives at these points, but It doesn't really matter who is moving the thing at them as long as it moves and you're in a position to take advantage from it. Technical traders are themselves part of the "psychological crowd" aren't they?

good trading

jon

 

[montmorencyt2w]

DT

I think you've got your tongue in your cheek a bit

Why guess what impact some news is going to have on the market when you can watch the price action telling you? You don't have to know what the news is to know that something's afoot.

Ergo, purely TA/price-action traders must by definition always be reactive.

So far as swing s/r created in times of crisis is concerned. mmm, well maybe that's the point where people trapped by the crisis event breathe a sigh of relief and bail out when price gets back to their entry point. If there's enough of them it may be enough to tilt the balance, or it may not.

Ancillary discussion: Does S/R really exist in any case?
"There is no such thing as support in a falling market" - Discuss.

After the fact, if it "held", it is claimed to be "support". If it didn't hold, what is it then?
Supposedly, it becomes resistance. Well, if it appears to act like resistance, then this appears to be correct, but what if it doesn't? Do we just quietly forget about that one?

Seems like there is a lot of after-the-fact justification when it does work, and/or quietly ignoring of when it doesn't work.

 

[DionysusToast]

DT

I think it would be fair to say that there are a lot of eyes looking as price arrives at these points, but It doesn't really matter who is moving the thing at them as long as it moves and you're in a position to take advantage from it. Technical traders are themselves part of the "psychological crowd" aren't they?

good trading

jon

Wait a second - you just went from "the point where people trapped by the crisis event breathe a sigh of relief and bail out when price gets back to their entry point" to "it doesn't really matter". That's voodoo.

If it's a bunch of people doing something because they think other people are doing something, then there is no psychology involved. Rather, it is a bunch of people acting on a flawed premise. Traditional TA isn't a niche, which is what it would really need to be in order for it to work. As it is, there are so many people using it, that it becomes self-fulfilling.

 

[DionysusToast]

After the fact, if it "held", it is claimed to be "support". If it didn't hold, what is it then?
Supposedly, it becomes resistance. Well, if it appears to act like resistance, then this appears to be correct, but what if it doesn't? Do we just quietly forget about that one?

Seems like there is a lot of after-the-fact justification when it does work, and/or quietly ignoring of when it doesn't work.

Absolutely. I can see support in the market - it's the one just below all those other potential support areas that failed :smart:

Anyway....

Futures - infinite supply market.
Stocks - finite supply, defined by float.

Someone that hasn't brought a stock yet - doesn't have to buy.
Someone that has brought a stock already - DOES have to sell.

Can someone point me to where TA covers the impact of the above ?

 

[timsk]

Hi DT,

Someone that hasn't brought a stock yet - doesn't have to buy.

Agreed.

Someone that has brought a stock already - DOES have to sell.

Only if they're traders and, even then, they can time their sale. Those schooled in Buffettology like to buy and hold and hold and hold and hold and . . .
Tim.

 

[barjon]

........Seems like there is a lot of after-the-fact justification when it does work, and/or quietly ignoring of when it doesn't work..........

monty

I'm not suggesting that TA "works" in an infallible way and I think the most anyone would claim is that the outcome they are looking for happens more often than not.

For me, TA merely gives me a reason to trade at points where a significant move is likely and where I will know pretty quickly that it is not to be, or whether it is not in the direction I want. At the end of the day, it's how you manage your trade that counts, not how you got into it in the first place.

good trading

jon

 

[temporarilylight]

you can argue that nothing works though, no? Lots of people lose money trading based off of companies fundamentals (FA)

 

[Trader333]

That's because you weren't using your discretion in the "right way" ....

Maybe if he had conducted a form of Technical Analysis of his likely success with his discretionary trades based on statistical probabilities, he would have known that the statistical probability of taking the trade was unlikely to have worked


Paul

 

[Xeno]

Seems like there is a lot of after-the-fact justification when it does work, and/or quietly ignoring of when it doesn't work.

And what's wrong with quietly ignoring it if it falls neatly into your strategy's 40% of cases where is doesn't work? Better than screaming at the screen and moving your stop ;-)

 

[Shakone]

Absolutely. I can see support in the market - it's the one just below all those other potential support areas that failed :smart:

Anyway....

Futures - infinite supply market.
Stocks - finite supply, defined by float.

Someone that hasn't brought a stock yet - doesn't have to buy.
Someone that has brought a stock already - DOES have to sell.

Can someone point me to where TA covers the impact of the above ?

Surely you're talking about potential support, i.e. based on some past data, where you think it is likely to reverse. That's fine, but as you said, you don't know which potential support will actually become realised support, because there are probably many. And looking at a chart, maybe all failed with the exception of one, which reversed strongly.

On my chart I have many potential supports, and I'd estimate 95% of the time it will turn at one of these. Which one?

Well, I think if you think about just this, for a while, you might realise something important.

 

[Splitlink]

Surely you're talking about potential support, i.e. based on some past data, where you think it is likely to reverse. That's fine, but as you said, you don't know which potential support will actually become realised support, because there are probably many. And looking at a chart, maybe all failed with the exception of one, which reversed strongly.

On my chart I have many potential supports, and I'd estimate 95% of the time it will turn at one of these. Which one?

Well, I think if you think about just this, for a while, you might realise something important.

A kindred spirit! I've been saying similar to this to many who swear by S&R lines.

 

[FXTrend240]

best imo is to do fundamental analysis and find an economically strong trend and refine entries with TA ( say buy support/sell resistance, roughly)

 

[montmorencyt2w]

This pot hasn't been stirred recently. Here is someone else who doesn't seem too enamoured of many of the conventional methods of analysis that traders use:

http://tuckerreport.com/articles/trading-methods-what-works-and-what-doesnt/

Not that he rejects all TA; rather he puts it into perspective.

The same author on Market Profile:

http://tuckerreport.com/articles/market-profile-a-primer/

 

[DionysusToast]

Good articles !

 

[Xeno]

This pot hasn't been stirred recently. Here is someone else who doesn't seem too enamoured of many of the conventional methods of analysis that traders use:

http://tuckerreport.com/articles/trading-methods-what-works-and-what-doesnt/

Some of the article is good. It starts off well. Unfortunately it heads off and states some things as facts that are simply untrue.

e.g. The very best mechanical systems have about 30% winning trades, which is below the 50% that a coin flip will produce.

Ha ha. Well I can prove that's untrue using his own comments. He also states that But with proper money management, one could take a far from perfect trading approach, even the coin flip, and have a fair shot at making a profit over time.

Well, mechanical systems are excellent at cementing a solid money management system, so take a mechanical system, good money management, give it a 50/50 random entry, and according to him you'll have a good shot at a profit, which would mean considerably more than 30% successful trades. Hell, I could knock you up five different mechanical systems in half an hour that would all be 40% successful trades. That's easy.

So, good article, but suffers from the "I've never seen it so it must be untrue" bias that is plastered over this thread.