William Eckhardt

[daxdaytrader]

Hi,

Just reading The New Market Wizards (Schwager) and was surprised at some of Eckhardts comments. I think he is right that stoc/RSI and other indicators are nearly "worthless", as are many "systems", and that random walk is bunk.

However, his claim that trend lines are bogus seems dubious to me. He says this is because of the time scale. However trend lines are drawn across highs or lows, so the scale is irrelivant, the touches will be at the same points in time.

What might be the case is that trend lines are not a reliable indication of a reversal or useful break.

Any comments on the above or any of Eckhardts other comments please?

 

[rols]

Hi,

Just reading The New Market Wizards (Schwager) and was surprised at some of Eckhardts comments. I think he is right that stoc/RSI and other indicators are nearly "worthless", as are many "systems", and that random walk is bunk.

However, his claim that trend lines are bogus seems dubious to me. He says this is because of the time scale. However trend lines are drawn across highs or lows, so the scale is irrelivant, the touches will be at the same points in time.

What might be the case is that trend lines are not a reliable indication of a reversal or useful break.

Any comments on the above or any of Eckhardts other comments please?

What is important is what works for you, not what somebody else says or does. I know a guy in Italy who trades solely using astrology and is very successful at it.

As I have said many times previously, empirical perception is the key. In fact Socco only this morning made a very good point about candles which IMO applies to all external indicators.

Candles are inanimate objects created to represent price tracks within a given period. Of themselves they tell you very little in the way they are displayed.

What tells you a lot is how you view them and what you are able to percieve by having an understanding of what they represent and why.

 

[nine]

He is right that trend lines vary in position a bit as you change timeframe. Try some with 30, 5 and 1 minute bars. My personal response to this issue has been simply to allow for the possible noise and sometimes to check timeframes I think other players might be observing.

 

[daxdaytrader]

What is important is what works for you, not what somebody else says or does. I know a guy in Italy who trades solely using astrology and is very successful at it.

As I have said many times previously, empirical perception is the key. In fact Socco only this morning made a very good point about candles which IMO applies to all external indicators.

Candles are inanimate objects created to represent price tracks within a given period. Of themselves they tell you very little in the way they are displayed.

What tells you a lot is how you view them and what you are able to percieve by having an understanding of what they represent and why.

Hi rols,

Some of what you say confirms his stance. Eckhardt is at least being scientific, if something "works for you" then it should work for anyone else, even a computer, and that is his point - they don't. He dismisses cycle "cranks" as well, BTW. His words not mine, but I agree. There is always some pattern indicator or whatever that will fit the price action. The question of course is, are there some that give us a profitable edge?

I expect your astrology traders profitability is delivered elsewhere than from the astrology.

What you(Socco) do seem to be saying is that the greater part of the value is not in what indicators tell you but in what you know about the market as a whole - of course this is not surprising. We know that indictors are nearly "worthless" because testing them scientifically proves this, same goes for candlesticks, and many "systems".

No substitute for knowledge and experience it seems to me. Another thing I found interesting, and that answered a question for me, was about how banks/trading corps can take people from college and train them as successful traders. Afterall, banks can't have a monopoly on good trading techniques. It seems they do not, and value again is found elsewhere.

 

[daxdaytrader]

He is right that trend lines vary in position a bit as you change timeframe. Try some with 30, 5 and 1 minute bars. My personal response to this issue has been simply to allow for the possible noise and sometimes to check timeframes I think other players might be observing.

I go with Eckhardt in as much as drawing a x degree trendline, or Gann fan can't "work", but they are not really trendlines. Trendlines work as I described them, and are the same lines whatever the scale.

 

[nkruger]

Hi,

Just reading The New Market Wizards (Schwager) and was surprised at some of Eckhardts comments. I think he is right that stoc/RSI and other indicators are nearly "worthless", as are many "systems"



Any comments on the above or any of Eckhardts other comments please?

I would tend to disagree with the RSi/Stochastic comment. Have a look at some of the positive comments concerning my system to trade the Spanish Ibex index http://www.trade2win.com/boards/showthread.php?t=25277 we're using a Stochastic variation with MA's and RSi and getting in VERY early on reversals. The system seems ok on Dow, Dax and forex apparently....

 

[daxdaytrader]

I would tend to disagree with the RSi/Stochastic comment. Have a look at some of the positive comments concerning my system to trade the Spanish Ibex index http://www.trade2win.com/boards/showthread.php?t=25277 we're using a Stochastic variation with MA's and RSi and getting in VERY early on reversals. The system seems ok on Dow, Dax and forex apparently....

Hi there,

Eckhardts argument is that you need to test the system over enough data to see whether your results are significant or not. Many indicator systems will work for a few weeks/months and then fall to pieces. What you probably have is a localised fit to the equity curve. Still, if it works, trade it till it doesn't, then retune it!

I think it would be a miracle to discover some simple system of indicators that created a consistent edge, afterall plenty of people have done rigorous research on them and not found such a global solution.

Are you trading mechanically or is discretion involved? Mechanical trading often reveals that the indicators are not working as we see them with the naked eye.

 

[alexander]

Hi,

Just reading The New Market Wizards (Schwager) and was surprised at some of Eckhardts comments. I think he is right that stoc/RSI and other indicators are nearly "worthless", as are many "systems", and that random walk is bunk.

Theoretically, believing in RSI is believing in gambler's fallacy. RSI increases as number of up bars versus number of down bars in a specific time frame increases and vice versa. If you believe that a high RSI value means something it is like the gambler who thinks that because red showed up 10 times in the roulette game the probability of black coming up has increased. When black shows up the gambler affirms his belief in the fallacy a posteriori. But a posteriori affirmations say nothing about the risk and/or probability at the time one risks a bet.

Same with traders. Using indicators like RSI is just like living deep in a gambler's. fallacy. The important concept here many miss is that it is not that the RSI is a wrong indicator. IT IS the way it is used to affirm belief a posteriori that it is wrong.

Obviously, when someone uses RSI or STOC and wins it is not the indicator that helped him win but something else, maybe luck. This is the point Eckhardts tries to make from another angle.

Now, random walk is not bunk. What is bunk is the initiatives to make information transparent and available to everybody. When there is no market information efficiency and some fund managers use analysts to pump stocks or even commodities or even major currencies on some occasion I think Eckhardts is again correct. Yes, the random walk theory is correct. But it's main assumption about information efficiency does not apply in these corrupted markets.

Eckhardts is correct in all counts.

Alex

 

[fibonelli]

Theoretically, believing in RSI is believing in gambler's fallacy. RSI increases as number of up bars versus number of down bars in a specific time frame increases and vice versa. If you believe that a high RSI value means something it is like the gambler who thinks that because red showed up 10 times in the roulette game the probability of black coming up has increased. When black shows up the gambler affirms his belief in the fallacy a posteriori. But a posteriori affirmations say nothing about the risk and/or probability at the time one risks a bet.

Same with traders. Using indicators like RSI is just like living deep in a gambler's. fallacy. The important concept here many miss is that it is not that the RSI is a wrong indicator. IT IS the way it is used to affirm belief a posteriori that it is wrong.

Obviously, when someone uses RSI or STOC and wins it is not the indicator that helped him win but something else, maybe luck. This is the point Eckhardts tries to make from another angle.

Now, random walk is not bunk. What is bunk is the initiatives to make information transparent and available to everybody. When there is no market information efficiency and some fund managers use analysts to pump stocks or even commodities or even major currencies on some occasion I think Eckhardts is again correct. Yes, the random walk theory is correct. But it's main assumption about information efficiency does not apply in these corrupted markets.

Eckhardts is correct in all counts.

Alex

'fraid I disagree.

When you understand the mathematics of Indicators such as the Stochastic oscillator, you will see intriguing inter-relationships between price action and the indicator which can help you to "indicate" the most likely price action going forward.

My definition of a good indicator is one that gives infrequent but consistently good signals (i.e "indications").

 

[alexander]

'fraid I disagree.

When you understand the mathematics of Indicators such as the Stochastic oscillator, you will see intriguing inter-relationships between price action and the indicator which can help you to "indicate" the most likely price action going forward.

I think what the indicator tells you is what happened in the past, not what will happen in the future. The relationship you call "intriguing" is merely a hope that what happened in the past will be repeated in the future. When it repeats it has nothing to do with the indicator. It is pure luck.

Alex

 

[daxdaytrader]

'fraid I disagree.

When you understand the mathematics of Indicators such as the Stochastic oscillator, you will see intriguing inter-relationships between price action and the indicator which can help you to "indicate" the most likely price action going forward.

My definition of a good indicator is one that gives infrequent but consistently good signals (i.e "indications").

Eckhardt is a mathematician, he understands indicators, and says "I think these indicators are nearly worthless." His Wiki entry is here http://en.wikipedia.org/wiki/William_Eckhardt_(trader)

Do you know anyone who made millions using indicators?

The fact is that indicators may get a higher than average rate of wins for a while and then they will fall to pieces along with your account. (I speak from experience.)

Indicators can help with timing, but are poor on direction and can't help you with magnitudes.

 

[jacinto]

i know i will upset some, but i really sometimes wonder why people even bother with indicators.

j

 

[daxdaytrader]

i know i will upset some, but i really sometimes wonder why people even bother with indicators.

j

I can only speak for myself, but indicators are all pervasive, and can be presented in a convincing fashion to the unwary.

Most of us are not smart enough when we start, to ask inconvenient questions about them.

 

[jacinto]

mmm, understand that very well.

when i started, the indicator i started to use burned me.

it has taken me time, and more time to be able to read price as it comes. at times, make mistakes, etc. but happier without indicators.

though, between you and i, i found a little gem of an indicator that i use as a support-resistance tool or trailing stop, whichever the case may be, that i use to only support my price reading, and not the other way around,

but quite happy to still base my analysis and trades of a clean chart.

good weekend to you

j

 

[Paul71]

Maybe it's not a question of if an indicator works or not, but how it works? What are the mechanics of the specific indicator based upon?

Saying this, if a person knew what the indicator they were using was based upon, would they need the indicator?

Time, price action and volume are the base elements of the markets, indicators are a rough guide to the interaction of the three elements.

The markets to me are somewhat deceiving depending on what angle i look at them, in some ways i find them perfect, imperfect in other ways. The amount of money within the market is always changing, constantly liquid, illiquid in some instances. The same deals are done over and over again, but with varying amounts of money involved.

Should/can indicators ever be precise?

 

[fibonelli]

Eckhardt is a mathematician, he understands indicators, and says "I think these indicators are nearly worthless." His Wiki entry is here http://en.wikipedia.org/wiki/William_Eckhardt_(trader)

Do you know anyone who made millions using indicators?

The fact is that indicators may get a higher than average rate of wins for a while and then they will fall to pieces along with your account. (I speak from experience.)

Indicators can help with timing, but are poor on direction and can't help you with magnitudes.

"Joe DiNapoli:
Joe is a veteran trader with over 38 years of solid market trading experience. He is also a dogged and thorough researcher, an internationally recognized lecturer, and a widely acclaimed author.

His formal education was in electrical engineering and economics. His informal education was in "the Bunker". An aptly named trading room, packed full of computers and communications equipment, where most of Joe's early research began

Joe's exhaustive investigations into Displaced Moving Averages, his creation of the proprietary Oscillator Predictor and MACD Predictor, and in particular, his practical and unique method of applying Fibonacci ratios to the price axis, makes him one of today's most sought after experts...........".

Source: http://www.fibnodes.com/index.asp

I think Mr Di Napoli must have made a few million from trading over 38 years :cheesy:

 

[Paul71]

Just to add,

I personally pay reference to an SBV oscillator, i find it very useful and quite accurate when used in sync with price action.

Thanks.

 

[daxdaytrader]

I think Mr Di Napoli must have made a few million from trading over 38 years :cheesy:

Sure, but it's probably what he knows and does that made the millions, not his indicators.

 

[fibonelli]

Sure, but it's probably what he knows and does that made the millions, not his indicators.

Daxdaytrader,

I'm really not sure if you read and/or understood my earlier post. :?:

Again, here's the most relevant part underlined and in bold.

Joe's exhaustive investigations into Displaced Moving Averages, his creation of the proprietary Oscillator Predictor and MACD Predictor, and in particular, his practical and unique method of applying Fibonacci ratios to the price axis, makes him one of today's most sought after experts.......".

Hoping that you now understand what Mr Di Napoli has achieved with creating proprietary indicators to help him make his undoubted millions from trading.

 

[rols]

Daxdaytrader,

I'm really not sure if you read and/or understood my earlier post. :?:

Again, here's the most relevant part underlined and in bold.

Joe's exhaustive investigations into Displaced Moving Averages, his creation of the proprietary Oscillator Predictor and MACD Predictor, and in particular, his practical and unique method of applying Fibonacci ratios to the price axis, makes him one of today's most sought after experts.......".

Hoping that you now understand what Mr Di Napoli has achieved with creating proprietary indicators to help him make his undoubted millions from trading.

Believe everything you read then. Have you actually seen evidence of Mr. Di Napoli's 'millions.'? How many 'millions' is it BTW, or is the figure just too much money to comprehend?

Who actually wrote the appraisal of Joe? I see you lifted from his site. You don't suppose he may have had a hand in it?

If his propriety indicators have made him soo many millions why is he bothering selling
the full suite for a few hundred bucks?

There's one born every minute isn't there?