Technical Analysis: Is it voodoo? Or does it work?

[notouch 10]

Not all market participants make instant trading decisions so to say price instantly reflects all known events is just silly. News takes a while to digest and price takes a while to reflect the new fundamentals. The post-FOMC market reaction is a good example. Market participants were reacting to the statement at least 30 minutes after it was released.

[Kiwi 16]

Like it or not, if you use TA you are assuming that EVERYTHING THAT IS KNOWN ABOUT A STOCK, COMMODITY, INDEX, OR CURRENCY IS REFLECTED IN PRICE.

 

If by IS you mean its there NOW then No. It takes time for the markets to adjust to information so although peoples reactions to information will be reflected in price, there is a time lag and opportunity for both fundamentalists and trend followers on various timescales as a result.

 

Key points from a trading perspective are that there is lag and that what is reflected in price is peoples reactions to information.

[Soultrader 12]

.... I totally regret starting this thread What I really meant was price patterns. I actually had this debate in a few other places and I came to a conclusion not to bring it up. Yes all of you are right. MP, Pivots, etc... are all TA.

 

I should of clearly stated price patterns ONLY which I think are total crap but once again some traders make money off it so they must work for a few traders.

[notouch 10]

So double tops and double bottoms are total crap? One of your trading methods is a test of the low at lower volume which is just trading a double bottom with the addition of volume analysis (which is how most people trade double bottoms). Now I'm confused.

[Soultrader 12]

So double tops and double bottoms are total crap? One of your trading methods is a test of the low at lower volume which is just trading a double bottom with the addition of volume analysis (which is how most people trade double bottoms). Now I'm confused.

 

To me thats simply support and resistance. Or take a look at a head and shoulders... to me its just simply a lower high (right shoulder). When I look at price.. it never really occurred to me to spot a pattern and be like "Hey, looks like there is a ascending triangle. Why not play the breakout?" Instead.. its just "Okay, there is resistance above. Perhaps wait to see if there is price acceptance on the breakout."

[dalby 10]

"Like it or not, if you use TA you are assuming that EVERYTHING THAT IS KNOWN ABOUT A STOCK, COMMODITY, INDEX, OR CURRENCY IS REFLECTED IN PRICE."

 

wrong

 

this is not a valid conclusion

 

price gives information. that is why people can trade successfully using TA.

 

it does not encompass ALL information, which is why people can also trade successfully using fundies.

 

your conclusion does not follow from the evidence, and it uses the exact same logical error that efficient market hypothesis people use

 

two sides of the same coin. neither is true

[notouch 10]

Soultrader, your approach is the same as my approach and probably the same approach as most people who successfully use technical analysis. The pattern is just a convenient way of spotting the underlying price action.

 

I think you're a closet TA trader. :p

[Soultrader 12]

Soultrader, your approach is the same as my approach and probably the same approach as most people who successfully use technical analysis. The pattern is just a convenient way of spotting the underlying price action.

 

I think you're a closet TA trader. :p

 

hahaha.. I like that notouch. Good one

[torero 10]

A closet TA trader, come out and say it man!!! Be yourself and admit you like TA and you live and breathe TA.

 

Patterns are a convenient way to categorize certain price action that is repeated over and over through time. It's basically price action doing the same thing it always does. Using these patterns help dumb traders like me get a better understand on the market structure.

 

James, you sure shot yourself on the foot here LOL!!!!

[Soultrader 12]

A closet TA trader, come out and say it man!!! Be yourself and admit you like TA and you live and breathe TA.

 

Patterns are a convenient way to categorize certain price action that is repeated over and over through time. It's basically price action doing the same thing it always does. Using these patterns help dumb traders like me get a better understand on the market structure.

 

James, you sure shot yourself on the foot here LOL!!!!

 

 

Yep I know.... I thought I burried this thread. lol Okay how about measured moves for exit targets? Does this make any sense to traders? Magic?

[dalby 10]

TA is not just patterns

 

patterns are part of TA. you can trade SOLELY watching tape (no charts whatsoever) and still be using TA

[Anonymous 11]

"Like it or not, if you use TA you are assuming that EVERYTHING THAT IS KNOWN ABOUT A STOCK, COMMODITY, INDEX, OR CURRENCY IS REFLECTED IN PRICE."

 

wrong

 

this is not a valid conclusion

 

price gives information. that is why people can trade successfully using TA.

 

it does not encompass ALL information, which is why people can also trade successfully using fundies.

 

your conclusion does not follow from the evidence, and it uses the exact same logical error that efficient market hypothesis people use

 

two sides of the same coin. neither is true

 

Well Soul, although we still do not have a definition of "WORK", we see two major reasons why TA fails in the hands of some:

 

1. They do not understand the fundamental premise of TA: That ALL infromation is reflected in Price. The very thing TA looks out. Even planet aspects assume price reflects all known quantities which includes the motion of the planets.

 

2. People do not believe in the premise of the very thing they are using. It is hard to see WHY price will fall if RSI goes above 70, if you do not believe price has factored everything already. Of course, indicators do not drive price so this is felonious on more than one level, but if you use it, Shouldn't at least BELIEVE in its essence?

 

Now, one may not believe the essence and still use it. But that person is saying from the start that TA is flawed. If that is true, then poor results neccessarily follow....and should be expected.

[walterw 10]

Stupid semantics.... we are all technicians.... lol.. :p

[Anonymous 11]

Let's move back to Auction Market theory. The sole purpose of the market is to find that place where there is a disagreement on value and an agreement of price.

 

If there are some traders that know something and are thus bullish, PRICE WILL reflect that bullishness. We are talking about traders IN THE MARKET. And if they are in the market then their bullishness creates a disagreement on value, but that disagreement on value is matched at a point where the bear agrees on price.

 

There is a buyer for every seller. So if the bulls know more than the bears, it must be reflected in price even before the information is known to all.

 

What does that mean?

 

* There is no such thing as Bullish/Bearish consensus. Price already reflects the values of the bullish traders in the market and the bearish traders. So all those reports on such are simply bogus. Any number that states the bullish consensus is 85% simply has not asked enough bears. It must be 50%/50%

 

* There is no such thing as overbought or oversold. Each price is a two sided transaction. The market functions to find that place where the two come together. By definition this is an equilibrium. Certainly not stable , but equilibrium none the less.

 

So using TA to find overbought or oversold conditions is felonious from the start. One is attempting to measure something that does not exist. Price is where it is at, because it is supposed to be there; and price is supposed to be there because that is where it is at.

 

Price is king. Hence whatever says price should be doing something else is irrelevant (note necessarily wrong, just irrelevant). Price may head down from point x, but it has nothing to do with the fact your Fibonacci vortex said it should. Price simply does not move down because RSI is in "overbought" territory. INDICATORS DO NOT DRIVE PRICE.

 

* There is no such thing as "price over-reacting". Price is where it is at because it is supposed to be; and it is supposed to be there because that is where it is at. Those that say, "the market over-reacted and moved too far..." are speaking in code. What they mean is," Price has moved further than I thought it would......"

 

Does the market at times move 100 points in one day and then move back down 100 points the next? Clearly. BUT EVERY PRICE ALONG THAT WAY WAS A VALID PRICE BECAUSE A TRADE WAS FACILITADED THERE. That's the definition of price.

 

Those that embark on TA to tell them what the market should do, rather than the reality of what it is doing, are walking on a tenuous path. Indicators are derivatives of price and therefore have lag. Lag does not have to be a bad thing. But as indicators are derived from price, they cannot Drive future price action. Herein lies where most people come into trouble.

 

Price is reality.

 

1. Price is not driven by Technical

 

2. Price is the best instrument for gauging future price direction. That is, what price is doing now is the best "prediction" of what price will be doing in the future.

[dalby 10]

pivotprofiler, i make an excellent living using TA so don't tell me what fails

 

your premise is false

 

repeating it ad infinitum will not change that

 

i will continue to use fundamentals for investments (and some trades) and TA

 

because i know that all information is NOT reflected in price

 

and i will continue to daytrade futures using TA. cause i know that TA works.

 

because ENOUGH information is encoded in price history to give me an edge

 

the bottom line doesn't fail

 

tell warren buffet that all information is encoded in price

[walterw 10]

Yes true, Price drives indicators and not oposite, that doesnt mean indicators are not good helpers to understand price... some times make your life easier... no alergia to indicators, yes alergia to indicators idolatry... if you feel unconfortable with a price derivative (indicator), you will also most probably feel unconfortable with price himself...

[dalby 10]

personally, on an intraday time frame, i don't use any lagging type indicators (MACD RSI) etc. iow indicators that give readings based on past price readings over a given series

 

i do use stuff like key reference areas - pivots of all sorts (market profile, globex etc.), tape action, TICK etc.

 

whatever works for you.

 

i love to use lagging indicators on daily weekly charts.

 

i also find fundamentals to be VERY useful for investments, not so much with shorter term trades

 

whatever works for you...

 

i hate the fact that so many people are polarized into either the (fundamentals are the best way, and TA is voodoo OR all info is priced into the chart) two camps, when reality clearly shows that there are edges in fundies, edges in TA, and edges in intermarket analysis, etc.

 

to clarify, it's ok to be a TA only or fundies only trader. it is illogical to think/claim that your way is the "only" way or the best way.

 

imo

 

 

it's ALL good.

 

many many many ways to skin the market cat

[Anonymous 11]

.......... tell warren buffet that all information is encoded in price

 

Just because all information is reflected in price that does not mean ALL participants will come to the same conclusion. THAT'S WHAT MAKES A MARKET.

[Kiwi 16]

James,

 

Its time for you to start some new threads. I suggest that the following threads will reveal peoples true natures (and some beliefs that will amaze others).

 

Trend following is for losers

Scaling In doesn't work

Scaling Out is inferior behaviour

Moslems are better than Christians

 

etc etc. And don't you have a presidential election we could apply technical analysis to?

[dalby 10]

i hate to sound like a broken record, but all information is NOT priced in

 

this is the EXACT same fallacy that led to efficient market hypothesis (which had the added fallacy that all market participants were rational, and all information was INSTANTLY reflected in price).

 

if you go out there and pound the pavement, or if you have good insight (through experience, training, or whatnot) you have information that most people do NOT know, and is therefore NOT priced into the market

 

that's why there are many edges, and why information is not ALL priced in.

 

cause information is not perfectly or completely disseminated AND people have different abilities to interpret the information and apply it to the stock.

[Anonymous 11]

I must admit these type of topics are no more than mental masturbation. LOL

 

Now:

 

1. If You (Dalby) know more about something than I do, we will have different perceptions of value, the price we trade at will reflect that. It will reflect what you know and what I do not. But it reflects it all.

 

2. If we both know the same thing, we do not have to come to the same conclusions about how that information affects value.

 

There is nothing that says all information is equal nor interpreted equally. One trader seeing a push towards Ethanol will value corn and be willing to buy at higher prices. He values corn more than the money he has. The trader on the other side, does not have to be a farmer. But his focus may be on the large amount of corn being planted. More over, he may see ethanol as just the next "green issue fad". The price at which this trader sells corn (short) reflects his value to have the money now. So we have disagreement on value and an agreement on price.

 

This is immediately reflected in the market.

 

Simply, not everyone has to know everything. But what one trader knows effects his perception of value and thus the price at which he trades. ERGO price must reflect all that is known. Mis-information therefore would still be reflected in price until the correct information is known.

[dalby 10]

except it's an invalid conclusion. the premise is decent, but the conclusion does not logically follow.

 

1) people do not (always) trade rationally. thus, even if they KNOW "X", they do not trade that way many times out of fear, greed, hope, panic euphoria. we have all experienced this in our OWN trading, and the rest of the world is exactly the same

 

2) again, you are ignoring DD. i use all sorts of unconventional indicators (i'm not talking electronic price indicators - i'm talking groups of people's habits, store managers, etc.) when i research, and that price is not known to many, if not most people. many people who DO know it, don't trade at all, so that information is not reflected in price.

 

etc. etc. etc

[The Bear 10]

Guys this TA thread is numbing my brain. I'm going crazy now. I've just finished reading every single post on this. You fellows are the most exacting insane detailed people EVER.

 

 

 

I thought we were all just gamblers

 

(And TA is a way to stay objective so we don't blow our plot)

 

Can someone answer my limit down question when they get a chance.

[Soultrader 12]

Yes I admit I am wrong on this one. At the point of starting this thread, I was in a debate with a fellow trader on price patterns. My argument was that one can not be successful just relying on chart patterns. I know a few other traders who will agrue the same and state "Take a look at chart pattern traders and their P&L. It will show how unsucessful it is."

 

HOWEVER, as many of you here has argued... traders use whatever works for them and it is absolutely wrong to say something does not work. Alot of you here made extremely valid points and I will take my agruement back. I can not possibly go on to state this if I rely on pivots in my trading. :p

[Soultrader 12]

Guys this TA thread is numbing my brain. I'm going crazy now. I've just finished reading every single post on this. You fellows are the most exacting insane detailed people EVER.

 

 

 

I thought we were all just gamblers

 

(And TA is a way to stay objective so we don't blow our plot)

 

Can someone answer my limit down question when they get a chance.

 

hahaha. Yea... TA is no rocket science. What I did find fascinating was to really understand the psychology behind price behavior. Would it be totally off track to say that price action is trader psychology? Or did I just pull another mistake there...