Don't Be Fooled By Randomness

[Raleigh Lee 10]

Some studies have shown that a high percentage of chart patterns may be simply random lines on a piece of paper. Burton Malkiel in A Random Walk Down Wall Street cited an experiment his students participated in, constructing a hypothetical stock chart. Each day they flipped a coin, plotting heads as a 1/2-point gain and tails as a 1/2-point decline. The resulting chart from these random coin flips displayed all the classical patterns such as head and shoulder formations, flags, pennants, triangles, etc. There were even indications of cycles.

[TheDude 10]

I think TA only has some merit for trading on EOD data and above.

 

For day traders, charts are almost useless (traditional ohlc bars/candlesticks).

 

This is why prop firms dont use TA/charts for day trading.

This is why prop traders who have never traded before start making money in 3-9 months, where as 'retail' day traders take years before they finally throw in the day trading towel - and their charts with it!

[suby 10]

I think TA only has some merit for trading on EOD data and above.

 

For day traders, charts are almost useless (traditional ohlc bars/candlesticks).

 

This is why prop firms dont use TA/charts for day trading.

This is why prop traders who have never traded before start making money in 3-9 months, where as 'retail' day traders take years before they finally throw in the day trading towel - and their charts with it!

 

What are some of the main tools that prop firms use ?

[edgararakelyan 10]

technical analysis has worked for me thus far and I've been trading for roughly 7 months.

[duncanhoo 10]

what makes an economist's book any more correct than the various other books out there on trading?

 

He may have been fooled by randomness and settled on index funds but i am not. Is it a coincidence that he both peddles index funds and is an index fund manager? I can assure you there is nothing "random" in that correlation.

 

I successfully day trade and swing trade using charts alone and no tape.

 

That said, finding a consistently profitable edge in the charts was not easy and took a long time.

 

The first and most important step on my road to success was to stop listening to gurus, talking heads, economists and most importantly - journalists.

[Interceptor 10]

I think TA only has some merit for trading on EOD data and above.

 

For day traders, charts are almost useless (traditional ohlc bars/candlesticks).

 

This is why prop firms dont use TA/charts for day trading.

This is why prop traders who have never traded before start making money in 3-9 months, where as 'retail' day traders take years before they finally throw in the day trading towel - and their charts with it!

 

I would partially agree with this.

TA is useful for visual confirmation of reaction around key areas, and also as a means of calculating risk on each trade, ie the 'I was wrong point'.

But, without the underlying basics of supply/demand/inflection points etc, its a bit 'hit and hope' on its own.

[wespole 10]

There were even indications of cycles.

Which is why computing devices are banned at casinos. TA does work on any time frame provided one also uses appropriate money management steps.

[TheDude 10]

What are some of the main tools that prop firms use ?

 

MD Trader from TT (a DOM). Time & Sales. If they do use charts, it's mostly Market Profile.

[EXPERTMARS 10]

Yes the markets can be totally unpredictable. The current price is the reality. There is always a 50 -50 chance of where the price might move tomorrow or day after or week s or months from the present time.

[SunTrader 10]

Which is it?

 

"This is why prop firms dont use TA/charts for day trading"

 

or

 

"If they do use charts, it's mostly Market Profile".

 

I know, because I traded in a prop shop a few years ago.

[Colonel B 10]

Yep The Dude is correct.

There is a difference in definitions between charts with the pro environment and the retail environment. That is the confusion Sun. Yes of course pro guys use "charts." They just don't look at the same things.

 

Characteristics of a retail trader:

1-2 screens

only looking at 1 market

many different time frames for 1 market

primarily candlestick and renco charts

many different math based indicators

many different candlestick patterns

poor or no real time news sources

large stop outs

misunderstanding/misapplications of certain terms and definitions (risk, money management, ect...)

will be more likely to add to losing positions as part of a plan tough to them

looking to trade longer term

Trying to get 20 ticks/points with 1 or all contracts

 

If even just a couple of these things describe you then chances are you are a retail trader. Chances are that if TA is working for you then you are using what would be considered a large stop. The system used is actually getting you in late after 1/3 or 1/4 of the moved has started thus creating more total risk.

 

General characteristics of prop traders:

Using correlated markets

Looking at related markets and looking for opportunities

Rows of desks that have different people looking at different markets all communicating with each other

1-3 guys watching real time news sources

small stops

Way less likely to add to a losing position

4-6-8 monitors

1 whole monitor filled with DOMs

Look to trade shorter term

Trade large size and scale

 

As you will notice the things mentioned are not opposite. Some of the things are just different applications of information. Both are looking at markets however the data is different and the application to the data is different. You could look at correlated markets with candlestick charts. But how many threads on this forum or others talk about where the treasuries are opening in relationship to where the ES is opening when trading the ES? If you trade the ES as a retail trader chances are you are only looking at the ES.

 

Pros use some sort of order flow filtering and structuring software. Something not necessarily restricted by time but measured by rotations and bid/ask information. Retail primarily uses time based charts. Market Delta is a really good example of a software that does that with its footprint. There are plenty of others. Pros are going to use TT. Its expensive but Ninja cant do what TT can. X Trader is superior all other DOMs I have seen. Its really all about finding out where longs/shorts are stuck. The bid/ask info is going to give you that information clearer then any candlestick.

 

If you have an "edge" and you are not using bid/ask data then you have found a way to recognize longs and shorts trapped with out it. That is the only real edge that has ever been in futures trading. The edge is knowing where the retail is getting in and getting out. The edge is being able to watch short term traders getting trapped and then pressing into the their stops. Knowing where paper is defending and being on the winning team when the inevitable happens.

 

Bottom line is if you think markets are random you are wrong. Markets are not random. Who ever told you that must of told you that so they could take your money. This is the thinking of a losing trader or someone who doesn't have all the information on what is making them move or they don't know what makes markets work.

 

DON'T BE FOOLED BY RANDOMNESS!!!! Markets move because of short term traders getting stuck and having to EXIT. That is why pros watch the short term. Retail traders directly move the market. I watch retail traders get popped all day every day. Once you learn to watch bid/ask information you will see what I mean.

[zdo 20]

Some snippity snips… on pointed pointlessness

 

> Just because the “Markets are not random” – doesn’t mean you can’t be fooled by ‘randomlike’

 

> Instead of “There were even indications of cycles.” wouldn’t it be more accurate to say “There were even indications of stochastic processes” ?

 

> and that ‘fooled by (indication of) stochastics’ can be as deadly or even more deadly for some than ‘fooled by randomlike’ :crap:

 

> Also, just for snicks, I’ll just drop in that stochastic cycles in ‘randomly’ generated data do not = real cycles in randomlike generated data streams… :rofl:

 

> I sincerely love threads like this.

And I always appreciate the ‘pros don’t use _______’ etc posts …………

Until I recall how many instances I would have been better off just relying on my methods with “charts” and (random) “TA” instead of “the underlying basics of supply/demand/inflection points”, "correlations", MP, books, etc. and other 'pro' techniques... (find your own way) :missy:

[duncanhoo 10]

very well put. kicking myself for getting sucked into this thread

 

[quote

 

> I sincerely love threads like this.

And I always appreciate the ‘pros don’t use _______’ etc posts …………

Until I recall how many instances I would have been better off just relying on my methods with “charts” and (random) “TA” instead of “the underlying basics of supply/demand/inflection points”, "correlations", MP, books, etc. and other 'pro' techniques... (find your own way) :missy:

[traider 10]

what makes an economist's book any more correct than the various other books out there on trading?

 

He may have been fooled by randomness and settled on index funds but i am not. Is it a coincidence that he both peddles index funds and is an index fund manager? I can assure you there is nothing "random" in that correlation.

 

I successfully day trade and swing trade using charts alone and no tape.

 

That said, finding a consistently profitable edge in the charts was not easy and took a long time.

 

The first and most important step on my road to success was to stop listening to gurus, talking heads, economists and most importantly - journalists.

 

Absolutely! There is no room for approximation with charts. Either you know them thoroughly and that takes time or else you are in for a hiding. I use nothing but candles. Its enough knowing the times when news is breaking, the charts tell me the rest. Yesterdays Euro buy was fairly obvious for me. However, I can't emphasise time and diligent application enough. And a good dose of lateral thinking.

[traider 10]

Which is it?

 

"This is why prop firms dont use TA/charts for day trading"

 

or

 

"If they do use charts, it's mostly Market Profile".

 

I know, because I traded in a prop shop a few years ago.

 

Did they use TA/charts?

[suby 10]

Did they use TA/charts?

 

Prop traders use charts simply as a visual to enter into a trade

 

However, the criteria for entry is thoroughly developed well before the trade is made. Some methods of technical analysis will help one "Quantify" their entry providing the research and backtesting has been done.

 

If your making your trade solely based on what you see on the chart then yess, you are randomly trading

[traider 10]

Prop traders use charts simply as a visual to enter into a trade

 

However, the criteria for entry is thoroughly developed well before the trade is made. Some methods of technical analysis will help one "Quantify" their entry providing the research and backtesting has been done.

 

If your making your trade solely based on what you see on the chart then yess, you are randomly trading

 

Thanks. I trade purely through my charts (quite successfully in fact) but there's a significant degree of discretion involved.

[suby 10]

Thanks. I trade purely through my charts (quite successfully in fact) but there's a significant degree of discretion involved.

 

What kind of TA methods do you use in your trading traider?

[traider 10]

What kind of TA methods do you use in your trading traider?

 

Support and resistance basically. I have a raft of complex rules that I have gathered from years of observing the markets (forex specifically) involving which candles and sets of candles are safe entries. Market tops and bottoms, I have found, are made up of only a few candle sets that repeatedly present. However, a candle or candle set must meet precise criteria before I will use it/them.

[ArkhamB 10]

If you have an "edge" and you are not using bid/ask data then you have found a way to recognize longs and shorts trapped with out it. That is the only real edge that has ever been in futures trading. The edge is knowing where the retail is getting in and getting out. The edge is being able to watch short term traders getting trapped and then pressing into the their stops. Knowing where paper is defending and being on the winning team when the inevitable happens.

 

Once you learn to watch bid/ask information you will see what I mean.

 

Can you flesh this out a little more? What are you looking for in the bid/ask? I ask because I am having more success trading levels. I am always watching bid/ask but there is so much order flashing, seems hard to glean much there.

 

Brian

[Colonel B 10]

> Just because the “Markets are not random” – doesn’t mean you can’t be fooled by ‘randomlike’

 

Yep so true.

 

> I sincerely love threads like this.

And I always appreciate the ‘pros don’t use _______’ etc posts …………

Until I recall how many instances I would have been better off just relying on my methods with “charts” and (random) “TA” instead of “the underlying basics of supply/demand/inflection points”, "correlations", MP, books, etc. and other 'pro' techniques... (find your own way) :missy:

 

HAHAHAHHAHAHA!!!!!!!! LOLOLOLOL Silly retail. Hey just because some one sells you something and tells you that is what the pros use doesn't make it so. Oh yea and the books created by the "pros." HAHAHAHAHAHAHAHA What books? Psychology books? Those are books about trading written by psychologists.

 

Who is out there teaching the underlying basics of supply/demand/inflection points correctly? The Predictor? Folks on this forum? Who really uses correlated markets? Forex guys are the only ones I guess. Don't try to post anything on the ES thread about the bonds or notes because that thread is only for ES. There are only a few MP books out there and lets be honest if you read them you would still be at a loss for executable information. Sorry full time MP guys. What is left from your list? Oh yea "pro techniques." Like floor pivots. More laughable crap.

 

I know folks call this crap pro all day long. Hey if you have some sort of system that uses some sort of Fib, MA, Stoch, MACD, algo, with some abandon baby with 3 crows flying and to execute it you flip a coin then good for you. I know a guy that uses MACD and MAs and I watched him add on to a loser for 3 days in the ES. Does he makes money with that? Maybe. I literally get email everyday trying to sell me stuff that some so called pro uses. Pro room moderator/program seller. Pro trader ??? pfffff not a chance.

 

This goes to anyone. If you are taking money out of the market and you can pay your bills with it then good. Short sell, long sell, throw a spaghetti noodle up there if you can trade off of it and if you have to get one of those little monkeys that smokes and rides a unicycle with the little Shriner/turban hat thingies to trade with to make money then do it. I personally don't have a monkey because my wife wont allow smoking in the house.

 

For me I was taught how to trade by a couple of professional traders. Both traded in Chicago on the floor the whole 9. They taught me to trade a certain way. That way works for me. Seems to work for others too.

 

So yea so much garbage out there. I do disagree however on you should just go your own way. There is no way with out help I would of been able to figure out how to do what I am doing with out help. I think its better to learn how to do something that others are using that works and is already working instead of inventing something from scratch.

[SunTrader 10]

....

HAHAHAHHAHAHA!!!!!!!! LOLOLOLOL Silly retail. Hey just because some one sells you something and tells you that is what the pros use doesn't make it so. Oh yea and the books created by the "pros." HAHAHAHAHAHAHAHA ..........

 

...........

 

For me I was taught how to trade by a couple of professional traders...........

 

:doh:

 

Our amps go to eleven.

[Colonel B 10]

:doh:

 

Our amps go to eleven.

 

no idea what that means bro :doh:

[SIUYA 11]

no idea what that means bro :doh:

 

spinal tap......

[ame=http://www.youtube.com/watch?v=ll7rWiY5obI]Spinal Tap - These Go To 11 - YouTube[/ame]

[TheDude 10]

Can you flesh this out a little more? What are you looking for in the bid/ask? I ask because I am having more success trading levels. I am always watching bid/ask but there is so much order flashing, seems hard to glean much there.

 

Brian

 

What markets are you trading? Treasuries or ES (especially afternoon when its a bit slower) tend to be the best places to start because of the liquidity and volatility. STIR's and CL for example wont be very good markets. FX futures are probably a bit too volatile and dont quite have the liquidity for a novice. FOREX (retail) - obviously forget it as there is zero order flow - just a broker raping you.

 

When you've got a market that trades, just put a few months in watching. Dont even paper trade - just watch and you'll start to see the same games reoccur.