I have realized that respect for chance, execution speed, and psychological awareness are the most important issues for day traders and that most concepts sold by trading educators, like moving averages, candlestick patterns, and Fibonacci levels are worthless. To strengthen my conclusion I quote from Adam Grimes' trading blog on Fibonacci levels: "A few things eventually shook my belief in the concept. These are, perhaps, best told in bullet points: You couldn’t be sure which level would work, but some level always worked after the fact. I began to realize that levels would be violated in live trades; I had dutifully placed my stop a few ticks beyond, but then another level clearly held at the end of the day. There was no way, and no way in the literature, to predict which level would hold. Once I learned about the idea of confluence (see chart above), I realized that we were drawing so many levels on charts that it might just be luck that they seemed to work. I began to understand randomness. I had a weird formal education. My quantitative training in undergrad was sorely lacking. While I would not recommend this to anyone, it did leave me with a curious hole to fill: I had to re-think the problem of randomness from the ground up, as I did not have a good understanding of things like confidence intervals and significance tests. From practical trading, I saw that there was a lot of noise in data, but I wasn’t sure how to tease it out. As I was getting a better education, I came up with a stop-gap; I generated many charts of random market data according to various techniques and spent a lot of time looking at them. If I had a better formal education I probably would have thought this was a waste of time, but I experienced so many cognitive errors as I did this. It’s one thing to know them academically, but when you see how easily your perception is swayed and how easily you find patterns in random data, you start to think deeply. Does it invalidate the idea of patterns in real market data? Of course not, but it certainly challenges the claims of “just look at a chart! You can see it works! How can you question it? Look at these examples…” Armed with that first hand experience (and, again that word is critical–it was experiential, not academic knowledge) I became very critical of examples and claims. I did some background work on the people making claims for the tools. I won’t dwell on this because I don’t think it’s constructive, but suffice it to say that someone could make a good career out of debunking Fibonacci experts, just like Houdini did with mediums in his day. I realized that we have a tendency to put some aura of greatness around past gurus, who, in many cases, were part time traders who had poor access to data and no analytical tools. Alexander Elder, in his excellent book tells of interviewing the great W.D. Gann’s grandson, and that his grandson said there was no fortune and no profits from his trading in the stock market. When I dug into the current gurus on the internet, I discovered that many trades were done at improbable prices (“How do you always get filled on the bid every time?”), and, years later, one of the big gurus from the early 2000’s told me that all her trading, scalping NQ futures, was on a simulator and she never had a live trading account. Sadly, I had seen hundreds of people try to replicate her methods, with no success. I could go on and on. I wasn’t trying to tear down any idols; rather, I was desperately searching for some evidence that someone was really applying these tools to make money. The last straw was adjusted price charts. This might seem odd to newer traders, but when you look at past price charts, those prices may or may not represent prices at which the asset actually traded. Much of the discipline of technical analysis rests on the idea that people have a memory around specific prices. While this may or may not be true, there are different ways that historical charts must be adjusted. With futures, there are at least three common methods (difference, ratio, or unadjusted), and the question of when to roll to new contracts. With stocks, there are issues of dividends, splits, spinoffs, and other corporate actions that may or may not be accounted for on the price charts. You still see this today: ask someone showing a Fibonacci extension on a crude oil chart how their chart is back-adjusted. How many days open interest or volume to roll? How does your chart compare to spot prices? The answer I got from asking many people was either confusion or “it doesn’t matter.” (I have seen this dismissal over the years from many people who use levels in various capacities. I remember explaining to a stock trader who had traded from more than 20 years why SPY prices were so different today from yesterday–in 20 years of using “levels” he had never accounted for dividends.) Simple logic here: if I tell you I have some powerful pills, but it doesn’t matter which pills you take, how much you take–take 1 or 20, or when you take them, is it more likely that it magical medicine or that it does nothing at all? The whole thing died, for me, when I realized that it rested on vague appeals to authority. I knew this all along, but once I had been around the block a few times, it was even more obvious. The Emperor had no clothes. No one will ever provide you with a quantitative proof of Fibonacci levels working. (I’ve made this challenge many times, and I will renew it here. Show me something good and I will publish it and admit I’m wrong. Show me something possibly flawed but still substantial, and I’ll publish it for discussion. It’s possible my thinking on this subject is wrong, and I would love to expand my thinking in another direction. Despite me having said this hundreds of times, I have yet to receive a single shred of actual work done on these ratios.) The last apology for ratios I read was a few weeks ago when someone said that you could just look at charts and see they worked and a lot of his friends, who were medical doctors, said Fibonacci ratios were really important in the body and in art. So, that’s my journey, and that’s why I place no emphasis at all on Fibonacci levels. Here’s the real key: you do not need them. That’s the point. It’s not that I’m trying to tear down anything or simply show you that something doesn’t work; it’s that I’m showing you that this is probably confusing baggage and noise, and does not add any real power to your analysis. Why not focus your attention on things that do work? Your answers may be different from mine, but that’s my journey and that’s why I don’t use these tools in my trading in any capacity. If you want to dig deeper, I published some of my quantitative work on Fibonacci levels in the posts below. No, this is not, nor is it intended to be, a disproof of the theory, but it does offer a simple replacement that is supported by the data: look for retracements to end at about 50% of the previous swing, with a very large margin of error. We might wish for more precision, but that is all I have been able to find in the data. Good news, though: it’s enough." http://adamhgrimes.com/blog/whats-wrong-fibonacci/ Thanks to Adam Grimes for sharing his discoveries about the inherent unreliability of moving averages and fibonacci levels and their uselessness without a proper appreciation for randomness and thus gambling in day trading.
Smas are okay when you know how to use them, but only very fast ones like 6mins. But yeah rest is pretty much crap to make this game seem easy and create a teachable ways for the purposes of making $$$$'s ofcourse. Sad but true Expect loads of abuse from the belief based traders lol
The spin of the die wipes all memory / history of the past, as well as all influences / circumstances of the surroundings. Markets are more chaotic than truly random. You can see memory with absolute change over time. And when conditions are there, with sign change over time.
Consistent precision does not come from derivatives of price but from price itself, the OP and his recent threads are correct, lot of useless stuff out there that only favors brokers, gurus and indicator developers.
candlestick patterns don't work ... now that's funny ... I have big retraces though while I use them, be mentally prepared for those ... I must admit at a certain time though I thought the same thing ... and then I stared some more at charts, did more backtesting, got more tf's on, and tried to explain all the tops and bottoms at swing-levels ... sometimes there was no explanation but just a retrace in a trend ... you need tons of screentime to find out which is which ... I did my 10.000 hours by far ...
like today in gold: this is just one short for me, no need to take trades to the upside: I got no signals to go long ... but I did have a few retraces of more than 4 USD ...
I must say half of my candlestick patterns I haven't found in books but found by staring at charts myself ... so that might be the misssing part for you ...
My MT4 charts from FXCM Demo and TI charts on my ipad M1 are literally 30seconds different, so they look totally different, that's M1 same broker, so if you think Candle sticks are useable think again. Watching, how the price moves live different story, Tick charts are the way to really go