It seems that retail traders are heavily in favour of technical trading strategies. Every advertisement aimed at retail traders is "learn fibonacci", "master price action" "trade pullbacks/patterns" etc. I have not once seen "learn how to analyse fundamentals of countries, companies and make money" Is it because its less work to learn TA and its sold as somewhat of a "get rich easy by trading" ? This begs the question can a retail trader get an edge based on fundamentals without all the fancy Bloomberg terminals and a 100 analysts working for you ? Finding mispriced assets based on a sudden discovery of information before everyone else ? Everyone has been coming up with fundamental analysis theories about greece which had me thinking can you really gain an edge by reading a few articles from Bloomberg, Reuters, WSJ, maybe watch a few economic reports and connect the dots before others ? I remember reading somewhere that if you spend 10 minutes reading a financial times you have wasted 7 minutes. Im talking about global macro products like index futures, FX, bonds, commodities not individual equities.
I think the problem with new traders focusing on a TA based approach is that they're ignoring the underlying behaviour that drives the patterns, putting the cart before the horse. When I started to think about the interaction between traders that results in the patterns I trade, the indicators became pretty useless.
Great post, you are 100% correct. Retail loves easy money and TA "looks like easy money. Heck, look at the threads on this site-- "the straight line journal", "Scribbles" etc-- its so easy even a caveman can do it. This keeps the money flowing into the market. Add in the falsehood that it's not the "method" but your own psychology that keeps you from profits, and the fools keep on losing money. sorry about being harsh, but its the truth. TA makes trading look easy--- it's the same attraction that results in casinos having 1000's of slot machines. TA works for the market, not the trader-- it results in large numbers of trades so the brokers can rake in commissions. The FX bucket shops who make money when traders lose money actively teach TA as a winning trading method--- some have entire departments that with free charts etc to "help" you-- it is such an obvious scam that it is unreal that folks still fall for it again and again--- it's a very powerful seductive mind trick for the most part. surf
You don't understand the difference between day trading and investing. In a day trade assuming no report comes out during a trade, the market develops patterns that can be analyzed using a combination of price action and technical action. For longer term trading for example you trade economic trends.
Correct me if my premise is wrong There are only 2 methods in trading T/A and F/A .... correct ? Why anyone uses T/A because its about pictures, seeing re-occurring patterns on charts. We CAN all agree patterns DO reoccur so hence traders using T/A Patterns don't always work then again nothing ALWAYS does. The 2 methods go hand in hand one can act as a filter for the other. Retail traders lose money because they are putting the cart before the horse in most cases not just because they are using T/A. In trading reality the "method" chosen is not the only thing toward making money. There is so much more. This is a century old topic anyway no one really addressing the real issue only playing the blame game.
All technical analysis is is following the mountain silhouette backdrop line; the trend is your friend. But as the previous replier said, you also have to be aware of the reasons behind the movement -- don't just blindly follow that line like a horse following a carrot. (The term Fundamental Analysis shouldn't even exists in a trader's forum...unless you're a longer term short term trader )
Ive made TA work for me but it's far from the conventional way. Hence, my name. Never read a book on how I approach charts and read the market, not even remotely close. What I can say, is that every book or article I've read on TA sucks. Typically what indicator writers, mentors and snake oil salesmen do is cherry pick an example and describe how their "method" or "indicator" works on that sample, and then try to make you believe how easy it can be; that is assuming the level of subjectity does not go through the roof, which is yet, another form of scam. However, if you do your homework, and you do forward testing you can prove to yourself how full of shit they can me, all tricks that lead into lies and deceit, far from their claims, in fact, when you factor in commission, mistakes and slippage it all leads to negative expectancy. That almost includes almost every journal idiot, or technique publicly discussed in ET as well. ....but people are gullible, so there's a market out there.