Registered: Feb 2010
08-11-11 01:17 AM
Quote from atlTrader666:
I'm interested in the more esoteric technical analysis and why people believe it (against all evidence)... Aside support and resistance and some momentum patterns, the rest of TA seems like nonsense. Academics have tested TA strategies for half a century and they all call it bullsh1t. There is vague proof of short-term momentum. Only Benoit Mandelbrot discovered something valid: volatility tends to cluster. You can't make money of that though since traders have intuitively known and incorporate higher premiums in their options trading when volatility increases.
My question: If you were to create a random walk in Excel do you think you would differentiate the chart from say a stock market chart?
Seriously guys Google image a random walk chart or create one in Excel and you will be amazed at the amount of double tops/bottoms, bull/bear flags, breakouts from consolidation areas, etc. that you will discover. Even Fibonacci lines will look like viable entry & exit points.
I've seen many "random walk" charts. They look similar to any other price chart via swing points and reaction points only. Yet, they have weird or strange looking volatility expansion, weird or strange looking volatility contraction along with poor distribution of price ticks when the lows and highs are different from the close or open in an interval (see my P.S. statement below).
Simply, when I see those "random walk" charts amongst real charts...the random walk charts are obvious and the first thought I have is fake charts.
Yeah...I have a few buddies heavy into the random theory and they seem confused every time I'm able to identify accurately which charts were generated via random prices and which charts were the charts of real stocks, futures or forex.
My point is that there's more to the price action than just double tops/bottoms, swing points, reaction points, flags, breakouts or whatever. Simply, these are not trade signals all by themselves. They are just price areas of interest that should prompt a trader to take a closer look. In contrast, the trade signals is what's occurring within those patterns you and I have mentioned and that's something my buddies can't understand...including most academics.
That's why they had poor trading results because they think a double bottom is a Long signal all by itself. It's not. Thus, there's more to TA than that and the few that realize such will be the ones that benefit from using TA.
P.S. I can see the difference between random price charts versus real charts when the data is presented as candlestick charts or bar charts. Yet, I can not see the difference when the data is presented as line charts, dotted charts or charts where the intervals have been so compressed that you can't determine if it's candlestick charts or bar charts...charts typically not used by those that are traders.