FORUMS BROKERS SOFTWARE
Home
 
    Forums > Technically Speaking > Strategy (System) Design > Price action - does it make any sense?


Reply
 
Thread Tools
Old Mar 10th, 2012, 07:29 AM   #1
jcl
 
 
Join Date: Jan 2012
Location: http://dictionary.of-the-infinite.com
Posts: 407
Price curves have a very low signal to noise ratio. Therefore one would normally assume that signals or patterns based on the high or low of a bar have no predictive value, except maybe for HFT, or for 24-hour bars of the Japanese rice market.

Is price action just trading the noise or is there more to it?
    Quote
Old Mar 10th, 2012, 07:44 AM   #2
Laissez Faire
 
 
Join Date: Sep 2010
Posts: 4,543
Quote:
Quote from jcl:

Is price action just trading the noise or is there more to it?
No, but you need to know what to look at and how to look at it.
    Quote
Old Mar 10th, 2012, 08:02 AM   #3
wiesman02
 
 
Join Date: Oct 2006
Location: Connecticut
Posts: 1,844
stare at a 15 min ES chart every day for a few years. Soon you'll start to see patterns that repeat themselves.

For example, Thursday 3/8/12 's chart pattern I hadn't seen in about 3 months or so. But I recognized it fairly quickly and knew the probability was in my favor to initiate a long position.

Thats why its so important to have years of historical data. The way price action repeats itself is not obvious by any means. But after time, you'll be staring at a, say, 15 min ES chart, and you'll think, "holy sh#t" ive seen this before and its most likely going to go to point X.

Now you understand PA. Now you can get a trading plan together !
    Quote
Old Mar 10th, 2012, 08:52 AM   #4
ssrrkk
 
 
Join Date: Jun 2005
Posts: 440
Quote:
Quote from jcl:

Price curves have a very low signal to noise ratio. Therefore one would normally assume that signals or patterns based on the high or low of a bar have no predictive value, except maybe for HFT, or for 24-hour bars of the Japanese rice market.

Is price action just trading the noise or is there more to it?
I used to have the same doubts about PA until I studied thousands and thousands of charts, and observed live price action as it happens. There are definitely undeniable pivot points or SR lines where price hesitates then makes a decisive move and I am certain this is not voodoo or an illusion or hindsight bias. In a nutshell this happens because people cannot truly define absolute value, but rather can only decide on the relative value of things. The probabilities are not absolute but are conditional, and they are well-defined at those points. The difficulty is in properly defining the bins to count the statistics on -- this is not easy. The stock market is not all physics -- it is based also on the psychology of the masses. Some examples of this in everyday microeconomics are illustrated in the book "Predictably Irrational" by Dan Ariely.
    Quote
Old Mar 10th, 2012, 11:10 AM   #5
wiesman02
 
 
Join Date: Oct 2006
Location: Connecticut
Posts: 1,844
Quote:
Quote from ssrrkk:

I used to have the same doubts about PA until I studied thousands and thousands of charts, and observed live price action as it happens. There are definitely undeniable pivot points or SR lines where price hesitates then makes a decisive move and I am certain this is not voodoo or an illusion or hindsight bias. In a nutshell this happens because people cannot truly define absolute value, but rather can only decide on the relative value of things. The probabilities are not absolute but are conditional, and they are well-defined at those points. The difficulty is in properly defining the bins to count the statistics on -- this is not easy. The stock market is not all physics -- it is based also on the psychology of the masses. Some examples of this in everyday microeconomics are illustrated in the book "Predictably Irrational" by Dan Ariely.
+1
    Quote
Old Mar 10th, 2012, 12:04 PM   #6
goodgoing
 
 
Join Date: Jun 2009
Posts: 383
The key here is probability . PA trading makes sense if you can get a prior estimate of probability. Then it turns into a very powerful method but not easy to execute because it involves quant analysis.

One of the PA gurus is undoubtedly Michael Harris. You will find many examples in his blog of PA analysis and very interesting and counter-intuitive results. For example before the open last Tuesday he posted a blog about a pattern in SPY, an inside day breakout and analysis that showed that historically the underline PA had a bullish bias based on two samples of 60 and 98 trades. Here is the link.

It is interesting that the market gapped down on Tuesday at the open and since then SPY had a 3-day winning streak for a gain of $2.20 per share.

This is a style of PA analysis that I like. There are other styles based on s&r, pivots, etc. but in those cases it is hard to estimate prior probability. Of course in the case of Harris his program helps a lot but it's too expensive for most.
    Quote
 
Reply
Thread Tools

Forum Jump



   Conduct Rules   Privacy Policy   Sitemap Copyright © 2014, Elite Trader. All rights reserved.   

WHILE YOU'RE HERE, TAKE A MINUTE TO VISIT SOME OF OUR SPONSORS:
Advantage Futures
Futures Trading & Clearing
AMP Global Clearing
Futures and FX Trading
Collective2
Automated Trading Services
CTS
Futures Trading Software
dom993trading.com
NinjaTrader Consulting
eSignal
Trading Software Provider
FXCM
Forex Trading Services
Global Futures
Futures, Options & FX Trading
Interactive Brokers
Pro Gateway to World Markets
JC Trading Group
Direct Access Trading
MB Trading
Direct Access Trading
NinjaTrader
Trading Software Provider
optionshouse
Option Trading & Education
Rithmic
Futures Trade Execution Platform
SpeedTrader
Direct Access Trading
SpreadProfessor
Spread Trading Instruction
thenut-trader.com
FX, Gold, & Stock Signals
TradersStudio
System Building & Backtesting
Tradier
Equity and Options Trading
Trading Technologies
Trading Software Provider