A question to people that don't "believe" in TA

Actually I find that most people on ET seem to define things not by what something is, but by what something isn't. This lack of understanding and precise definitons means that most [discussions] have an air of talking to a chicken with their head cut off. It isn't just this thread, but nearly every thread started that runs into definition problems.

In the markets, the constructivist philosophy is the only way, lest you spend eternity losing money until you actually understand.

The paradox is that imo we remember the rules/definitions so that we can forget them.

nitro

 

Coming from you, that really surprises me, Don. Wasn't there still a healthy edge in boxes and other vanilla "single-minded" strategies when you were on the floor? What about Merrill's old stat arb program in the 80s? What about the opening-only and order enveloping strategies you have advocated? What about the pre-decimalization order book programs that took advantage of free options by front-running liquidity (so-called "penny jumping"? And ECN liquidity rebates? It is true that those programs increased market efficiency, eventually eroding the edge. However, did not all of these strategies rely on "one aspect" of trading to generate substantial profits?

I mean I agree in general that flexibility is a nice trait to have as a trader, maybe I am just taking you way too literally here.

-segv

 

That is probably not correct either empirically nor scientifically.The trading frequency of traders is based on a serial correlation of what the result of the feedback is, that is they will trade more often and more confidently when winning, and will retreat in the face of a superior opponent when they are losing. So frequency is not tied to having to have action except for the gambler, but to whether it is positive of negative feedback that a trader gets from his decisions.

Again, I disagree. If it were simply survival bias and mostly if not all chance for those that make money, then there would be strong correlation between a random group of isolated traders, and say a group in close proximity to each other, say the turtles, many of whom made fortunes trading.

I do agree that the markets are no longer as transparent as they once were and that your statement is more likely to be true now than it was years ago.

nitro

 

The only tools I need to trade are:

 

combination of fundamental/technical analys/pattern recognition and order flow works fine for me.

 

Uh.... you mean this:

 

Interesting thread.

Would not the "proof" of whether or not "TA" actually worked for the Day Trader, actually be in the Day Trader's trade results?

Would that not end the debate?

Also, is all "TA" the same? Do all "TA" tools have the same mathematical constructs? Is all "TA" based in High School Mathematics? Are there some forms of "TA" that exist independent of conventional forms of TA? Could those un-conventional forms of "TA" result in trade performance equal to or better than Fundamental Analysis results?

And, to move things a bit deeper (just to get off the surface just a bit), what is a "Trade", anyway? What is the real anatomy of a trade? What does a trade look like from the inside looking out? Who defines what a "Trade" is and is not?

And, to move things even deeper: Why Trade at all? What is the purpose behind trading? Why do we spend so much time, energy and effort doing it? What is the goal of trading? And, are all trading "goals" the same?

Somebody needs to write a book on this subject of whether or not Fundamental Analysis trumps Technical Analysis, or vice-versa, because this is an age old argument that won't go away as long as there are liquid markets to trade.

I personally, have been debating this topic for years with people and I always seem to come to the same conclusion which is:

All Technical Analysis, by its very root definition, must encompass Fundamental Analysis in the aggregate given the universal law of Cause and Effect. The laws of the universe remain intact regardless of whether or not anyone buys, or sells something in a financial market. Therefore, if a bar of data contains an Open, High, Low, Close and deltas exist between the four price points, then by definition there must have been a cause for the effect that produced the “delta” itself. If there are deltas between each OHLC in the bar and if the universal law applies, then there had to have been a catalyst that initiated the movement within the bar which in turn created the delta.

So, if movement within a bar is a physical fact and not up for interpretation (movement does exist) and it has a point of origin which must have a cause, then the name of the game becomes a hunt for “cause”, not “effect”. Find “cause” before it happens, and the “effect” can be known ahead of time to a fairly high degree of precision within a range or margin of error that may or may not be sufficient to meet the needs of the trader, why he/she trades, what his/her goals are and what they consider to be a “successful trade”.

Thus, if “news” (aka fundamentals) “moves” (aka delta) prices from point-to-point within a bar, then any study of such movement must be inclusive of “cause”. So, Fundamentals may indeed be the “cause”, while Technicals may indeed point to “effect”.

The very funny part is this:

If Fundamental Analysis has a “cause” and “effect” impact within the financial markets - (and here’s the rub) - then by definition the study of Fundamental Analysis must therefore be a form of Technical Analysis. Or, else logically, there can be no “study” of Fundamental Analysis. To “study” means to “analyze”. To analyze is to be technical. Simple cause and effect at work!

The point is crystal clear:

Fundamental Analysis and Technical Analysis are two sides of the exact same coin which goes by the commonly referred to name of Market Behavior which is both highly random AND highly organized all at the same time.

This is nothing new. You see randomness coupled to highly structured organization everywhere you look in the universe. You see it in electron probability patterns, biological cells, DNA strands, atmospheric cells, planetary orbits, galaxy rotations, traffic patterns and a host of other naturally and unnaturally occurring universal phenomena.

So, why should we not expect to see it in financial markets? In fact, we do.

 

yes, TA is the study of price, and more generally price/time/volume.

for example, market profile analysis (which is my bread and butter for futures) is TA, but very different than conventional charts.

but since it is a study of PRICE, TIME and VOLUME it's TA.

P&F does not use Time, but it's obviously TA.

TA works because prices are not random. prices are opinion. people are not rational, to a large extent. they are emotional - fear, greed, panic, euphoria, etc.

there are STILL some morons at U Chicago who argue the random walk theory, etc.

traders know it's absurd.

fundamentals look @ price, but price in relation to underlying values of the company (earnings, etc.).

one thing you can do is chart price and use P/E as an oscillator. that would be fundamentals but charted as TA

i have done that.

most people who say "TA doesn't work" are those that failed at TA.

most people that say "fundamentals don't work. it's all priced it (which is also absurd)" have also failed.

n=1 is not proof.

if you are watching tape - it's TA
if you are using charts to pinpoint entry/exit - it's TA
if you're buying because a news event caused a price to drop to level X, and your perception of level X is that it is undervalued then you are using fundamentals.

 

I see Newton guy is joining Wall Street...
Back to the thread purpose, I guess people that don't believe in TA are fundamentalist and therefore all participants in this thread are assumed to be fundamentalist. However, I'm not fundamentalist and I'm not opting for conventional TA or a full set of TA but only for a subset of it that fit to my style. Then who I'm I, TA. I think the majority of the floor guys are TA and guys like Mr. Buffet are clearly a FA, he rarely visit the Exchange, there's no need for him since his investment is for longer term. Soon or later price will come to its fundamental level but for a small guy like me, my account will be wiped out before price come to its reasonable level. Then it absurds for me to opt for fundamentalist.