This struck me.... as much as I tended to ignore this the first few months, this has been the main reason I've been successful the past few months... Good quote.
Which indicators are the latest and greatest thing? Candlestick charts are 300 years old. The concept of On-Balance Volume was invented in the late 1930s. It was originally calculated out by-hand and graphed on paper. The concept of Fibonacci is over a thousand years old, dont have the exact dates on me. Dow Theory is over 100 years old. Most of the technical indicators were invented between 1900 and 1960. Bollinger Bands were invented in the 80s. The problem is not with the indicators themselves, but the people who use and interpret them. The men who invented these indicators were very intelligent and educated who had professional experience with the markets. They invented these indicators for a certain purpose and a certain market. Indicators cannot be understood or learned overnight. It does take a while to learn the purpose and usage of each. As for the "squigly lines", technical charts have been used since the start of trading. Jesse Livermore mentions the usage of such charts during trading in the 10s and 20s. John Bollinger is a rich and famous man who has successfully used his Bollinger Bands. Many traders use the bands on a daily basis and the theory behind them is very sound.
Actually, I don't believe that the theory is sound. Typically, the look back period is too small a sample size for the standard deviation to be a meaningful measure. The indicator may or may not work. I don't know because I don't use it. However, if it does work, then it has nothing to do with the legitimate application of statistical methods, despite the cool terminology. Also, are we assuming a normal distribution? I hope not.
Problem here is most traders that call themselves technicians couldn't tell you the mathematical basis behind these tools. Trading like that is tantamount to a card counter that just wings it and guesses how many low cards came out. Are the odds really skewed in your direction or do you just think they are?
Good point, and the card counter analogy is excellent. http://www.blackjackforumonline.com/content/Brightint.htm We have helped so many people play blackjack, with varying degree of success for just the exact reason you noted....and the same thing in trading. Same thing in poker. http://www.stocktrading.com/Pokerarticle2006.htm "Kind of counting cards" and "Kind of doing my fundamental research on my pairs ("chldren stocks" - mergers, etc.) and "I kinda know how many "outs" I have on the turn" in poker... it's always a battle - and.... .....it's really funny, those who work harder (and smarter, as noted earlier), tend to make more money -"whoda thought" eh? FWIW, Don
if you are not trading with statistically verified setups - good luck i mean that most people who use TA do not have statistically valid setups. they don't even test for that. the issue is not do bollinger bands "work". bollinger bands aren't (or shouldn't) be a setup/trading signal. they are merely a frame of reference for where current price is in relation to a series of past price points. what you do with that information is another story entirely. but it is true that many people make a gaussian assumption (that price distributes in a normal curve) when analysis shows it doesn't. thus, the concept of standard deviation is not as useful as it would be in a random or normal market. our market is neither.
T"he problem is not with the indicators themselves, but the people who use and interpret them" well, yes. and for many - the problem is indicators PERIOD. when i scalp dow futures, i use ZERO indicators (and this is how i make my income). i am not saying they are useless. some may use them successfully. they would probably be successful without them, imo. anybody who thinks indicators are the key to trading is starting from a loser mindset
also, if you are looking for trading advice on ANY board (this one included) you are nuts again, free advice - worth what you pay for it usually. the signal/noise ratio on the internet is about 1/100. boards are fun for entertainment, but not for trading advice i actually find them useful to see how a retail trader's MINDSET works. that helps give insight into how to trade (not like a retail trader) do you honestly think successful traders are going to give away their setups or methodology? on a free board? cmon...