are we just making things complicated?

Discussion in 'Trading' started by Gordon Gekko, Sep 13, 2002.

  1. ...and what happens if you do use the intraday chart? Smth like: "you are pissing in the wind (gail force, coming right at you)", but the chart has hypnotized you into thinking that you are at your lovely 30 million bucks worth beach mansion, taking a releaving piss in one of the twenty bathrooms you have there?"
    :D It's all illusion, wake up.
    #21     Sep 14, 2002
  2. \
    Who told you anyone did?
    #22     Sep 14, 2002
  3. <b>Indicators are just summaries of the underlying behavior of market participants.</b> Like the 30-second news segment on CNBC, they do not tell the whole story, they can be misleading, but they are often better than nothing and they do save time. Some traders like indicators because they cut through all the clutter and highlight what those traders believe to be highly useful, profitable insight in the behavior of the markets. Others like to turn on the firehose of raw price data and watch the rippling patterns in the real-time flows. Some traders trust highly mathematical/scientific approaches to the markets and others prefer to stick to using their own noodles. To each his own.

    <b>But, price is a summary too:</b> To those that say they do not use "indicators" because they only use price, I would argue that price is only another indicator -- another type of filtered summary of the market. Each daily candlestick is just a very abbreviated summary of the intraday action. The 15-minute bars summarize the 1-minute bars. The 1-minute bars summarize the T&S. And the T&S is just the tip of the iceberg on the underlying L2 dynamics in the order books of all the markets. And even the real-time order books represent a highly summarized view of the thoughts and intentions of the traders and investors that ultimately drive the markets.

    <b>It all requires interpretation:</b> Ultimately, we traders seek to gauge the future actions of others and the effects of those actions on price -- Will buyers step up and bid? Will sellers raise or lower their ask? Who will trade, how much will they trade, and at what price will they trade? The evolving pattern of price is but an indicator or summary of the underlying behavior of market participants. Its just another dancing shadow on the wall of Plato's cave. And like every other indicator, price must be interpreted in order to be converted into profitable trading actions. And like every other indicator, price can be misinterpreted.

    <b>Getting back on topic:</b> To GG's original question, yes we often times make things too complicated. Each added indicator multiplies the opportunities for misinterpreting the coincidences that appear in any complex data set. Each added nuanced trading rule for what must be going up, down, diverging, or at some magic level will only increase the risk of curvefitting. I say test and test carefully any new indicator, price pattern, setup, or rule. And be warned, the more complex the approach to the markets, the harder it is to create a statistically valid, logically defensible backtesting process. Complexity is the mother of self-delusion.

    <b>price is not simplicity</b> But, even a price-based system can be overly complicated. Which is more complex: a system that looks for a myriad of patterns of triangles, trendlines, support/resistance, retracements, etc. etc. in the last 200 bars of the price stream or a system that relies on the last value of 2 indicators (e.g. a simple rule on overbought/oversold and the sign of a momentum indicator?). The system that relies on objective evaluation of 2 numbers is simpler than the one that relies on subjective evaluation of 200 (I'll make no wagers on which might be more profitable).

    <b>Gordon, Should You Trade? </b> I applaud Gordon's willingness to step back from the markets and reflect on what he is doing and how he can improve his trading. I'd bet that one of the characteristics of losers is a stubborn determination to run their account down to nothing -- refusing to admit that something is not quite right (all balls and no brains).

    I would encourage you to try controlled experimentation -- placing real, but small, trades using any promising approach to trading that you come up with. If you control the risk, the amount you might lose is small, but the knowledge and confidence you might gain is large. Think of these trades as part of your trading business's R&D budget, not some horrible loss that means you suck. Eventually, I am sure that you become justifiably comfortable with some method of trading and reap great profits.

    Happy trading to everyone, whether your favorite "indicator" is price, or not,

    P.S. The "ATM" analogy ironically appropriate since an ATM machine is a device where you pay a fee to get your own money back out of the system -- just like the game of breakeven trading. LOL! :)
    #23     Sep 14, 2002
  4. Quah


    Does it really matter what you are doing, or what you call it as long as you are making money?

    Why all this worry about "how" making money is done? If someone is making money it doesn't matter if they are doing it by using 100 indicators or by trading based on the shade of the dark circles underneath Maria Bartiromo's eyes.
    #24     Sep 14, 2002
  5. m_c_a98


    Yeah, what makes you think people trade that? that is ridiculous to me.

    ...well maybe not ridiculous, but for me its too much, anyway.
    #25     Sep 14, 2002
  6. egildone


    #26     Sep 14, 2002
  7. Then what's the point of posting anything on ET? So we can all just praise each other's methods while asking no questions or withholding criticism? Why are YOU here Quah -- if you're making money with your system, then what is the point of posting here?
    #27     Sep 14, 2002
  8. Quah


    Nothing wrong with asking questions at all. I guess there is nothing wrong with criticizing either - but that doesn't make much sense to me.

    But then again I'm assuming that everyone's goal is to make money. It doesn't make any sense to me to criticize something as long as it accomplishes that goal. If your goal is to trade based on price, or trade using no indicators, or trade using 100 indicators, or have the coolest system, or something other than being profitable - then I guess criticism is warranted if the system does not meet those types of goals.

    Opinions are one thing. Criticism and black and white statements are another.

    Why am I posting here? Because I want to, it's interesting, and I can learn something. One thing you won't see me posting is that the method someone uses to trade is "wrong", or certain to be a loser, just because I wouldn't do it the same way.
    #28     Sep 14, 2002
  9. If everyone that uses those "indicators" is making money, then you're right, it doesn't matter.

    But here's my guess: most of the people using these indicators are losing. Someone mentioned Linda Radke (sp?). I have alot of respect for her reputation. I hear she's good. And I'm told she uses indicators. But this woman is fairly sophisticated. I also know she's a big proponent of tick and trin. She understands price action, charts, and follows alot of different stocks. I really doubt that she bases her buy/sell decision on "indicators" per se. Perhaps it's just another thing in the mix.

    Buying strength, selling weakness is a problem for a daytrader. And that is the heart of most of the indicators. The problem is that you lose the first portion of the move and the last portion. That doesn't leave a big middle if you're only daytrading. Keep in mind the market typically doesn't migrate straight from low to high. By the time your indicators turn you're in the red.

    If you UNDERSTAND the market, and what is moving it, you can trade the market as it changes it's conditions, volatility etc. If you're trading MACD, you understand MACD for the current market conditions...period. You don't understand the market. And therein lies the difference.

    #29     Sep 14, 2002
  10. Many many many systems are profitable in the short-run and losers in the long run. I think Oldtrader's methods are central to the market itself and therefore naturally adapts to market changes.
    #30     Sep 14, 2002