I am starting this thread because i need to share something to the people who are struggling. The most important thing in Technical Analysis is understanding what style of trading you are adopting. Many people losing money have no idea what they are doing because they are self taught and the books that are out there have no clue either. At least 90% of them. Here is the vital information about TA many of you starting out need to have: BE AWARE OF THE DIFFERENCE BETWEEN A DISCRETIONARY AND A MECHANICAL APPROACH! I have seen people trading like discretionary traders but using indicator based setups and I have also seen people trading chart patterns in a totally mechanical and rigid way. What you need to know about DISCRETIONARY TRADING is that it is mostly based on recognizing chart patterns, support and resistance to evaluate trend continuation or reversal. This style of trading has the advantage that it can be applied on ANY market, ANY timeframe at ANY POINT IN TIME. What you need to know about SYSTEM TRADING is that it is based on a set of rules given by technical indicators, much more objective than discretionary systems, identifying almost identical market conditions (the setup). The main advantage is it's OBJECTIVITY. Now, the disadvantage of a discretionary system is the trader itself. If the eye isn't trained, the system is worthless. The disadvantage of the mechanical rule based system is that when the market doesn't fit the system's profile, the results aren't positive anymore. The parameters don't work anymore and tweaking them won't do you any good. YOU NEED TO KNOW WHO YOU ARE AND WHAT YOU WANT TO BE. You want to be the guy that wakes up in the morning, goes to work, study the market before the open, trade the living hell out of it, and then go home to relax and have a good time with the family, you probably would need to look for a DISCRETIONARY APPROACH. You want to be a "creator", a "designer"? Then you need to be a programmer, a supervisor and a researcher. You need to constantly look for systems and markets that fit those systems' profiles or parameters, monitor the markets and activate the systems that go above a certain threshold and deactivate those which go below the profitability mark and so on. This is the core of the MECHANICAL TRADER. I hope this thread will cause some soul searching. At least those of you who really had it with losing and getting totally misleading education from books and stuff you pay your hard earned money for.
Yes. In spite of opinions and recommendations from others in its favor, it does NOT work. There is likely merit in pure price actiom. This is a much better way to focus on learning to traed. Read this wikipedia page on Tech An. http://en.wikipedia.org/wiki/Technical_analysis Read the book by Aronson on TA. He and many others come to the conclusion that TA does not offer much value.
What you want to be is FLEXIBLE and never write stupid posts like this one that "try" to put the market or yourself into a box. If there is one thing I've learned in 20 yrs in this business it's CHANGE and how to do it.
I beg to differ. TA, even the classical patterns in books gives you a basic idea of patterns that the mkt prints time and again. BUT, learning to trade them I think works really well AFTER you've learned to read price action. For instance, you see a "cup and handle" forming. Now TA alerted me to a pattern forming on the chart, HOWEVER the underlying price action will determine if I will place a trade that will breakout and bring the C&H pattern to fruition or, I see the price action showing me that the pattern will fail and therefore I fade it. The synergy of the two creates opportunity to profit. RC, you cant be so one sided on TA because TA is there to work for people who make it work for them. I agree, just buying or selling a pattern w/o any observation into what formed the pattern will likely give you mixed results at best.
I use both..I have very successful ATS that are fully mechanical based ONLY on T/A indicators, and I also trade discretionary with mechanical based methods. For instance, I do pay attention to MP levels for the ES and I like to take mechanical system trades in those areas. I also pay attention to cumulative delta during the day for entry opportunities..so I preffer to use a blend of T/A.
Joab: What you haven't learned in your 20 years of god knows what is to be tolerant of other opinions. My post was by no means putting anything in a box. It was meant as a discussion about adopting the type of TA that mostly suits your trading style. all others: Thank you for your well mannered posts. I do agree that the two can mix together like when you are playing a certain pattern you might go on a lower timeframe and use a mechanical entry/exit solution. I would love to focus more on the relationship between trader and trading style. This is by no means an indicator vs. chart pattern type of thread. This is important... Not anyone who trades a rule based setup is a systems trader. Unless you constantly research, design and monitor systems and your execution is mainly automatic. For me, anything that falls short of this is not a mechanical trader. It's an opportunist.
That's a bit of a simplification of what Aronson concludes. He proves no single TA rule (the ones in his study anyway) have any statistical significance. But goes on to show that TA data mining can work if one is aware of the limitations.