in my humble opinion, trying to follow a trend is saying that because price has been rising until now, there is a probability to rise even further. now, in some markets that is happening often, with trends that last longer, are more fluent, but there are markets, like the fx where price can't possibly trend that well on a short timeframe because there are many participants and fundamental conditions are not really prompting a strong rise or decline for a prolonged amount of time. basically, the market is not constructed like that. so you can't really follow trends and make a profit consistently because the sad truth is that intraday, trends are present about 20% - 30% of the time in populated markets. this mechanical approach got me thinking about the previous post. sice we have a brain, why do we shy away from using it and rely on mechanical rules. i'm not saying to reinvent the wheel or come up with crazy and complicated strategies. but, one simple strategy might be this. price is at a previous swing high level and does an evening star pattern, therefore creating a double top or a slight M pattern. trade a downtrend from there until price reaches the last support level. i mean, i am not against trading a trend but i am against mechanical trend rules based on indicators. the reason is that indicators and mechanical rules don't account psychology and many times, depending on the lag, you are very very late and you are right about 20% of the time.... rational anticipation is a luxury computers don't have.
"Brain" Perhaps what we really need would be some kind of "Derivative Thinking". Innovative versus Derivative Thinking By: D. Stewart Armstrong http://news.goldseek.com/StewartArmstrong/1134054071.php Single Derivative Investing by John Mauldin http://www.safehaven.com/article-1929.htm
Indeed, my expression was a bit too strong. But i experienced that the automatic reactions and reflexions of my brain were a disaster for trading. Since i adapted what i call an unconventional way of thinking (when trading) my results skyrocketted. I immediatelly recognized the errors i made before and also why. It now seems to me so logical to trade the way i trade and results confirm my thinking.
reliance on mechanical tools in trading is a direct result of the fear of being wrong, so we can then blame the indicator for our lack of insight.... i suspect following a trend in the hope that price will keep trading in that direction is also derived from this fear. sometimes it's like closing your eyes and shooting at a target...
All life is an illusion.. trend is no different.. we create the trend with our interpretation.. does it really exist? As much as anything else
in my humble opinion, trying to follow a trend is saying that because price has been rising until now, there is a probability to rise even further. but, one simple strategy might be this. price is at a previous swing high level and does an evening star pattern, therefore creating a double top or a slight M pattern. trade a downtrend from there until price reaches the last support level. What's the difference between the two approaches? Both use an argument to trade and then hope that what is hoped for will occur. The trend can stop or continue; the evening star can work or not. The methodology is identical. i mean, i am not against trading a trend but i am against mechanical trend rules based on indicators. the reason is that indicators and mechanical rules don't account psychology and many times, depending on the lag, you are very very late and you are right about 20% of the time.... rational anticipation is a luxury computers don't have. Psychology can be detremental to trading. Emotions also. Computer don't have these problems, they are rational and have no emotions, humans aren't. I'm wondering if you ever traded intraday, and what research you did or ideas you had to develop a performing system? I daytrade since 1990, and most things you say are just the opposite of my experience in real trading. I traded FX and still trade futures.
I already explained that extensively on ET. Some people took advantage of it and are performing much better now. I did not explain all the details, but the general approach and logic behind my way of trading. http://elitetrader.com/vb/showthread.php?s=&postid=781685&highlight=decisiontable#post781685