Does Some Technical Analysis Methods Go Overboard?

Discussion in 'Technical Analysis' started by Opulence, May 2, 2012.

Does Some Technical Analysis Methods Go Overboard?

  1. Yes

    8 vote(s)
  2. No

    4 vote(s)
  1. Opulence


    A few months ago, I read a book called "The Technical Analysis Course" by Thomas Meyers and I'm reaching the end of another book called "Technical Analysis" by Charles Kirkpatrick. Before reading those, my first exposure to T/A was a short book called "Stikky Charts."

    The "Stikky Charts" book taught basic reversal and consolidation patterns, trendlines, channels, support, resistance, etc. Which I've been able to use successfully. I read the other ones however, and I'm seeing Fibonacci, Bollinger bands, Oscillators, and a lot of other complex systems. Which makes me wonder if some T/S methods go overboard. I'm sure some people aren't gonna feel the same way because they might be more gifted than others are in the arena of mathematics.

    But what about you? What T/A methods do YOU use? Do you stick to the basics or do you use complex mathematical formulas to do your trading?
  2. KastyG


    Stikky Charts was a fun read and nice refresher.
  3. Opulence


    There's a reason I'm asking this. I remember when I first began to study trading. A friend of mine recommended some books...a pretty thick collection. He recommended three technical books. I thought that I had to absolutely master every part of TA in order to trade effectively. After reading the T/A books and expressing my inability to grasp the difficult stuff at that time, this same friend advised me to just stick to the basics because all the other stuff, most profitable practitioners don't even use those, according to him. This guy is a successful trader. But since I'm not the kind of person to form an opinion off of one person's advice, I want to get some other opinions.
  4. ============
    Amoung the better books;
    Jack Schwager 3 top trader books, William O Neill books & his 50 day & 200 day moving averages....................

    No, not much complex stuff at all. Rule of 72 helps;
    work wise,12 hours a day, 6 days a week =72 hours a week for 7.2 years, that math helped me more than any complex stuff...

    :cool:And if you should get it in less than 7.2 years, fine.
  5. Go with what works for you. One of the biggest uncertainties in trading is the relationship between effort and outcome. As much as we want to believe that the two are related in all spheres of life, it is simply not proven in trading in the same way it is in other areas.

    Some people will say that if you follow the 10,000 hour rule, that your odds of success increase because mastery typically comes after 10,000 hours of practice. Yes, "typically", but there are people who post here who probably have put in 10,000 hours and sound as lost as if they'd put in 10.

    In that sense, you kind of have to ask yourself if, in the worst case scenario, you spent 10,000 hours studying TA or trading in general and it didn't pan out, would you be OK with that, because it can happen.

    As far as my own method is concerned, I always had a problem knowing when I was definitely wrong. So, I built a method which gives me a definitive and objective answer to that question. Since getting a definitive and objective answer to any question in the markets is complex, the method itself is complex.
  6. KastyG


    On the contrary I think most TA methods/strategy doesn't go far enough.
  7. Mysteron


    Like a lamb being led to the slaughter you are following a well trodden path, and are being encouraged to do so. :mad:

    For daytrading stocks, straight lines are all thats needed, and preferably horizontal too :cool:

    No need for TA on charts, learn to read price action.
  8. Caldwell wrote a book called The Tipping Point which illustrated, in a variety of fields, that around 10,000 hours was frequently the point where the most talented practitioners exhibited true mastery of both the art and science of their work. Obviously some can't tie there shoelaces after 30,000 hours and Mozart may have only required an hour and a half!

    He presents an argument worth paying attention to (it is also a thoroughly enjoyable read) but my experience owning a handful of businesses tells me that until someone is solidly successful in any endeavor what it takes to truly master a field is largely irrelevant. Here is why: Unless you have a tremendous amount of EXCESS capital or a comfortable living outside of what you are learning, you need to find a way to make some money well before you are even in the journeyman class. You need to find "a trade" that works for you. One where you understand not only the setup but under what type of conditions it works and what trade location fits for it.

    Once you have even one of those (two is better!) you can go from a single contract in futures to two and then three because you not only have a positive expectation ... you also know that expectation is not acedemic since you are executing it many times each week. It becomes real ... it makes you some $$$ month in and month out. Sure there will be days or even a week where it costs you a few but over a decent sample size you are earning enough that the cost of your education is becoming reasonable ... manageable. The light at the end of the tunnel is when tuition becomes free ... when trading pays the bills. That's the full ride

    Once you can consistently cover the nut (even if you are eating a ton of rice and beans and drinking wine that came in a box) you have capital and capital that can grow over time. You have begun to capitalize your experience ... all of it. Your ability to recognize good trades. Your ability to execute. Your ability to be patient and manage those trades as well as your precious (and probably small) capital.

    We all dream of swinging a big line and trading 5,000 shares of Apple or Google at a clip or100 ES contracts. That hundred contracts is just such a nice round number. Nothing wrong with that but the path to success becomes an awful lot easier once you realize you can cover the expenses even as that valuable screen time piles up every day. That screen time will make you better and pretty soon the monetary portion of your capital begins to increase and be added to the intellectual capital.

    You are then in the game in a way that, depending on the underlying talent, makes you a potentially serious player. To be more direct to your question though: TA is helpful as long as it is helping you recognize the underlying price action. When it starts to become a religion all its own it can obscure rather than illuminate.

  9. One minor correction to an otherwise very pertinent post. It was Malcolm Gladwell who wrote that book. I had also heard the idea before, starting in the late 1990's and I think it stemmed from some research that came out of the University of Chicago.

    Also, just to provide my own experience relating to your point of starting with "one trade". I started developing my strategy almost 2.5 years ago, starting with 4 variations on a single set-up (2 long and 2 short). After 2.5 years of data-gathering, trading and refining, I am now up to 55 variations on that same single set-up, all objectively different according to quantitative measures. I know from my data that something like 48 of them don't make me any money and I just let those trades pass by. With the remaining 7 set-ups, my profit factor is close to 7. Point being that from a simple beginning (the profit factor for the unoptimized version that trades every variation of the set-up is 1.2, so just better than break-even), you can build something very dependable. Although I never claim to know what the market is going to do (nor do I have to know, because it's going to do what it's going to do whether I know it or not), I know exactly what I will do in reaction to anything the market does, based on the prior probabilities of these set-up variations. That's all from the price action surrounding "one trade".

    Which reminds me of one other point I'd direct to the OP. You can never go "overboard" in developing patience. The patience to wait for the set-up that you can rely on to consistently give you winners can save you a lot of time in terms of compounding your gains. If you're able to take 3 steps forward for every 1 step back, you'll get ahead much faster than if you're only taking 2 steps forward for every 1 step back. Patience can get you that extra step. Trading is like hunting in some ways and if you go shooting your gun at every little rabbit that runs by, even though you know there are deer around, you're going to scare off the deer even before it gets into your line of sight, so be patient.
  10. Opulence


    I trade commodity futures.
    #10     May 2, 2012