I have used TA for many years now in trading and always wondered which method truly works. Do you use TA and charts to tell you what direction a market is going and then go along for the ride until direction changes or do you use TA and charts to predict where it will be in the future and try to get ahead of that move. I have tried both ways and failed at the second miserably the first time around. Since then I have only used TA to show me what is happening and go with the trend. I dont listen to the news so that I dont bring any bias to the trade based on what I think this news may or may not do to price. I have been consistently profitable with this method ever since I started trading again. What do you guys think? Which way works for you? Do you think that most successful traders use TA to show them what is happening or do they use it to speculate on the future? Will TA ever stop working because some believe its a "self fulfilling prophecy"?
I would think that more people would be interested in this thread since we all use one form of TA or another.
I trade a combination of both. I enter positions as a prediction of a new movement which I will be vested to and thus following. I also enter trades following current movements in a prediction they will continue.
Like you, I have never been good at the predicting thing. I was TA as a tool to help visualize direction, and to help with timing. I will typically look for the 3-Wave type of move (Initial Swing Wave - Reaction Wave - Final Impluse Wave). The Initial Swing Wave will typically show the direction. I will wait for the Reactiion or short term retracement move, and then trade the Impulse Wave which usually will be in the same direction and magnitude of the Swing Wave. Will TA stop working? Some say that it has never worked. Again, I use it as a tool only. I think that success comes more from experience. Watch a market for years and years and eventually the characteristics of that market will become second nature to you. Charles
True. But dont you think that it reduces risk significantly than trying to step infont of something has has not happend yet? I look at time as risk. The further out in the future the greater the risk that something unforseen will happend that could move against you. I know there is an equal chance of something happening in your favor but I think its difficult to predict exactly how people are going to react to future news.
Im a second and third wave trader myself. I usually scalp both for relatively small profits but I manage enough good trades a day to keep the system profitable. I think that those people that argue TA has never worked use it incorrectly. I have seen people come up with some crazy ideas and call them TA. LIke saying everytime there are 4 neg bars the 5th should be positive and crazy stuff like that which I dont even think you can call TA.
Miragers, I'm interested if your willing to share. Charles "I have been using a similar method to trader28 for a few years now but my method has a few more indicators but is still relatively simple. I use 2 other indicators other than the MACD and the MA's and use correlation between all of them to avoid whipsaw. IE (all neg or all pos) I use it mostly with us equities intraday on 5 min charts. If anyone is interested I can post the settings and indicators and a couple of screen shots. Ive found that my method avoids most whipsaw and whenever its wrong the pain is not too bad. Usually 3-5 cents per share. Not sure if this would be helpful to you futures guys"
Ok here is my version of the system that I have been trading for about 2 years to mostly scalp US Equities. Not sure if it would pertain to Futures or other instruments as well. Only thing is I use area charts instead of candles. I will post with area shots but I can switch it to candles, I just find there is less distraction with area charts but its a personal choice. Instrument US Equities 5 min 2 day charts. Indicators. 3 EMA's (9,18,36) I have used them for years and just like the triple cross method, you probably can get away with just using 2 and they can be MA's but I like the smooth waves that EMA's produce. CMF (21) Shows you if the instrument being traded is under accumulation or being sold off. You can tweak with the length to make it longer or shorter to be less correlated or more correlated to the price. Im used to 21 so thats what I use. Full Stochastic (20, 8, 8) Good additional indicator of momentum and displaying OB or OS zones. Again you can set different lengths for K and D to make it more or less sensitive to new data. MACD (12 26 9) No introductions needed The rules. 1. Trade same position size never increase or decrease based on your feelings of where its going. I stick with 500 for my current account size. 2. Exit and stop loss. In the following order every time. A) If position has not moved in any direction or only .02 in either direction in 10-15 min exit. B) I never let the position go more than .10 against me. Mental exit when that hits. (Most of the equities I trade have even spreads and no wild swings so this rarely occurs) C) If A and B are not met then exit when one of the following occurs. (2 MACD lines begin to merge, Stochastic closes in OB or OS territory, CMF diverges from price action (price going up for 3 per and CMF is moving down and vice versa) I know thats kind of alot of stuff but those are just the rules that work best for me. A more simple model would be to stay in the trade 10-15 min and then exit no matter what. 85% of time this results in a .06-.14 move in your favor. 10% of time it is a .03-.06 move against you, 5% its a flat trade -commission. 3. Entry signals. A) MACD cross above below 0 line is the core, secondary MACD crosses of itself while in + or - territory as long as they are with the general trend (MACD crosses below itself while in - territory or above itself in + territory) B) I always avoid MACD signals if it occurs on a large spike up or down in price. (Stock trades in a .05 range all day then has a .10 or .15 gap down. It is easy to spot on area charts because it looks like a cliff. I wait for secondary action when this occurs. C) If the close of this spike is also above or below the 3 EMA's I definitely say out. (Price was above the 3 ema's then gaps down big on the open but the 3 EMA's dont budge and stay above each other, good example of this on the QQQQ chart below Friday morning) D) Stochastic cant be in OS or OB zone (above 85 and below 15 for me) when 0 line cross or MACD cross of itself occurs) E) CMF direction must support the move. It should be - when - MACD line cross and + when +MACD line cross occurs. I will ignore CMF only in 1 situation. The other indicators agree with the move and the CMF is within .10 of its 0 line and trending down. I will enter the trade like normal but if CMF does not follow price I will exit after 10 min.) That is the whole system. I know its allot of info and seems complicated but thats what works for me. The core is the MACD cross and the other indicators supporting that cross. Here is a chart of QQQQ for 10/5 and 10/6 Green arrows show entry Red show exit. The first signal on 10/6 I did not trade because of the spike but just to prove a point an entry there would have been at .47 and exit 10-15 min later with no move in my direction would have been at .43-.44 depending on your fill so a .03 to a .04 loss. Other two sig that day were great.