I see a lot of people on this site slam price action/TA traders. I mean there are several successful TA traders, Michael Marcus, Marty Schwartz, Nicholas Darvas all relied on TA, even Bruce Kovner selected his stops based on TA. I made over $100,000 from a small account May 14'- March 15' based the premise that the EUR and GBP were falling heavily against the USD. I didn't need to know why all of this was happening nor did I care. All I did was pick my entries where the risk reward was favourable and the chance of me being stopped out was minimal and I banked $$$,$$$. If something is going to s**t like the EUR and GBP were, I sell and If It looks like its going to the stars I buy. Who cares what the reason is. The moment I started worrying about fundamentals and reports I lost $ consistently. By TA I mean just price data not TA indicators, TA patterns just as simple as "the price is consistently falling heavily, sell 100 lots whatever" I don't even know if this method is TA, maybe trend following would best describe it. But why is there so much hate against TA/Price Action ?
YOUR method is macro analysis: more idea based than anything. Not trend following. Not TA. The "argument" about TA is just ridiculous. If there are a million market participants, there is at least 800K ways to play, some more profitable than others. The other 20% pay for newsletters and-or systems, therefore are used by "many".
I always thought that macro analysis was about predicating interest rate changes, inflation, monetary policy etc
Depends on what you call PA/TA both are the same really. If you are talking about making trades base on Candle stick patterns, ie what a 1min period or whatever, starts and closes and think there is any relevance in this then screw loose totally. If you understood the basic maths which Indicators work by, you'll realise they also have very little merit at prediction.
Price action is a deceptive term. Reading charts bar by bar, is often futile. There's a shitload of noise in any given chart. Some tools are useful - trendlines, MA's, classic patterns. Define the broader trend first, then trade with it, using whatever u like.
Don't know why we have to go through this yet again, but it's easier to copy-and-paste than retype: briana said that dbphoenix said: TA is not the use of past price and volume to make predictions about future price. TA is the study of price behavior. What the trader does as a result of that study is outside the purview of TA. Whether or not any of this is germane to the thread is up to the OP. I'm not particularly interested in yet another of the many threads that are about mktsrfr. DB, I have a question. While I'm not new to TA, I have a lot to learn and your following quote confuses me, and I'm sure would confuse others: "TA is not the use of past price and volume to make predictions about future price". Maybe I'm misreading, but, what about "measured moves" and should price targets based on supply/demand (TA) be thrown out? Thanks. ------------------------------------- Well, posting to an existing thread wasn't what I had in mind, but the OP seems to have moved on, so . . . You registered eight years ago and posted to gmst's thread six years ago that his story was similar to yours. This doesn't tell me much, but it's a start. Technical analysis is the study of price behavior. While anything that relates to price behavior could be called "technical analysis", most of what is called technical analysis is not essential to it or even necessary. One needn't know anything about "patterns" and/or "indicators" in order to observe price behavior and formulate hypotheses regarding why it is moving as it is. Indicators have been around for decades, but technical analysis has been around for centuries. As for prediction, one cannot even begin to predict what price is going to do until he thoroughly understands what it is currently doing. But while it's current behavior is in the market, i.e., the high of the day is the high of the day regardless of what one thinks about it or who sees it, any predictions that are made by the observer/trader are in the mind. This brings into question anything that may originate with raw data but which is interpreted by the mind: measured moves, risk:reward ratios, price targets, patterns (too many to list), bar intervals (1m, 5m, 15m etc), candles, indicators (hundreds of them), and so on. In order to distinguish between what is real, i.e., in the market, and what is gurubabble, one must test these propositions in order to determine whether or not they have any value at all and, if they seem to, whether or not they have enough value to enable the trader to incorporate them profitably, e.g., is the probability of success of whatever it is high enough for me to screw around with it or is it just another half-baked idea that sometimes works and sometimes doesn't but not nearly enough for me to trade real size with it? Once one does this testing, he finds that much of what is commonly-held to be true about TA is wishful thinking. But the essentials of TA, the study of price behavior, the results of demand/supply imbalances, are today what they have been for 10,000 years. ---------------------------------- Briana again: Thanks for your reply. I’m going to have to go back and read my posts. But, as you probably know, I’m a lawyer. I was trained to read, listen and parse words. I’ve done this for far too long and would rather trade. With that in mind, I’m having difficulty understanding your answer, and I would really like to. I can’t find any indication in your response about whether you buy into “measured moves”. I think that you do seem to buy into price targets based on supply and demand.(I’m reading a lot into your post to come to come to this conclusion-so I am not sure this is correct). However, you do not seem to deny that one can predict market movement-at least if one knows what one is doing (and therefore understands what the market is currently doing). Further, I take your response to mean much of what is held to be TA is just not supportable after it is scrutinized on a statistical level-maybe this includes measured moves as well, - your response does not so state one way or the other. I also take your post to mean that price behaviors repeat themselves in the market and one must test the commonly used patterns to determine if they are actually repeating enough times to make money from them. If the directly above sentence is a correct interpretation of what you wrote, when one does this isn’t one predicting moves and actually, at least, the minimum distance of the market’s / pattern’s move so one can be profitable after taking into account all the times the hoped for move does not materialize? Ergo, one is predicting how far the move will be (or at least the minimum amount of the move.) Realistically, you have to predict the move will be at least 1.xx?? times what a failed move would be, right? BTW, I am not trolling you. I’m a believer in TA and currently try and apply it daily. I only have a couple of short patterns that I have found to work for me and am searching for long patterns. The reason that commented and didn’t understand your prediction comment is that I have consistently (in retrospect) covered when in retrospect I should have been able to “predict” the movement would go much further. Thanks in advance for any further insight you share. You and nodoji have really changed my thinking about the analysis portion of the trading plan. ---------------------------------- (cont'd)
But, as you probably know, I’m a lawyer. No, I didn't. But you very likely learned how to think, a skill that's in short supply. I can’t find any indication in your response about whether you buy into “measured moves”. I think that you do seem to buy into price targets based on supply and demand.(I’m reading a lot into your post to come to come to this conclusion-so I am not sure this is correct). The "measured move", unless backed up by substantial research and an acceptable level of significance, is in the mind. This doesn't mean that it's imaginary. But unless one can rely on it with a high degree of confidence, he is more or less guessing, then hoping for the best. As for price targets, no. Whatever targets I may look at depend on Auction Market Theory, specifically the upper and lower limits and medians of ranges and trend channels. However, you do not seem to deny that one can predict market movement-at least if one knows what one is doing (and therefore understands what the market is currently doing). If someone claims that he can predict market movement, I won't argue about it. Maybe he can and maybe he can't. I don't care. I'm not interested in predicting market movement beyond what is suggested by AMT. I just follow price and monitor the imbalances between supply and demand. When the balance shifts from one side to the other, I consider exiting and possibly reversing. Further, I take your response to mean much of what is held to be TA is just not supportable after it is scrutinized on a statistical level-maybe this includes measured moves as well, - your response does not so state one way or the other. I haven't seen anything to suggest that it is (if by "TA" you mean indicators and patterns), but that doesn't mean that such proofs do not exist. Again, I don't care, i.e., there's no reason to apply RSIs and MACDs and multiple MAs and so on when they are irrelevant to how I trade. This does not mean that one cannot develop a robust trading system that is based on these or any other indicators. One can develop a robust trading system based on phases of the moon. But for me there's no point. I also take your post to mean that price behaviors repeat themselves in the market and one must test the commonly used patterns to determine if they are actually repeating enough times to make money from them. Behaviors repeat and have done so for millennia. And sometimes these behaviors do form patterns, such as bases, which are a form of range. But there are only two states available to price: trending and ranging. And there are only three strategies available to profit from these states: reversals (trending and ranging), breakouts (ranging) and retracements (trending). But there are a near-limitless number of tactics one can employ to profit from all this. The multitude of patterns that traders come up with are for the most part bunnies in clouds. Unless, as Schabacker -- who came up with the bulk of these patterns back in the 30s -- says, one understands the behavior that created and/or is creating the pattern, he is very likely to misinterpret what is going on and trade it incorrectly. Note, for example, the multitude of "head-and-shoulders" patterns that are found in every crack and crevice, most of which result in bupkus. If the directly above sentence is a correct interpretation of what you wrote, when one does this isn’t one predicting moves and actually, at least, the minimum distance of the market’s / pattern’s move so one can be profitable after taking into account all the times the hoped for move does not materialize? Ergo, one is predicting how far the move will be (or at least the minimum amount of the move.) Realistically, you have to predict the move will be at least 1.xx?? times what a failed move would be, right? Since it's not a correct interpretation of what I wrote (which is understandable since most of this is new to anyone under 50), I'll reiterate that there is no prediction. Therefore, the whole idea of risk:reward ratios is fantasy. It is impossible to determine in advance the reward that the market is willing to give you. You therefore have no control over it. You do, however, have control over the amount of risk you're willing to assume. Not that the market cares about your risk tolerance, but at least you have control over it. In other words, the market is in complete control over the deal; you're in complete control over how you play the hand. The reason that commented and didn’t understand your prediction comment is that I have consistently (in retrospect) covered when in retrospect I should have been able to “predict” the movement would go much further. No, you should not have been able to predict. But if you're going to trade price, you must be able to determine in real time when the odds have shifted and are now against you. Though some professionals are beginning to rediscover this due to the decades-long poor performance of one system after another and the continual reformulation of so-called "edges", there is very little discussion of it. And even less training. This may be in large part because training a trader who has been struggling becomes extraordinarily difficult due to the bad habits they've picked up and to the fears that they've learned. Eliminating that fear so that one can begin to trade properly is, shall we say, a challenge. Years ago, I wrote something that to me perfectly summed up this whole prediction business and I've seen no reason to change my view: Put simply, support is the price at which those who have enough money to make a difference are willing to show their support by retarding, halting, and reversing the decline by buying. Resistance is the price at which those who have enough money to make a difference attempt to retard, halt, and reverse a rise by selling. Whether one calls this money professional or big or smart or institutional or crooked or manipulative or (fill in the blank) is irrelevant. If repeated attempts to sell below this support level are met by buying which is sufficient to turn price back, these little reversals will eventually form a line, or zone. Ditto with resistance. A swing high or low represents a point at which traders are no longer able to find trades, i.e., either buyers are no longer willing to pay the ask or sellers are no longer willing to lower it. Whether that point represents important support or resistance will be seen the next time traders push price in that direction. But everyone knows this point, even if they aren't following a chart. It exists independently of the trader and his lines and charts and indicators and displays. It is the point beyond which price could not go. Hence its importance, both to those who want to see price move higher and those who don't. Therefore, before coming to any conclusions about what “works” or “doesn’t work”, and thus does or does not provide an edge, one ought to keep in mind that a given event -- such as price seemingly finding support or resistance at a trendline (or moving average, candlestick, Pivot Point, Fib level or whatever) -- may be only incidental to what is truly providing that support or resistance. A fundamental misunderstanding of how "indicators" are calculated and what they're supposed to do can lead to all sorts of off-task behavior. We think we see the indicators indicating something, or not, and believe we have made an important discovery. We then devote our efforts to improving the hit rate and the probability of whatever it is we think the indicator is indicating when our efforts ought to be focused on determining whether or not the indicator is actually indicating what we think it's indicating. In most if not all cases, it isn't. Consider the virgin being tossed into the volcano: sometimes it results in a great crop, sometimes it doesn't. Maybe tossing her in earlier or later will change the probability of a healthy crop. Maybe two virgins are better than one. Maybe six. Maybe tall virgins are more effective than short ones. And surely age is important. But does the robustness of the crop really have anything to do with tossing the virgin into the volcano in the first place? The money under the pillow is not evidence of the existence of the tooth fairy, and spring will arrive regardless of whether the virgin is tossed into the volcano or not. A final note: Donna is much more statistics-oriented than I am. Or ever was. Years ago I went through all the analysis and backtesting and forwardtesting and so on and so forth until I came up with something I could trust. But I haven't gone through any of that since. No reason to. And I tossed all of the notes and spreadsheets long ago as there was no reason to keep them. But different people have different needs, and they begin in different places, so I do not mean to disparage what Donna does in any way. I just don't need it (for one thing, she scalps and I don't). And I don't think that she would claim that one must go through exactly what she went through the exact same way she went through it in order to arrive where she is. What seems to annoy her the most is the individual who claims to want to trade the way she trades but won't do any of the necessary work, preferring instead to copy her. That doesn't accomplish anything. And it doesn't accomplish anything with those who try to copy me. You have to read. You have to study. You have to observe and experiment and collect data and test. You then have to start over and do it all again. And few will do this because to them it's largely a game, a leisure-time activity, something recreational, any more than those who screw around with occasional tennis and golf are going to spend truckloads of money on lessons and equipment.
Your thinking is narrow, so I concede. It's micro analysis at best. Elon, Cook, and some of the best hedgies, traders and investors worldwide have a completely different definition of macro analysis as basis for taking positions. You may want a refresh of micro and macro economics, and redfine macro/micro for yourself... http://www.imf.org/external/pubs/ft/fandd/basics/bigsmall.htm
I think the entire point is that he didn't consider any of those and made the decision based off of PRICE behavior. Just because one reflects the other does not mean that the other was the source of the decision making process.