Is this true? When I say price analysis I'm referring to candlestick charting like ascending triangles, double tops, etc. Technical indicators include MACD Histograms, Stochastics, etc. Is this because price analysis is better at predicting future price movements whereas technical indicators lag the price? Also I believe there is tape reading which involves bid/ask/order etc (I'm not too familiar with this although it did come up alot on Reminiscence of a Stock Operator). Am I missing anything else? I'm a newbie in case you didn't realize by now
Yeah, the PA guys are always putting down technical indicators. I'm a technical analyst but I'm the first to admit that most technical indicators are crap. They don't work well, if they ever did, so you have to have the mathematical savvy to move beyond the conventional stuff into things that you designed yourself. That way, you understand your tools intimately to a degree that you can't achieve by just applying some "recipe" from a TA book or a trading book. Some good things have been revealed in books but, trading being the competitive field it is, don't count on a lot of people pointing out for you exactly what works and what doesn't work for them. Also keep in mind that a "standard" tool which fails in a conventional fashion might just turn out to be great if you apply it unconventionally. It really does help to be creative and persistent in this field. I will tell you this much: trading is the real-time application of financial data. So the only data you can use is from the past and from the present, never from the future, because the latter is always unavailable in real time. So anyone who insists that PA can predict the future while all indicators fail is talking out of his ass. PA has no more access to the future than indicators, and not all indicators lag behind price. Good learning and good trading to you.
The problem with all thee discussions on ET is that the discussants seldom state clearly from the outset what their trading time frame is, so you end up with some day trader flaming a position trader or vice versa, and getting in a heated battle for no good reason. Those derived indicators like MACD, etc. may be a little more useful for longer term traders. (I don't use them, but if they work for someone else, fine.) It seems no one can quite agree on the definition of technical analysis. Most intraday traders that rely heavily on "price action" also pay attention to moving averages because these represent support and resistance, they also might consider market breadth and the advance decline line, overnight highs and lows, the VIX, the dollar futures, and the market profile including the value area highs and lows, the point of control, low points in volume that are points of resistance, high points in volume that may represent turning points, various pivot points, trendlines and channels, and perhaps various retracement levels, i.e., "fibos", etc. So what is technical analysis and what isn't? Everything gets a little blurred and it's kind of silly to get in a big argument about it. There are folks that call themselves pure price action traders. They may have simply defined price action a little more broadly then the next guy.
I think price should almost always be the main focus anyway, even when using technical indicators too. When you've been trading for many years (such as most professional traders) you can basically know what a lot of the technical indicators are doing just from looking at the price bars, so there's not much need to clutter up your charts. A simple example is that you could easily see a stock is "overbought" or "oversold" without having a RSI or Stochastics indicator up.
This is a good post, I don't think I had any breakthru's until I learned the formulas for the indicators that I use, why they do what they do, when they do what they do, and what kind of harbinger it is. This is a very good post.
Do the exact opposite of what the PROS at ET do. Therefore use an indicator, just one and no more than 2. Here's what you do as a newbie regarding indicators .... spend 3-6 months trying them all out - many can be eliminated rapidly until you will be down to about 3-4. Work with these for a few months and the winner will materialize. And what will shock you is that the winner has stood the test of TIME. Stick with that winner from there on out and never look back. Put him on all your charts. You're all set then to do battle. Never good to fumble around when in the midst of a fight. See part B regarding indicators in the next post
Indicators Part B Do NOT use indicators the way every consumer uses them. This is usually the way the creator/designer of the indicator has suggested. Certain aspects like for example the default setting are very useful because the designer has spent thousands of hours researching this, so go with it. What you do is set your foot on a new road to discover new methods of using your chosen indicator - these new methods will show up as you continue your work from day to day. You will be astonished by what you find. 99.99% of these imbeciles here would be singing a different tune had they done this. For my chosen indicator I have 8 techniques - none of them is in the designer's guidelines - 3 of the techniques were discovered by another entrepreneur. the remaining 5 are my very own and one of the 5 is so stellar as to thrill the soul lavishly. Good hunting
I started a thread along these same lines and got some good responses: http://www.elitetrader.com/vb/showthread.php?s=&threadid=219746 Seemed like the consensus was that a good trader will be a good trader regardless of techniques and what you need to do is find what works for you and your trading style. There is a thread on the "ACD Method" where one of the guys posted that the inventor of that method claims a 40-50% success rate amongst the traders who studied with him. There was some issues with possible "selection bias" because most of those traders went through a fairly rigorous screening process, so were probably more likely to succeed anyway. It's an excellent thread and in my opinion possibly the best thread on ET on the pros and cons of a specific methodology. Anyway, I think it's a good thing to think about whether or not there is a specific methodology which gives you a better chance of success. Obviously, you want to use the best tools available with your capital on the line.
Trading forex pairs with 1 hr, 4 hrs and daily charts I use 3 oscillators for my trading decisions: CCI, MACDHistogram (some call it MACD Osma) and Stochastic plus LSMAnrp (nonrepaint). I choose their value settings to correspond with the tops and bottoms in the past. And surprisingly these settings work well in the future. I reliably catch tops and bottoms. Whatever method one uses, he has to learn it, prove it in paper forward trading and be happy and profitable with it. Felix