On the fundamentalism of PA traders

Discussion in 'Technical Analysis' started by Smurfie, Nov 15, 2008.

  1. Smurfie


    Hey guys

    So, in an open thread in this forum, the question was what periodicity to use for oscillators. Some people try to answer the question or offer some form of conceptual analysis. Several PA people come in and shout that oscillators don't work and that PA is the only way. This made me wonder, because I've seen it so many times on different forums over the years. Why is it that the term "indicator" or "oscillator" always make the PA crowd go ape and shout and swear?

    Stop lying already. You can use oscillators as components in succesful trading systems. I do it. Other people do it. Wildly succesful people do it. Saying they don't work is just not true.

    I'm guessing you mean you can't make them work, or you find pure PA superior or it's working better for you or whatever. That's great. I have nothing but respect for PA and it's practicioners (when they're busy trading, analysing or developing). Why not enjoy your allegedly excellent trading and it's bounties instead of yelling at people who like to have discussions on indicators?

    We're not learning about trading or technical analysis or The Grand Meaning of Everything if we don our burkas and chant "PA is the only way."

    James16 on ForexFactory and Anekdoten and SusanaDT here (among others) seem to be accomplished traders and more importantly plain good eggs - generous, honest and helpful. However, for the loud neophytes (it's always the neophytes!): you found PA. Great, man. Pore over charts, get screen time, draw lines. Prosper. Stop yelling at us oscillator people about your superior methods. We're stressed out and anxious as it is seeing as our systems are based on something you say doesn't work.

    This is a good-natured poke. Put down your rifles :)

    Happy trading to all - the PA crowd as well!

  2. Of course there are many traders who trade successfully using lagging indicators what they fail to realize though is that they are not doing well because of whatever mathematical formulas their indicators are based on, it's them. The trader makes it happen.

    Maybe it's because indicators offer a sense of security, a false sense of security no doubt.

    I used indicators for many years, until I finally realized, hold it there chief, what am I doing, I see things happening multiple bars earlier by just examining price and fortunately that woke me up.

    Nothing beats price, price is the absolute truth anything based on price is by definition slower and logically, inferior, but to some, at the present time, they might look superior due to their own chart reading disabilities, they haven't got it yet, they are price action disabled.

    Now, it does take time to read price correctly, thousands of hours of screen time, and to do so at the speed price is plotted takes even more time, until that happens you will probably be at the mercy of something slower that accentuates what happened in the past and that's probably why most traders use indicators, again, even successful ones.

    However, to say lagging indicators can enhance the trading of someone who can read price at the very same speed price is plotted is pure ignorance and even absurdity.

    I think a trader is better off spending more time with price than creating bad habits that will eventually become nearly impossible to kick, even if it slows down your learning process, if you gonna do something do it right.

    I've asked dozen of successful traders who use lagging indicators to show me how their indicators would improve the trading of a price action trader and no matter what they present it always ends with having zero value and a few laughs from my part.

    Many times you will see a screenshot with a trader annotation saying, "see, see how it predicted the bottom" and once in a while this anomaly happens, consistently enough to offer an edge over price itself? Not a chance in hell.

    I do use indicators but they are either manually inserted lines or enhancements of highs and lows to help me visualize when an actual high or low is plotted so I don't have to manually measure it or one that it was plotted in the past to assist my reaction in the present; and of course volume to examine supply and demand on those particular highs and lows. Definitely no lagging crap.

    To conclude, if you are doing well using indicators, then that's great, doing well is definitely the goal here, but whenever you enter a trade or close it please realize that there are some out there who are getting better entries and better exits, not because they are better traders but because they took the time to learn from the source so they are getting a better "feed".

    If you believe in magic, fairy tells, then lagging indicators are for you.

    I honestly could not give a shit if others use indicators successfully, in fact, the slower they are the faster that makes me, and in trading speed is a luxury that I welcome with open arms.

  3. Smurfie


    Hey Anek

    Good to hear from you. You always have something substantial to say.

    I couldn't disagree more with a lot of the things you say, but I agree with the most important part: it's the trader, not the indicators. However, indicators simplify market data and unless you work from tick data fed into your brain, you yourself must use simplifications and manipulations of raw data, which makes your charts lag. What else is a bar? It's a condensation of market data based on time, volume, ticks, ranges or whatever and it lags by definition. Secondly, you keep saying "lagging" like it's a bad thing. I don't believe it is. Summarising, be it bars or MAs or whatever, filters out random noise. When you trade some PA configuration off a support level for example, you don't take every old tick. You wait for some configuration; some confirmation. So, you take the trade based on say a 3b signal and I get it the same signal only mine is my trusted RandomOscillator set to 58. I know my RO-58 will give me this signal, because I have studied it intensely just as you have studied PA. I don't see the difference. And, in any case, the Cycle and the Elliot Wave people must kick or asses, since they use leading indicators!

    And while I'm at it, I certainly don't see how oscillators become magic or fairytales. For instance, we can define indicators, but precious few people actually pre-define trendlines or S/R.

    My point is this; we're trading the same things and off representations of price. Saying that one mode of representation is better than another cannot be determined objectively. There's nothing inherently purer about a price bar - an indicator in and of itself - than say a momentum indicator.

    Secondly, you're more experienced than me. You started with indicators and did well, but then you saw something better based on that experience. That is where I am right now. I finally got an inherently indicator-based system down that works, but of course it works because it captures something about price behaviour - not because this indicator and the patterns it makes are magical. It took me five years to get to this point, and in another five I will probably have thrown away my indicator because I can see my trusted patterns or new patterns directly on the chart. I can then say "I'm a PA trader ... yeah, man ... indicators suck," but that would make little sense. And the sophisticated quantitative system developers will disagree with both of us.

    In any case, my post is merely a result of my wondering about the bahviour of the PA crowd. When it's so good, why not rejoice and discuss its merits in PA threads rather than the incessant attempts to convert the oscillator crowd? I'm not a Catholic and I believe it's utter nonsense, but I don't spend my time in Catholic forums answering questions about catholicism with "get out. It's rubbish. It doesn't work." So let us poor misguided "price action disabled" individuals discuss our magic and fairytales. As you say, it can only mean more profit for you :)

    Have a great weekend and thank you for your many insightful posts and threads. I really enjoy them and those of the people you have inspired.

  4. why even botehr talking about indicators?

    if you are making money you are making money, if you are not you are not

    if your indicator is not making money during the bear market you know why
    if your indicator did not keep your losses tight you know why

    discussion about indicator, the use or lack of it , is just plain spinning the wheel

    i haven't even thought about an indicator in over 8 years, i just do what makes correct trades and keep doing it.

    I don't go sitting around debating if it works or not either, thats ridicolous

    equivalent to some dood fishing and he's arugeing about whether a 4 inch net can be used to catch fish

    its ridic!

    who cares!
  5. bbqbbq


    indicators are useful, but they can't distinguish danger in price, for example if you have a 24 point bar versus a 3 point bar indicators won't tell you that the 24 point bar obviously is much more volatile and dangerous to trade..
  6. jprad


    No idea how to quantify "danger," and similar subjective qualities.

    But, you certainly can create an indicator that tells you how many standard deviations a 24 point bar represents compared to some population of historical bars.

    Combined with volume, it's a helpful alert, but it's a damned excellent way to exit with an outsized profit too.
  7. Smurf,

    You bring up a very good point.
    Catholicism is a faith ... trading is not.
    "God moves in mysterious ways" may well prove to be the ultimate test of faith for many, but it will be the ruin of every Trader.

    There is no faith in trading, just a fundamental understanding of what shifts price and how best to apply this knowledge to the Trader's advantage.

    Broken into it's components, trading is quite straight forward.
    I say "straight forward" rather than simple because the degree of simplicity is set by the Trader and not the market.

    In a nutshell, trading is as simple as you care to make it and most people chose to make it complicated.

    I am unsure why this should be so.

    Maybe the world they come from has encouraged them to be overly complicated or more likely, I suspect it is a protection from the sheer rawness of the markets themselves.

    Bang ... you make money
    Bang ... you lose money.

    The Casinos recognise this quandary and try (successfully) to hid it in amongst the fun and fiesta of gambling.

    The markets do not do this, any adjustment lies solely within the power of the individual Trader.

    I notice that some of the great proponents of PA here on ET leave me with the distinct impression that they do not know what they are talking about.
    I say this because their statements are often contradictory and contain holes where knowledge should exist.

    Others who support the use of indicators show a complete lack of understanding of how the indicator is constructed and therefore what it's intended purpose should be.

    PA versus Indicators .......
    There is no "PA versus Indicators". This is a ridiculous notion.

    Either you have a strong desire to trade for a living (and beyond a living) or you do not.

    Whether you should incorporate indicators in your trading depends far more upon you than the indicator; which after all is simply a mathematical manipulation of inputs with the sole objective of highlighting an event within the price/volume action.

    To describe an indicator as "lagging" demonstrates a lack of appreciation of the original purpose that indicator.

    To describe entries as being slow or fast makes no sense what so ever in trading.

    Fundamentally, you either enter on limit or at market, the choice is yours.

    If I were in the position of deciding upon the use indicators, I would be pulling them apart one at a time to find out what is under the hood and how it could possibly help me.
    This is something that Et'ers could do collectively rather than have these inane conversations about watching the screen for thousands of hours.

    We all know that there is not substitute for accurate screen time but it does not explain the quandary of indicators to those who ask the question.

    In fact it brings us in a complete circle back to "faith"
    My God I hate circles in business.

    Because someone implies that they have watched the screen for thousands of hours, then they expect others should have faith in what they say and write.

    "Faith" is the ruination of a Trader.

    Only a fundamental knowledge of the markets will enable a Trader to skew the odds in his/her direction.

  8. Cutten


    Some tape-readers overlook the fact that indicators can be useful as a backup, warning, or fail-safe.

    Even the best price action traders make mistakes, lose concentration for a while, or miss signals. It's here where indicators can help. For example, if you are playing an uptrend, then seeing the short then long moving average turn down is a real red flag. If you hung in a bit too long, this is a good signal to exit and consider playing the short side instead.

    Seeing price way above or below a moving average (or spiking above or below Bollinger Bands) is a useful mental trigger, which at least gets you thinking about the possibility of a reversal from overextended conditions.

    I prefer pure price action, but indicators have their place as a secondary aide memoire.
  9. The fundamental problem with indicators, and I think you'll agree, is that no indicator works well in both range bound and trending markets. Daytrading ES for instance, using stochs. when price is just bouncing back and forth in a 8 pt. range might make some points. Using that on a trending 50 pt. day is going to be awfully frustrating, while at the same time, using any sma's will profit greatly, but suck wind on a tight range day.

    Most likely you're 'in tune' with your indicator to the point of not just using simple cross-overs, and maybe you can work around the above constraints, but for most traders, I really think they become an unusable crutch originating from the Green Light/Red Light Syndrome (I think that's original, isn't it? :) ).

    I have no doubt that Price only traders can do very well, but imo, volume can be a great addition to one's education.

  10. Care to share your thoughts on the use of Volume

    #10     Nov 15, 2008