Thanks for asking. There is more to the programming I set up for surf to learn about TA and make money with TA. In trend monitoring and analysis, the variety of patterns most people ID are actually parts of a foundational pattern. To either invent or deduce the foundational pattern takes a lot of work. One factor is the nature of market data. When science was first applied to market data the Dow Theory emerged. Dodd and Granville at that time, also implied and inferred the market's paradigm (or algorithm). For long and short trends to exist, they also must fail at some point. The paradigm emerges from this trend monitoring and analysis contstruct. The failure has to be in a trend. Couple this with the market's granularity. What you get are a correlation with volune peaks and troughs and price extremes in the foundational pattern. To have a "container of price" the least complex "shape" in two dimensional "space" is the parallelogram. It takes a while to use what you sense with the inference of your mind to be able to percieve. By continually examining the market, your inference gets refined then honed and then it has no noise, no anomalies and no flaws. At this point the three bar profit making sequence only occurs in three regions of trends: during the trend or just after the peaks that either begin, form or end trends or during the two troughs within trends. So I did not have to "gamble" in any way with respect to surf and anyone of the quant programmers he believes have skills of any sort. None of these people would pick the three bar sequence during a trend, They could pick fake trend endings. for either the troughs or the second peak in the foundational pattern parallelogram. It turns out this three bar sequence also works on these erroneous places, if and when it appears. I had to outwit surf and his quants by using a three bar sequence that worked at every place they could and do make mistakes. For me, it is okay to use TA that is actually correct or use TA where my adversaries (humorously, surf or quants who perform as surf says) make mistakes. So that leads to the mistaken early exit. Well, the unique and most difficult part of trends is the place where overlap of trends ends and, naturally, it is concurrent with the mistaken early exit. I do not make that mistake, but the three bar sequence could happen there too. If surf and his quants make the mistake there, then that mistake is the one that makes them the most money after there is no BE ( price zooms past it before surf and his quants do not see what could have been a momentary retrace (which can't happen in reality. See more below). I had to post this three times in this thread before I realized I had to post the maths so not 100% of the readers would keep ignoring it. I do have the hope (a humorous condition) that a quant will do the equation and logic. If they do, then they backtest which proves only that money is made. Then MAYBE a forward use would occur. during this use of curiiosity, all the things mentioned above will be seen also for the first time. this is like looking on a low limb as noticing the essence of the "Cheshire Cat". Any mathematician worth his salt would be reliving the writing of "Alice in Wonderland". Serendipity had you show up while surf is in the muggy south. and surf will never read this or ask a quant to go through all this discovery. He actually met, a few years ago, a person at a smokey party. The person told him how this stuff works in the presence of other users. Nothing sank in then either. Later in the same town, a global meeting of the users occurred. and surf didn't show. If you annotate and monitor trends in volume and price in detail, you get to see the Cheshire Cat show up over and over. Watch how there is no pause to do a BE on the third bar. They might try a limit order at BE but it will become a market order at a higher price due to the effect of granularity under contitions of market "acceleration". all that had to be induced was surf setting the test conditions and sure enough he did. LOL..........
I took a look at Gallacher's "Winner Take All" today. Didn't read it all rigorously, but have a good experience of working with documents and getting the overall idea. Particularly paid attention to the parts which criticize technical analysis. What can I say? Mr. Gallacher obviously does not understand what correct technical analysis is. I don't speak about the chart examples here (where he "demonstrates" how TA "doesn't work" by applying it in such an amazingly ignorant way that I don't recall seeing anything like that for years ). His whole idea of how he believes TA traders trade is completely wrong. But ironically, misunderstanding has the roots in his own (completely correct I think) belief that market is not random and winners tend to win consistently by applying superior analysis approaches as well as losers tend to lose consistently and lose more than if they even traded randomly. Technical analysis in reality (my reality, I believe also NoDoji's reality and the reality of other TA winners I personally know) is NOT believing that price itself is the cause of the moves and miraculously past prices and strange patterns predict future prices. Future is not independent from the past, humans have memory and they consciously or not, always act with significant consideration of their past experience, pain, pleasure etc. Doesn't mean TA claims future is determined in advance, it's still free will philosophically, but free will decisions are nevertheless based on life experience of the market participants and not on the ideas coming from nowhere. So shortly I would point it out as: successful technical traders parasitize on the most successful and large other traders who have access to all kinds of the most important and up to date information/analysis, technicians, quants, fundamentalists, doesn't matter. We just learn to see their footprints and enter/exit accordingly. In the markets with less liquidity, where small traders constitute significant amount of total volume, parasitizing on losers may also take place, analyzing where their pain is likely strong enough to bail positions etc. What Mr. Gallacher believes technical analysts do is not even remotely close to the reality, with exception of maybe the most inexperienced and ignorant newbies and/or persons with psychological/psychiatric problems who really believe in mystical power of some indicators/levels etc. That's it for now. Interesting read, nevertheless, thanks Surf.
Must say (reading further) that Mr. Gallacher is spot on when it comes to typical winning/losing trader styles, trade management (cutting losses and running winners) and trading with the trend... to be continued.
Can say I really liked the chapter about systems and especially descriptions of how and why traders tend to wreck their working systems. Some good psychological observations. Also see the sense in the chapter related to fundamentals/macro picture analysis supported with technicals to commit decisions/control risk. For long-term approaches having macro picture support TA decisions is surely an additional edge. Considering very low slippage/commission/liquidity issues of modern markets though I must say that short-term TA systems can be constructed, which produce very good results with relatively low draw-downs and recommendations of Mr. Gallacher in relation to discipline and other psychological moments are more than actual here. Alright, enough for this weekend.
Thanks for the review. The book was posted as part of my favorite list due to its simplistic nature of explaining the fatal flaws of traditional TA. Clearly, if you and ALL the other winning TA traders-- there's quite a population on this site--- have secrets that no one else knows, I can't argue. But I do know, show a chart to 5 technical analysts and you will get 6 explanations.
It was a pleasure for me to read. As for the TA. No secrets, rather observations and what's particularly notable, I much more often than randomly witnessed when me and some of my buddy traders I continuously interact with, each using own approach (some use indicators and price, some use just price, some use a lot of stuff altogether) come to almost identical conclusions about where the price is likely to go. So speaking of consistent TA traders, I wouldn't confirm this "take 5 technical analysts and you will get 6 explanations" situation as often.
<b>So shortly I would point it out as: successful technical traders parasitize on the most successful and large other traders who have access to all kinds of the most important and up to date information/analysis, technicians, quants, fundamentalists, doesn't matter. We just learn to see their footprints and enter/exit accordingly.</b> This lays out one of the fatal misunderstandings--- Not only are "footprints" ipso defacto the past, the map isn't the territory. HFT, which is your competition doesn't trade large blocks that you think you can "see" flowing in on your charts. In fact, HFT trades very very few shares at a time-- For you to believe you can see this is delusional and if you actually could, the nature of it, designed to be undetectable, would do you no good. What you do is Tea Leaf reading, just admit it. This isn't even getting into dark pools and other liquidity that you can't access but it changes prices--- surf
The market is incredibly limited in the directional options it offers: UP or DOWN. That's it! Sideways is only a holding pause in a bigger time frame - keep zooming out and you'll see what I mean. The remarkable thing is how the market can take such limited options and hide its intent with seemingly complex suggestions. One of the keys to unlocking this mystery is trends. Trends are a bone of contention among traders yet they are simple because they are part of a repetitive story the market tells. Within that story are very few possibilities and the market has "tells" that indicate what comes next. Once you know the tells you can read the path the market will take and the same story is told in a ten second chart as in a monthly chart. Meanwhile the job of the market is to continually throw the weak hands off the scent. Demonstrating how TA doesn't work is a perfect example of that.