Maybe I'd better clarify my thoughts. What i want to know is the TA's logic and thinking process. When I am going to believe in "something", I absolutely should know what is the underlying reasoning behind that "something". TA focuses on the repetition of the chart (indicator) based on the human behavior. I somewhat agree with that. However, it has nothing to do with the future bad news. Some good pattern may totally ruined by the unanticipated bad news. Of course , whatever analysis we are doing, we can never anticipate the "unanticipated". So the TA's logic is based on given anything else same, TA is better than other analysis method in terms of probablity . If this is really true(hypothetical), my first conclusion is that even if TA can give you higher probablity of being right, you should always try to avoid the "the happening of unanticipated information".. Such avoidance can be achieved by closing your position before the announcement of some crucial economic indicators or just doing the daytrading . Another conclusion is that when using the back-testing on certain trading system, one should remove the impact of all factors other than the pattern or indicator combinations you are examing. Only then the result is "pure". All above are only my "best guess" Any critics and recommendations for the readings which can solve my puzzle are highly appreciated.
You're beginning with some assumptions about the purpose of TA that are not necessarily true. However, if you're looking for further reading, I suggest The Disciplined Trader and Trading in the Zone, both by Douglas.
================= Good point ,certainly lots better than ''superstitious numerology'' also interesting , on long term charts, deal took place about @50% off sale. Of course if one isnt vey observant ,50% off doesnt mean much; could be random that many in marketing use that number also. I looked and recieved instruction-Solomon,trader king
I like your thinking here. Any idea how to gather those past crucial economic indicators so they can be added to backtesting? I'd like to do more than just rearrange price and volume data, but I'm not sure what all else to look at. TIA.
The "underlying reasoning", that "something", is the ever-shifting balance of supply and demand in an auction market, which is revealed, mapped-out, on the chart, thru price action and its accompanying volume. A pure chart consists of price action, usually w/vol. Indicators are a derivative of this pv behavior. First, understand the difference in the two. PV on a chart reflects both the past AND the present. How could it be otherwise? Supply/demand behavior is cyclical, meaning price action continually repeats itself - from trend to consolidation to trend again, albeit w/infinite variations. So if a particular market has behaved in such and such way in a specific circumstance in the past and the chart is once again in same said circumstance at present, then yes, one plays the odds that what happened before will occur again. That is TA. That repetitive dynamic of supply and demand seeking equilibrium in specific circumstances, what most chartists call a "pattern" - a much mis-used, mis-understood, and simplistic term - is where one finds an edge, thru whatever particular criteria one has established, be it pure Wyckoff PV analysis, Elliot Wave, Gann, Fib, Classic Pattern interpretation, what-have-you, or any combination thereof... If you wanna understand "the underlying reasoning" behind an auction market, study supply and demand, the greatest teacher of that being Wyckoff. From there you can go in a thousand different directions, and you'll always have a firm base, since everything you learn about the market is based on the foundation of its inherent, inevitable cyclical nature. H
We look at the past to find answers in the future; we have done this for thousands of years; why do we publish books and keep them in libraries for decades? TA is the story of the stock; currency;bond or whatever market. It tells you what happened when, to the price of a security. How could one dismiss TA as merely charlatan work? Whoever coined this phrase should go back and ponder at the utter shallow thinking that was put into it.
I agree with everything you said. But to answer your question, you have to look at the history of TA. Imagine you're a young healthy guy fresh out of high school and you get a job in construction, permanently or just a summer job before college. The first day, your boss walks up to you and says he needs you to dig the basement for a house. You're eager to get started. Then he hands you a box of spoons and tells you to get started. Assuming you don't just walk off the job, you take the box and look through it. There's big spoons, tiny spoons, sturdy spoons, flimsy spoons, even a lot of bent spoons. But even the best one you can find is still nothing but a freaking spoon! And spoons make for lousy digging tools. Now imagine an alternate scenario where he hands you a fully loaded backhoe complete with an excellent instruction manual. Heck, you can practically sleep on the job and still dig circles around that poor sod struggling with a spoon in each hand. TA is like one or two fully loaded backhoes (or the parts to assemble them) buried under a mountain of spoons. A lot of people look at that mountain and conclude, not surprisingly, that there's nothing there but stinking spoons. If you start digging into that mountain and come across one of the backhoes or enough parts to assemble your own, chances are you didn't get a map from a multi-$K trading seminar. If you look in the Psychology forum and read some of the threads about how people are struggling to maintain their motivation, it's because they're digging with spoons. The backhoe operators aren't crying about how hard it is to do their job.
The Price tells you everything, current and past, it reflects the views of all market players at the current point in time. It doesn't predict the future. If you find an indicator that does reflect future information (whether fundamental, technical or metaphysical) please let me know. 5yr
Funny thread. The initial inquiry is not too helpful as an orientation to making money but rather is an opportunity to expound on myths. The last post is a doozy on hyperbole that's for sure. A while ago someone posted a reference to a list of bullshit items that need to be tossed off the table in order to learn to make money. It was from O'Neil's book I believe. Could be worth getting. Making your own list is good. Checking around ET would fill a pretty long list.