The problem of education in TA

Discussion in 'Technical Analysis' started by alex.samant, Nov 8, 2007.

  1. Hello.

    I thought i'd share something with all the people starting out and learning TA.

    Most of the books are teaching TA focused mainly on longer term charts. Most classical systems were developed to be used in the stock market where you have thousands of stocks to screen and trade using monthly, weekly and daily charts. You can be pretty active when you have that many stocks to choose from, even when trading with EOD data.

    However, today, options, futures, the forex and even intraday stock trading are a favorite among new traders. Everyone wants to be a daytrader.

    This thing has been spotted by all former and actual "educators" who claim that the strategies used on long term charts work the same way even on intraday charts. THIS IS LIE NR. 1.

    Also they claim that the long term charts look the same as the short term, intraday charts. THAT IS LIE NR. 2.


    a) a daily bar contains the opinion of more traders than does the intraday 15 min bar. Therefore the bar has more meaning. An 8 bar swing on a daily chart means much more than an 8 bar swing on the 15 minute chart.

    b) the close on the daily chart means much more than the close on the 15min chart. Actually, the close on the 15min doesn't mean anything, so therefore you can forget about any indicator that uses solely the Close in it's formula on your intraday charts.

    c) a daily chart is pretty fluent because it has no "sessions". Intraday charts are fluent during active hours and tend to be less fluent and orderly when capital decreases.

    Bottom line is that intraday charts present a greater degree of chaos than the daily, weekly and monthly charts.

    Amidst all this chaos you need to know what exactly you are looking for and, in other words you need to spot the so called "order".

    All setups have lower probability on intraday charts because of noise and fluctuating market conditions (volatility, volume, etc).

    Therefore, your favourite strategies have to be filtered according to these market conditions.

    I have an example. I used to trade the Triple Screen on long term charts for some years and when I switched to intraday trading it took me about half a year to realise that i needed to use and additional tool, the ADX to confirm my continuation trades. In short, when ADX was high, the market had conviction and when it was low, interest was waning so i had nothing to do in the market....
  2. Yes, the daily contains more information, but if you're short term trader (scalping) then the daily is irrelevant for you. Who cares what people thought / will think when you're out of the market? But I can agree with you that the shorter the time frame the more the noise, (thus the potential to profit).

  3. Ok. Scalping. I agree. That is a good way of trading intraday, if your comms and spreads allow you to.

    However, scalping goes all the way down to 1minute charts. That is an entire universe on it's own. And of course you don't care about market conditions when you can have 10s of trades in a session.
  4. Alex,

    I agree with your analysis of the charts. A long time ago (couple of years) their was a thread by (NY Hot Shot) on the use of the
    DMI/ADX indicator.

    I started watching the DMI (8) indicator and like it. The
    DMI (8) along with your MACD (2 lines) (1,22,1) or (2,22,2) seems to be very accurate on the 1 minute, YM chart.

    I would still like to get a conversation going on the best settings
    for the Keltner Channel. I feel that using the 3 indicators,
    DMI (8), MACD 2 lines (2,22,2) and the Keltner Channels will
    serve someone very well with their intraday trading.

  5. hi snarly,

    i don't trade that short of a timeframe, but i have a thing for exponential moving average envelopes.

    The only thing with these is the fact that you need to adjust them by hand (like a swiss hand wound watch :) ). Adjust them so they contain about 80-90% of the last 100 periods' swings.

    But don't let them be a boundary to your trade. Just exit half at a channel and then aggressively trail a stop under each bar's low, from that point on, for your remaining half.
  6. Anyways, one needs to experiment at least 50 or so trades, always thinking about risk:reward, where to best place the stop (as this is crucial for winning), and scale out, trail the stop to breakeven, entry comfort zone, emergency bail outs, etc.
  7. if you trade off the 1minute chart, use a 5 minute MACD slope or an 8 EMA slope or something to filter out trades in the direction of the 5min trend....
  8. rwk


    Interesting thread...

    I have used both the ADX and EMA with some success in the past, but I don't like the built-in lag. They also take time to stabilize when beginning a data series. I have not used Keltner or MACD, so I cannot comment on them.

    Alex, how do you you trade the EMA envelope -- go with or fade a penetration of the band?

    I am researching mostly high-frequency automated systems.

  9. ok, i have a strategy that i employ on 60min/10min and 30min/5min (depending on the instrument's volatility cycle) sets.

    If the trend on the 60 min chart is up and i get a swing up on the 10 min that manages to take ADX above 30, i look to buy a retracement to the middle channel line, the EMA.

    I exit part of my position in the vicinity of the upper channel line and let the rest flow with the swing.

    I use the ADX as a proxy for market conviction. If a swing does not take the ADX above 30, i don't look for any trades, as there is poor conviction/capital, etc.

    The strategies that i use on weekly/daily chart sets don't use the ADX as the market is fluent and capital/conviction should be constant either up or down.
  10. rwk


    Thanks, Alex.

    Are you trading stocks, futures, or FX?

    I'm researching eMini index futures strategies. I use IB's tick stream which is sampled 10 times per second, or so I am told. I am analyzing every trade, so it is VERY short-term.

    #10     Nov 8, 2007