There is no such thing as price action.

Discussion in 'Strategy Development' started by LodeRunner, Sep 13, 2008.

  1. Guys around here would have you believe that price action is the only "leading" indicator whereas the rest are "lagging" indicators. The problem is, there really isn't any such thing as price action.

    Took me far too long to figure this out, but I've finally realized that "price action" is at best just a thinly disguised euphemism for "trader instinct".

    Which is fine, you know, but it's a little delusional to think that instinct alone will continue to dominate in a pure NUMBERS GAME in this day and age. Of course the old simplistic indicators (emas, pivots, etc.) "lag"... they're huge simplifications, designed for an era when your average 'supercomputer' had about as much calculating power as my electric toothbrush. I'm not saying that 20 years from now there will be nothing but black boxes, but we'll definitely see a strong trend away from daytraders looking directly at the prices. They won't be looking at EMAs or anything so archaic... they'll be looking at their expert system-generated indicators (if they're smart) and using their powerful subjective human decision making skills on those instead.

    So, take it out of the all-too-inappropriate human context, and what does "price action" mean... whatever the price is doing. Well, no shit. Everything is based on that. In fact, I do believe that's what we've all been using for hundreds of years now. A trend line or EMA or whatever is a very very VERY simple and crude indicator, but at the end of the day it's based on the same data that your P&F chart uses, or your "trader instinct" uses.

    In other words, ALL indicators are based on price action. Thus, it's a pretty worthless description.

    There is no such thing as a "leading indicator", unless you can see the future. All indicators are based on past price information. Some tools are very simple, and therefore (if taken literally every time) are prone to false indicators and huge lags. Some tools are complex and very refined (this includes both the instincts of an expert human trader and the results of well written algorithm), and they generally fair much better. Neither type of indicator is "leading"... the latter is simply a better tool than the former.
  2. Don't over-complicate it, it's all a game of probabilities, money/position management, and discipline.

    A numbers game and a heads game.

    Emini Guru
  3. I'm gonna love this thread, I can just feel it all over.

    We have evolved from indicators lag to PA doesn't exist - now that's what I call intellectual progress.
  4. mynd66


    I guess a leading indicator is one that is the more favorable one. But what is lagging? If anything its the person who lags. Price and inicator move simotaneously. Its a math problem that happens at the same time. Does it lag because after its too late to get in people think they see a signal after the fact? I never understood what "lagging" meant. It just came across as an excuse for not being able to use the indicator.

  5. I'm not really sure where you are comming from or where you are going with this one...

    You can only really take what the market is offereing. If it's not on offer, you can't force it, you definately will not be able to take it.

    Good trading.
  6. There is no such thing as Loderunner.
  7. I didn't say all indicators are lagging. I said that all indicators are based on past price data. Badly designed indicators will frequently lag. Well designed indicators will give you enough time to enter your position.

    The point is there is no fundamental difference between the two indicators, no magic chart or technique to use.

    Some people claim that reversing indicators inherently lag whereas trending indicators lead. That's a bunch of bullshit...the market does trend, and the market does reverse. Two different (very real) behaviors, two different indicators, and both are based on past price information. If you're only able to make money via trending indicators, well, good for you. That doesn't automatically mean that all reversing indicators "lag".
  8. IMHO, "Price Action" is simply the movement of price as it oscillates between minor and extreme support and resistance and the ability to see those minor and extreme oscilllations on individual charts . . . one chart at a time.

    So that being said . . . how can you say, "There is no such thing as price action".

    Unless you have a different and unique definition of "Price Action" and if you do please share it with all of us old experienced traders.
  9. Your post, and the premise it is based on, is flawed.

    While there are no leading indicators, there are indicators that tell you what price is currently doing, and that is price action itself. It is an indicator which is based on current price information.

    There are plenty of lagging indicators, and working from instinct alone is more a gambler (or speculator's) game than anything else.

    However, you can continue to believe that there is no such thing as price action if you wish. There are plenty of traders on the board who are millionaires, also.
  10. There's another extremely misleading term right there... there is no such thing as "current." All data is old. You might argue that data which is only two seconds old is more important than data that is two days old, and you're right... for a scalper. What about for an investor, swing trader, or even a day trader who buys and holds for a few hours?

    If someone designs an algorithm and finds that a price from yesterday (e.g. the closing price) has predictive value on the price five minutes from now, more power to him. I've spent enough time fiddling with algorithms to know that older price information (but again, the definition of "older" is completely subjective) can be quite relevant. Not as relevant as the price two seconds ago, but important nonetheless... especially for predicting reversals.

    The whole "price action" fad is based on good intentions (stop worrying about the price two hours ago and start looking at what it's doing two minutes ago!), but it's a gross oversimplification. Your two-minute old data is just as "laggy" as your two hour old data.

    Data's predictive power isn't based on its age; its based on your target time frame and your chosen technique.
    #10     Sep 13, 2008