As a new small retail mom and pop option trader (only since 2013), what Truth101 is telling me: 1. I am a loser as I do not meet any of the conditions Truth101 listed. I should quit while I am ahead. 2. Only way to trade profitably is using TA and since I don't use TA, it is a third strike against me. Anyway, welcome to ET, and best wishes to you.
Certainly not the only way, but for those who have the mental ability to learn true TA, and not some way out on the limb offshoot of TA, it is without a doubt the most attractive approach to trading for the private trader. By 'mental ability' I mean that just as with foreign languages, board games, puzzles and the like, TA is not something that anyone can pick up to the extent required to be effective.
TA is like nautical charting. A sailboat rarely points to it's port of call. It's always adjusting itself to the wind and currents. It creates reference points and context. Wind and currents in the markets are like price and volume. When they are both heading in the same direction, lots of distance can be covered. When they are going sideways to each other, choppy waters ahead. When they are opposite, expect change. FA is more like the specs on the boat. Growth in earnings is like larger sails. Book value is like the materials that make up the boat, enterprise value is the size of the hull. Dividends are gas for the back-up engine that keeps you going when their is no wind and current. The analogy goes on and on. And like weather, it's kinda predictable but that's not where the value lies. It is in the anticipation of unfolding scenarios, each possible until it's not, limiting possible alternatives until the one that actually realizes.
Well if someone uses TA to predict that xxxx will hit $90 by the end of September, he'll certainly later be claiming that TA doesn't work. But if someone else uses TA to determine the current trend and trade in that direction, he'll be exiting his trade when the predictor is entering his!! A point that's so often overlooked regarding the value of TA is that it also tells you when NOT to buy or sell.
Oh yes, learn how to draw a few lines or add a few indicators on a chart. It takes couple of days and anybody can do it. Go ahead and spend a day learning abut pe ratios etc. Now you are all set to make a million dollars in your first year. It is so easy, you will be a gazillionaire before you know it. Go ahead and show the nay sayers on this forum how pathetic they are.
Technical analysis does not help in predicting future price levels. Anyone who uses TA in that way will most likely gain zero value. TA only tells you the trajectory of past prices. Whether that trajectory will continue or not has nothing whatsoever to do with TA nor does TA have any predictive power to assess the likelihood of a continuation or discontinuation of such trajectory. In that TA helps to understand where we are and it tells us where prices will be WITHOUT a change in any of the input variable that derive the price of an asset. Predicting changes in those variables is as important, if not more important, than understanding the current momentum and trajectory. So TA has its place but also its well defined limitation. Most people on this board and most retail traders, I claim, do not understand those limitations and apply TA incorrectly.
It's the most attractive mostly because it's the easiest, simplest method to acquire and apply. The effectiveness is imho greatly overrated as I stated in my post above. I don't discount TA as some others do but i think I am fairly aware of its limitations and I don't use TA for anything it was not intended for or does not have the capability to tackle.
Exactly. What a great fallacy to believe or being brainwashed into believing that one can spend a few days or month of sitting at a desk, scribble down couple lines on charts and earn as much as someone who toils outside. And what great fallacy in believing that one only has to stare at charts long enough and then some magical transformation happens and one can suddenly profitably predict future prices. If it was that easy why would any professional shop employ a host of technical and network engineers, fundamental analysts, read and comb through tons of different research (different opinions),employ highly paid portfolio managers, spend millions on trading systems, set up and maintain expensive risk management departments, employ execution traders, if one only needs a few kids to read charts? It's because predicting future prices is not just derived from TA. But those who don't know more than a few TA patterns get incredibly upset when confronted with facts and truth. A pity really. If only their lives depended on their decisions then all fair and square, but sadly many of those people are supposed to feed families. Many of those people forgot traditional training and jobs, stay with mom and dad and later when it's too late they will pose a burden to society because they need to be carried through for lack of own abilities. I cannot stress strongly enough the importance of a traditional education, a proper training, proper non trading skills. Most mere mortals can't make a living trading and most of those who trade demonstrably can't make a living. The best risk management for any aspiring trader is to have a career backup to fall back on when their TA adventures don't pan out as expected.
Exactly! Glad there are at least two people in the world who realize this about TA. There is just one point you made where I have a slightly different opinion, but that may be just due to wording. You said ".....nor does TA have any predictive power to assess the likelihood of a continuation or discontinuation of such trajectory." I would say that certain current movements in price do reveal the probability of continuation or not of the current trend. Again, maybe we're thinking the same thing but just worded differently.
You need to do some rethinking here. You make it sound like just applying hard work and willingness to self teach is a sure route to success. Working on a consistent trading solution is not easy, and having confidence won't make the task any easier. Fact is trading is one of the hardest professions to get good at because it requires more than just rote learning, but intuitive leaps as well. It's also a bit bizarre to start your first post on a seasoned traders board "lecturing" folks on trading.