Rahula, marketsurfer, This is an interesting topic and I have been looking for the opportunity to bounce thoughts with someone. Given any technical analysis pattern, it can be constructed from random data. The procedure: Take a set of random numbers. Take their returns. Returns in random data are normally distributed, or so I hear. This chart is "Exhibit A" on the LHS. On the RHS is "Exhibit B", a target pattern, let's say a double top. Further to the RHS we have Exhibit C, a blank chart, which we are going to populate. Now pick a contiguous slice of returns from the normal curve. Let's say we pick a set of 5 numbers to the RHS of the mean, i.e., all positive numbers, and all nearly the same value. Using these returns, we plot the first set of points on Exhibit C, the blank chart, and connect the dots. Since all the returns are positive, each point we plot will be higher than the previous one. So we have 5 points which form an upward sloping curve. This is the first leg of the double top. You can see where I am going with this : by cherry picking sets of returns from the normal-returns data, I can now construct the down leg of the first top, and then the up leg of the 2nd top, etc; In summary, given enough data in Exhibit A and any TA pattern as Exhibit B, one can produce a similar pattern in Exhibit C by giving a particular time-ordering to the data in Exhibit A. However, if I am not wrong in my thinking, random noise --- can be rearranged into ---> TA pattern does NOT imply TA pattern --- is ALWAYS a result of ---> random noise I suspect this is a logical mistake, in the same sense as, "Since those clouds I saw in my childhood that looked like a dragon were proven to be formed from the water in lake Tahoe by my uncle, whenever I see a dragon shape in the sky, it must be generated from the same water from lake Tahoe". In brief, I am suggesting that BOTH a) market data looks like random noise to a statiscian and b) market data contains identifiable patterns are true at the same time for the same data. This would explain why both those adept at TA and those who approach market data from a statistical/analytical POV both make money. Did I say something stupid?
really? what is your evidence that emotions like fear and greed can be predicted, and if so to the degree of moving the market.... regards, surf
the difference being that charts show buying and selling AFTER and only AFTER it has occured. tape readers can see pending orders, follow the axe, know the players and how they react to certain situations--- ALL things that can't be seen on charts that show past data. surf
really? what is your evidence that emotions like fear and greed can be predicted, and if so to what degree of moving the market.... trends only evidence is in hindsight. regards, surf
Not so. I traded a downtrend for 75% of the day today as it was happening on ES. If something stays within a trend line or channel it is very tradeable and predictable.
There are also great fib days in trading as well. On those days I can predict within a few ticks of where the market is headed in an abc correction.
Do human activities outside trading exhibit trend-like behavior amongst the 'masses'? Then answer is a resounding yes: Fashion. Music. Ideals. Expression. Past-times. The assumption that inanimate objects dictate market behavior (in this case, iterations of a coin toss), is wrong. Suggesting human behavior does not conform to trend-like behavior - at times - is also wrong.