is TA an ART or SCIENCE...?

[Rish]

Linkon

"Set of rules are kept simple and Stupid" as you said (VERY TRUE), always it will work with our application of knowledge.

I am posting a chart of Call Option with simple and stupid rule based, which gives 20% return per trade minimum (Opportunity based).

Nirahjan

 

[linkon7]

Linkon

"Set of rules are kept simple and Stupid" as you said (VERY TRUE), always it will work with our application of knowledge.

I am posting a chart of Call Option with simple and stupid rule based, which gives 20% return per trade minimum (Opportunity based).


Nirahjan

What you see on the chart is just a mathematical representation of the emotions displayed by the various market participants. We use such charts to time our entry in the direction of our bias. The same chart's profitability will look different if you look at the period between 19th Sept'2012 to 19th Nov'2012, where we traded between a very narrow range.

To put things in perspective, lets say we are betting on heads & tails of a coin toss. We get 4 heads in a row. mathematically, the probability of getting 5 heads in a row is, 50% x 50% x 50% x 50% x 50% = 3.13%. pathetically low probability of a head coming up for the fifth time. But after getting 4 heads, the 5th coin toss still has 50% probability of getting a head.

It just means that every trade has equal chance of hitting the stoploss. We have to tone down our expectation from every trade, no matter how strong the signal. E.g. we have 4 whipsaw in a row, doesnt mean the fifth time will be a genuine break out/ down.

Trading success boils down to how we manage our trades. We use TA to generate a bias, time our entry, place our stoploss and even set a target. But real time evaluating of the trade is progress, is where the whole magic lies. If we want to trail aggressively or give it room to mature or simply book out at known support / resistance, is the most critical part of the trading plan and is wholly responsible for the end result of a trade. Only on hindsight, we know, what would have given the best possible outcome.

 

[linkon7]

Told that, I would say that TA is either art nor science. It is experience.


DanPickUp

I would call it the burden of knowledge.

A doctor's kid falls sick and he is the most worried man in the house, since he has seen it all. He knows the worst case scenario than any layman. He is the most capable man in the house to know when things are turning bad and when things are stabilizing.

That's the fun part of trading, after 5 years, almost all systems look the same. We are not surprised by a turn in the market. The happiness on getting a good trade is mellowed down. There is no sadness when we get 4 trades hitting stoploss in a row. There is no second thought in punching the fifth trade when the signal comes. We know instinctively, when we are not in sync with the market and we lower our trading volumes drastically. We know when we got a multi bagger and add to positions without worrying about what if scenario.

Its no longer a fight so show to our peers how good we are. Its just business like any other business...!

 

[internet_fanbboy]

What you see on the chart is just a mathematical representation of the emotions displayed by the various market participants. We use such charts to time our entry in the direction of our bias. The same chart's profitability will look different if you look at the period between 19th Sept'2012 to 19th Nov'2012, where we traded between a very narrow range.

To put things in perspective, lets say we are betting on heads & tails of a coin toss. We get 4 heads in a row. mathematically, the probability of getting 5 heads in a row is, 50% x 50% x 50% x 50% x 50% = 3.13%. pathetically low probability of a head coming up for the fifth time. But after getting 4 heads, the 5th coin toss still has 50% probability of getting a head.

It just means that every trade has equal chance of hitting the stoploss. We have to tone down our expectation from every trade, no matter how strong the signal. E.g. we have 4 whipsaw in a row, doesnt mean the fifth time will be a genuine break out/ down.

Trading success boils down to how we manage our trades. We use TA to generate a bias, time our entry, place our stoploss and even set a target. But real time evaluating of the trade is progress, is where the whole magic lies. If we want to trail aggressively or give it room to mature or simply book out at known support / resistance, is the most critical part of the trading plan and is wholly responsible for the end result of a trade. Only on hindsight, we know, what would have given the best possible outcome.

Words of Wisdom.

Your probability example reminds me of a system that i was working on sometime back [Read], System had a very high success rate (~ 93%). So i said to myself, Well what are the chances of 2 consecutive losses ? (.5%) .... 3 consecutive losses ? (Very Less - .03%) ..... 4 consecutive losses (Rare - .0024%). I was all set to double my lot size after each loosing trade. But i thought lets back-test it before implementing to see what is the max no. of consecutive loosing trades. I checked it on CRUDE, max consecutive loosing was 2. Checked it on Copper, max consecutive loosing was 2, Checked it on Gold max consecutive loosing was 3. I was totally convinced and very satisfied with the findings. Thought i would just check 1 last, Checked it on NG, Max consecutive loosing trades came out to be 6 (Probability of .000012% = .00000012 i.e. 1 out of 8500000 trades)

I was taken aback, all my excitement was diluted. How could this be. I checked, I checked again and again. It was true. A 93% success system had 6 consecutive loosing trades.

Even if i do 100 trades/day with a 93% success system, 6 consecutive loosing trades would happen once in 424 years. The chances of this were so very rare. But this happened.

Since then i have not been able to use Averaging Money Management Techniques.

To answer your original Q. For me TA is like a sense (Like eye, ear, nose, skin). It tells me what to feel.

 

[columbus]

TA is SCIENCE if you are gaining ,MODERN ART if you are losing.(Difficult to
understand modern art.)

 

[Pradipjee]

TA is like an elephant as perceived by blind men. It is both science and art. We interpret it as per our personality traits and trading experience.

Pradipjee

 

[sumeetsj]

What is technical analysis ?

Its a mere representation the price where buyers ad sellers agreed and exchanged equity for money in a graphical form.

Why does this price go up or down ?

Sometimes the buyer feels he wants to buy at any cost, or he feels that he does not want to buy at any cost, similarly,
sometimes the seller wants to sell at any cost, or he feels that he does or want to sell at any cost.
This causes a difference between demand and supply and thats how prices go up and down.

What can we do about it ?

A person trading in the stock market needs to buy low (when the demand is low and/or the supply is more) and sell high(when the demand is high and/or the supply is less) to make monetary profits. With this money earned he can realize his dreams, whatever they may be.

Is it that simple ?

Yes very much. Its really that simple. We are the ones who make it complicated.

Wait a minute !! we make it complicated ? You must be kidding.

Absolutely, its us that make TA complicated. I can explain how:
Almost everyone knows what candlesticks, moving averages and RSI etc. etc. are.
Also everyone knows how to use them. Thanks to forums, mailing lists and those good Samaritans who took the pains of explaining strategies, entries and exits.
There are loads of books written on the subject of TA, and in depth studies about almost every tool thats available in any charting software.
How many books we have read ?
Maybe one or two ?
Can count on fingers..
Is it that easy ? Is the question we need to ask ourselves,
without reading books or gaining thorough knowledge on the subject,
we employ a capital and expect profits ?
and when that does not happen,
"Technical Analysis is bad", "Technical analysis doesnt work".

Only after some introspection one can find out where does the problem lie.

Regards

 

[Smart_trade]

For me it is not important whether TA is an Art or Science. More important question is " whether TA is useful for trading profitably." This is a question which every trader asks himself and tries to give honest answer.

I have asked this question to myself that if due to some reason my memory gets blank and I ferget all my TA knowledge, application of TA to trading,systems understanding,experience in the market etc etc and I am asked to trade without all these, can I trade profitably ?? The answer is clear cut NO.....so TA ,whether we call it science or art or artistic science or scientific art,is absolutely important for me to trade and that is what matters to me.

Smart_trade

 

[onlinegtrash]

TA is neither arts nor science, it has something todo with commerce


[alright, that recycled joke is somewhere from this forum]

TA can never be a well known formula (like laws of physics).

Even for an argument, if we had TA working like physics law,
The whole trading community acts on it to extinguish that edge and cash it!
By definition any visible edge will be exploited by hungry traders...

But crowd psychology works. There will be always more dumb money buying tops and selling bottoms!

 

[Rish]

What you see on the chart is just a mathematical representation of the emotions displayed by the various market participants. We use such charts to time our entry in the direction of our bias. The same chart's profitability will look different if you look at the period between 19th Sept'2012 to 19th Nov'2012, where we traded between a very narrow range.

To put things in perspective, lets say we are betting on heads & tails of a coin toss. We get 4 heads in a row. mathematically, the probability of getting 5 heads in a row is, 50% x 50% x 50% x 50% x 50% = 3.13%. pathetically low probability of a head coming up for the fifth time. But after getting 4 heads, the 5th coin toss still has 50% probability of getting a head.

It just means that every trade has equal chance of hitting the stoploss. We have to tone down our expectation from every trade, no matter how strong the signal. E.g. we have 4 whipsaw in a row, doesnt mean the fifth time will be a genuine break out/ down.

Trading success boils down to how we manage our trades. We use TA to generate a bias, time our entry, place our stoploss and even set a target. But real time evaluating of the trade is progress, is where the whole magic lies. If we want to trail aggressively or give it room to mature or simply book out at known support / resistance, is the most critical part of the trading plan and is wholly responsible for the end result of a trade. Only on hindsight, we know, what would have given the best possible outcome.

Linkon

Agreed, Enclosed chart (Reversal points marked in Red), though it is in narrow range also, as i mentioned "Application of Knowledge and Opportunity Trade", we can succeed. My entry will be always in Hourly Chart. Intermediate trend information i will just keep daily chart (levels) in my memory.

My exit point is always 20% per trade, so, opportunities may be less in Nifty (last 3 months almost 7 entries). But, opportunities are available in other places, needs homework.

Good Discussion and sharing of information. Any Criticism welcome.

Nirahjan