Learning TA: My Modus Operandi

Gentlemen:

I see lots of very interesting discussions in this forum. Some of them are focused on specific aspects of TA and I also see lots of very useful info. for beginners. Thank You. I am also pretty sure there are lots of beginners lurking around here. However, I do not see too many (I must also say that I have not yet read all the threads) threads discussing the thought process/modus operandi behind the learning efforts for mastering TA skills.

May be the focus, priorities and objectives are different for different learners and these also depend on the strength and aptitude of individuals. I have been making some attempts to get a grip of TA and would like to share my approaches and the way I have tried to deconstruct the elements of TA. I would like to invite your time and feedback along with constructive suggestions so that I can fine tune as well as others too can benefit from these "loud thinking". I will compile my initial thoughts and update this thread in the next few hours. Thanks in advance.

After spending months looking for tips, browsing magazines, scouring internet, downloading e-books, watching you tubes, checking out different software I realized it was time I get more organized and bring some meticulousness in my learning.

I realize the importance of having as accurate data set as possible if at all we have to derive any valid and constructive observations from it. If the input data is not accurate, output is bound to be wrong. Thanks to many of the links and pointers in this forum, I could install Amibroker, download EOD data, merge symbols and get the basic setup done. I did not go through the exercise of split and bonus nor classification of sectors/industries. For the latter, I have still some open questions in my mind.

Now that the basic setup is available, my next question was what to learn, where to start, how to proceed. TA is indeed a very big beast (sigh)
Again, I notice lots of good pointers and some focused tutorials in this forum. Thank You.

Before embarking on this learning, I thought I should assess my strengths, limitations, preferences and constraints. I am not a great visualizer and pattern recognition appears to me quite subjective. So I excluded chart reading, pattern identification exercises, identifying trend lines, divergences etc. I have a job which I cannot ignore and have other family commitments so time is another constraint. I can set aside 1 - 2 hours daily for learning (if at all I can enforce this discipline) which made it imperative that I identify the scope of learning so that I can have a time table. Since time is at premium, I ruled of intraday trading and the granularity of data collection was set to EOD. I could easily program and reasonably proficient in C language and am comfortable with math to some extent so quantitative methods which have limited or no subjective interpretations appealed to me a bit more.

I could also see patterns from many books and also advice in this forum. Some of them in no particular order are:
a) Greed and Fear are two main factors that influence a trader.
b) Money management is a paramount factor and you ignore only to perish.
c) Trader makes money because market has inefficiency and the moment inefficiency goes away or shifts, there is no more money. In other words, if you have a working logic/system, continue to use it but as more and more folks start using them, the inefficiency in the market is reduced and hence the logic no more works.
d) Whatever algorithm/system we develop, it should ideally work in atleast two markets (bull, bear, sideways, volatile being market states).

So keeping the above points in mind and accepting my limitations and strengths I came up with a general framework for learning.

a) Stick to quantitative methods.
b) Out of quantitative methods learn a couple of trend related indicators, a couple of momentum indicators, a couple of market related indicators.
c)Use as accurate data set and a good software for application and testing of rules.
d) Application methodology could be as follows.

-- d.1 see whether the market as such is trending.
-- d.2 pick up top two to three stocks in a given sector and see whether they are trending to conclude the sector is doing so.
-- d.3 Apply the rules for individual stocks in the chosen sector and based on rule make recommendations for buy/sell.


I am not yet there to share the rules as I am still learning the Quantitative methods. My questions to the folks and seniors in this forum:

Am I talking sense ? Do you see anything glaringly wrong in this approach ?
I read in another thread procedure to classify stocks to sectors and industries. Doesn't this exercise have an element of subjectivity ?
Some stocks can be easily classified to a given sector. Some stocks can be easily ruled out of the given sector. There could be some stocks
which fall in the grey area and I presume an element of subjectivity comes to play in placing these stocks in a given sector. To avoid this,
my thought was to pick up the top high volume stocks (2 - 3) in a given sector and based on them conclude the nature of the given sector.
Is this an acceptable preposition ?


Thanks for reading and your thoughts. Will continue my ramblings tomorrow.

Now that you have framed the rules, why don't you try trading them with real money?

Its pointless to propose strategies. The real challenge is to make consistent profits out of them.

On paper, yes, you are talking sense! While on screen, it may not.

Thanks for the response. I am not yet there to do the actual trading with money. Neither enough knowledge nor enough courage to do this yet confidently. Formal trading with money will be the expected culmination of this exercise. As I said in my earlier post, I would like to get my basics right and my learning as of now is focused on this. The audience I primarily target with my ramblings are beginners who may also be going through similar growing pains and not experienced traders. Seniors are welcome to comment on my approach to learning TA.

Since I am keen on quantitative methods, I also would like to start with the most common indicator: Moving averages. I saw lots of threads in this forum giving info regarding MA and relatively few threads talking in detail about application of MA. Once I spend some time with MA, I would like to discuss with you what my understanding about this indicator from the application point of view. In addition to the theory, I would like to experiment with this indicator and share with you my observations. As of now, all my experimentation will be with paper trading. Give me a couple of days for my next post.

So basically ten beginners come together and increase each others' confusion exponentially?

What are you going to get from people with similar growing pains, none of whom has any capacity to heal anybody's pain?

All that paperwork will end up in a RGV style flop unless you start the nitty gritty in real trading.You can analyse till u paralyse and unless that action is tested in the real world it all amounts to 0.

I can tell you from real experience that i have seen so many people proclaiming they got it figured and boom their systems fail in seconds when operators decide to take your money.

These perfect systems will work in a perfectly stable market/world.But when you mix in greed,fear and impatience you will realize that you do not have a method/function in C language for those.

My 2 cents/paise.

Hi Suresh,

I Am Glad For One Thing...

a) You Were Able To Shake Off The Fatal Attraction Of Learning Everything That Is There To Learn In TA & All The Fancy Indicators

b) The Few That You Have Selected To Work With Will Keep You In Good Nick Whether Trading Or Investing In Any Kind Of Market...I Could Perhaps Digress & Write A Few 100 Pages On It But I Will Let The Charts That I Post Speak To Your Analysing Skill

c) You Mentioned About Beginners & Something For Them.....Will Let It Pass For Now...Suffice It To Say Most Are Only Interested In Knowing If There Is An Indicator That Will Tell Them If A Scrip Will Move 10% In Next 5 Minutes.....My Description Hinges On A Bit Of Parabole...To Get The Point Across.....

If You Are Serious About Investing & Analysis...You Might Find The Chart Useful In Your Journey.

Happy & Safer Investing

SavantGarde

Note: 'My Modus Operandi' Doesn't Sound Right Has The Wrong Connotation.

hello savant sir, can you point me to the thread where the above chart is discussed in detail ? i am interested in the afl

thanks a lot

These are overlayed indicators: SMA 9 and 100.
Bollinger Bands are most probably (20,2), but may be SG will tell if its different setting.

9 and 100 SMA crossover along with standard 20/2 BB.

I myself is a big fan of MAs and trade based on them but BBs have always baffled me. the up arrow kind of suggests a buy on the first candle outside BB after the bullish SMA crossover.... maybe I am trying to read too much.

Anyways, my 2 cents are keep trading simple and dont fall in paralysis of analysis.

'Knowledge is a process of piling up facts; wisdom lies in their simplification'.

Cheers
SH