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drsushi

Trading with PA "No Indicators"

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Why all the fuzz? One day a acquaintance of mine, who is not into trading, came into my office and looked at my charts. Then he cocky said, pointing at all the ups-n-downs: "Why don't you just sell when it is going down and buy when it's going up?". So that's what I am doing now. Works great. :o

 

Laurus

 

Agree with the simplicity, however, ask your acquaintance to give it a try with real money for a month and see how it works for him. Then ask him if it's as easy as it looks.

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The godfather of candlesticks, Steve Nison, says over and over:

Do NOT use candlesticks without confirmation from other indicators.

 

Nison is hardly the "godfather of candlesticks"

 

The Japanese traders used stix long before Nison was a gleem in his mother's eye.

 

I, for one, don't use other indicators to confirm price rejection following a channel breakout.

 

It's all in the stix.

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Nison is hardly the "godfather of candlesticks"

 

The Japanese traders used stix long before Nison was a gleem in his mother's eye.

 

I, for one, don't use other indicators to confirm price rejection following a channel breakout.

 

It's all in the stix.

 

I would agree with you that it's 'all in the stix', you don't really need indicators to confirm candlesticks, afterall, indicators are just derivatives of price, so you are basically confirming price with a less-vivid representation of it, it just doesn't make any sense.

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lol,

 

I'm completely unconvinced that you have an edge with price action. No edge with candlesticks patterns too. On many occasions thecandle patterns fail to deliver winning trades. Some pin bars are fakeys, one rather could filter that with indicator/s.

 

The main issue with price action lobbists is that they never finished studying what indicators work well.

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lol,

 

The main issue with price action lobbists is that they never finished studying what indicators work well.

 

 

Here is a study that sheds some light. Seems one does have a slight edge

with candle formation recognition. But who knows, study was done some 15

years ago so meantime markets have changed with new forces /machines in

play.

 

http://www.pitt.edu/~caginalp/Paper65.pdf

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Here is a study that sheds some light. Seems one does have a slight edge

with candle formation recognition. But who knows, study was done some 15

years ago so meantime markets have changed with new forces /machines in

play.

 

http://www.pitt.edu/~caginalp/Paper65.pdf

 

Yes, the catch is that this study relied on data in a period that TA worked much better and candlestick formations were not fully exploited. I have given links to more recent papers that find no edge in using candlesticks

 

http://www.traderslaboratory.com/forums/candlestick-corner/3492-trading-pa-no-indicators-9.html#post121101

 

As I have said before there are hundreds, even thousands, of profitable price patterns that do not resemble to any known candlestick formations and they may provide some edge. An example is the price pattern in this blog SPY Found a Crutch and is Thinking of Making a Move | Price Action Lab Blog

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The term "price action" is meaningless. Price performs action of moving up or down. The resistance/ support lines don't derive from price movements for they can be drawn anywhere with potential of price crossing it, avoiding it or oscillating around it. There is no inner intelligence in price patterns.

Some intelligence can be drawn from from indicator's patterns (i.e. ema's crossing etc).

Among some reasons why price avoids resistance line, would bounce from it

or break thru it are algorithms used in computations of averages (ema's) and volumes (limit and market orders).

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The term "price action" is meaningless.

 

Maybe you should say that it is meaningless to you. But many famous traders have used it and believe in it. So do we take your word for it or that of some famous traders like LBR, L. Williams, Michael Harris and so many others?

 

This is well-documented evidence by one of the above famous price action traders that S&P 500 patterns included in a book he published in 1999 worked well for a period of 10 years after their public disclosure.

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It's always amazing how someone using price action will argue with someone using indicators that indicators don't work. Just the same, its amazing how someone using indicators will argue with someone using price action that price action don't work.

 

I've watch traders in live trading in front of my own eyes using price action profitably and others using indicators profitably. The only commonality they have is that they aren't fools to believe that its their indicators "exclusively" the sole reason why they are profitable or that price action "exclusively" the sole reason why they are profitable.

 

You guys seem to forget that profitable traders rely heavily on market experience, trading experience, market context, money management, position size management, proper trading environment and many other things in a trading plan that's often forgotten in these silly debates about "indicators versus price action".

 

In fact, the one thing I've seen in the few profitable traders I've had the opportunity of watching them trade in person on a consistent basis is that those other things (mentioned above) that's often forgotten in these types of debates...they are critically important to profitable traders. In fact, on any given trading day, its those other components of a trading plan that's more important than any indicator or price action setup.

 

Simply, if you're consistently profitable using indicators or price action...don't be a newbie nor naive in believing you're able to do such without those other critical components of a trading plan that's mentioned above.

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It's always amazing how someone using price action will argue with someone using indicators that indicators don't work. Just the same, its amazing how someone using indicators will argue with someone using price action that price action don't work.

 

I've watch traders in live trading in front of my own eyes using price action profitably and others using indicators profitably. The only commonality they have is that they aren't fools to believe that its their indicators "exclusively" the sole reason why they are profitable or that price action "exclusively" the sole reason why they are profitable.

 

You guys seem to forget that profitable traders rely heavily on market experience, trading experience, market context, money management, position size management, proper trading environment and many other things in a trading plan that's often forgotten in these silly debates about "indicators versus price action".

 

In fact, the one thing I've seen in the few profitable traders I've had the opportunity of watching them trade in person on a consistent basis is that those other things (mentioned above) that's often forgotten in these types of debates...they are critically important to profitable traders. In fact, on any given trading day, its those other components of a trading plan that's more important than any indicator or price action setup.

 

Simply, if you're consistently profitable using indicators or price action...don't be a newbie nor naive in believing you're able to do such without those other critical components of a trading plan that's mentioned above.

 

I agree with you for the most part. But I do think you are ignoring the fact that MANY trades have a tendency to get caught up in the search for the "holy-grail' trading system and this usually causes them to over-complicate the process of analyzing their price charts. You can't deny that a trader using only price action and maybe an EMA or two is going to have a clearer mindset and less trading stress than someone who has plastered 10 different indicators on their charts. I think the particular trading strategy a person uses is obviously not the key to success, but it certainly can confuse them and cause them to over-analyze the market...that's why i like price action..it's simple and clean, and not confusing.

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Price Action ? Indicators ? Whats all this sorcery ?!?

 

One of my options mentors laughed at me when I told him I use PA, he claims to rely solely on option pricing. How can I argue with someone who made a 30+ years living trading options in this manner ?

 

That is not to say I discarded PA and TA. His trading model works even if I keep my PA. *shrug*

 

Bottom line: I don't care what you use or if you are right or wrong. If you show consistent profits month after month year after year I am willing to learn from you.

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Price Action ? Indicators ? Whats all this sorcery ?!?

 

One of my options mentors laughed at me when I told him I use PA, he claims to rely solely on option pricing. How can I argue with someone who made a 30+ years living trading options in this manner ?

 

That is not to say I discarded PA and TA. His trading model works even if I keep my PA. *shrug*

 

Bottom line: I don't care what you use or if you are right or wrong. If you show consistent profits month after month year after year I am willing to learn from you.

 

Hi always,

Interesting comment

What about showing us his "trading model":question:

regards

bobc

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What about showing us his "trading model":question:

 

He could show you his model, his strategy, and could sit him down next to you, and you still wouldn't make money with it, because you are asking the wrong question.

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One of my options mentors laughed at me when I told him I use PA, he claims to rely solely on option pricing. How can I argue with someone who made a 30+ years living trading options in this manner ?

 

I would be interested in a cursory explanation of what your mentor meant by this.

If he is a market maker in options then his edge is in taking small clips.

If he is punting cheap options for directional moves, then I wonder his sorcery for diving the moves.

If he is spreading options, then again unless he is a market maker the spread would likely kill him.

If he is shorting options, then he still needs some measure to kep him from getting run over by the steamroller as he picks up the pennies.

 

Not having a go here, as I also think there are many ways to make money, however it was an interesting comment you made and my question (be it the right or wrong one) is would you please elaborate?

thanks

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He could show you his model, his strategy, and could sit him down next to you, and you still wouldn't make money with it, because you are asking the wrong question.

 

Even so, it would still be interesting to see his method / system.

Anyway, what question should he be asking?

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I would be interested in a cursory explanation of what your mentor meant by this.

 

To answer your question I have to start with the believe of what price action and technical analysis means to him (and me):

 

Price action is trading based on what is happening now. At this instance. Using volume and open interest to determine sentiment (bullish, bearish, neutral) and exploit that sentiment for the brief period it exists.

 

Technical analysis is looking at past sentiments to predict future sentiment. The trader places meaning to past events (support, resistance, trendlines, chart patterns) and exploits the statistical reoccurrence of past patterns and the predicted next pattern.

 

My option mentor calls this driving forwards in a car looking thru the back window.

 

Since the Greeks, especially delta, are future expectations of price movement it stands to reason that using option pricing is sufficient for predicting price movement.

 

I can't say I buy his argument 100%.....

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Even so, it would still be interesting to see his method / system.

Anyway, what question should he be asking?

 

His question was along the lines of "How does that guy make money?". I think a better question is "How can I make money?" There's a pretty obvious but fundamentally important difference I think.

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To answer your question I have to start with the believe of what price action and technical analysis means to him (and me):

 

Price action is trading based on what is happening now. At this instance. Using volume and open interest to determine sentiment (bullish, bearish, neutral) and exploit that sentiment for the brief period it exists.

 

Technical analysis is looking at past sentiments to predict future sentiment. The trader places meaning to past events (support, resistance, trendlines, chart patterns) and exploits the statistical reoccurrence of past patterns and the predicted next pattern.

 

My option mentor calls this driving forwards in a car looking thru the back window.

 

Can agree on this....makes sense

 

Since the Greeks, especially delta, are future expectations of price movement it stands to reason that using option pricing is sufficient for predicting price movement.

 

this however makes little sense.....

 

The Greeks are a derivative of the price movement of the underlying.

from Wikipedia.....and the commonly accepted definition of delta when applied to options....

 

Delta

 

Delta,[4] , measures the rate of change of option value with respect to changes in the underlying asset's price. Delta is the first derivative of the value of the option with respect to the underlying instrument's price .

 

 

In a nutshell - the delta tells you nothing more than how much you expect the option price to move in response (ie; his future expectations of price movement) to a price move in the underlying.....

not exactly how that is a future expectation of price movement in the underlying....

the greeks are derived from the underlying not the other way around.

 

(my guess sounds like he is short volatility.)

Edited by SIUYA

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The Greeks are a derivative of the price movement of the underlying.

from Wikipedia.....and the commonly accepted definition of delta when applied to options....

 

Delta

 

Delta,[4] , measures the rate of change of option value with respect to changes in the underlying asset's price. Delta is the first derivative of the value of the option with respect to the underlying instrument's price .

 

Among option traders delta is also the probability the strike price would be ITM at expiration.

 

With this you can structure your trade and adjust it as delta changes.

 

You can also use option premiums to gauge sentiment. For example, puts and calls with a similar ITM distance and the puts premiums are more expensive means a bearish sentiment.

 

Given the square root of time calculation you can determine the range the underlying is likely to be in. Since a number of options plays short for credit you can then place your positions outside this range.

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Price action is trading based on what is happening now. At this instance. Using volume and open interest to determine sentiment (bullish, bearish, neutral) and exploit that sentiment for the brief period it exists.

 

Now means: bid price/ask price, bid size/ask size, etc.

 

You can't trade based on now only IMO unless you are a market maker and you look only at bid/ask.

 

Anyaway, any method that relies on the analysis of price, volume and open interest is part of technical analysis IMO.

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