[subterfuge]

Originally Posted by james_gsx »

Eventually, technical analysis will probably (if it already hasn't) become a thing of the past

Interesting. Its been around for a long time and despite TA seeming to get a bad rep among trading forums at the moment (funny how these topics work in cycles), I know its making money for some. I guess anything's possible though, and maybe your right in that it could become a 'thing of the past'.

Although, isn't UB's trading just technical analysis aswell? Hasn't a chunk of his method already been re-created by some guys on this very forum for use with ninjatrader in the other thread? I think that sometimes people dont want to be lumped in with the rest of the crowd, maybe associated with gambling, and kid themselves that they are seperate.

I dont doubt that Goldman and the like are playing a different game though. I imagine alot of their stuff is through market making etc. You just cant compare them with ANY retail trader, no matter how special one considers themselves. If they can profit from bid-ask spreads all day and have super computers scanning the market for tiny inefficienies faster than anyone else and rake in the money, they dont need to worry about candlestick formations! Its not even 'trading' in some peoples defiinition of the word.

As for NonTA strategies that the retail trader CAN employ, well thats also the other issue. Any alternative offered is always so vague from posters who claim not to use it.

Cheers.
Sub

[TradeRunner]

Originally Posted by james_gsx »

Eventually, technical analysis will probably (if it already hasn't) become a thing of the past - much like pretending to gain a fundamental edge by reading the WSJ every morning. People still do that, which tells me retail traders will be studying technical analysis for many years to come and trying to find their edge (some definitely will find an edge).

Hi James

I'm confused with your argument. First you say "...will probably become a thing of the past". It doesn't sound like you are too sure. Then you go on to say "some will find an edge". So you are saying that some people will continue to successfully use technical analysis some will not. Isn't that how it is now and will be in the future?

What change are you predicting and if that change has already happened can you throw up some charts that demonstrates the change?

TradeRunner

[james_gsx]

Sorry guys, I should have been more specific, my mistake.

I guess it's sort of difficult to clarify. You could view it the same way we view fundamentals, it's not really relevant (well, that's how most of us seem to think) when it comes to making trades.

Let's take a long term view of this. Right now, we can find various technical patterns - be a specific pattern like H&S or VSA - and historically they probably work. But the way major institutions (the ones we try to ride the tail for bigger profits) no longer use those same patterns. Essentially, since a firm can buy and sell within a second, that changes the game completely. My theoretical question is this, will those same technical patterns we all learned to love still be relevant in the future? Much the same as finding an edge using fundamentals in a company - the chances of you finding one will be slim - but some still do. I hope that clarifies my point. Some will adapt and find new technical advantages, and some will continue to use old practices that no longer work - just like many people try to find "value" in large cap companies like IBM. Essentially those people will be oblivious to the market changes.

I should also clarify my meaning of technical analysis - when I look at a shooting star, that is technical analysis. Today, trades can be done in the middle of a shooting star, or WRB, and I won't even see it on my chart. Since the trades are so fast and well managed, I probably would never pick up on the trade fast enough to make a discretionary trade. That doesn't even bring into account HFT (well maybe it sort of does).

I will post examples with my own charts (that can most likely be found on this site).

[DugDug]

James - dont worry I have have thick skin - I used to work on a trading floor and it was part of the job. And you are right about it makes the discussion interesting. (I also dont think poorly of Urma either - he is clearly good, interesting and a self confessed oldman with fantastic new ideas (from his posts), however there are always one or two little things that do get under the skin - I guess I am human (or bored)) (There are always two sides to every discussion)

Its interesting when people adopt the idea that so many people are doing it that it no longer works. (trend trading dies and is reborn every few years eg 2008)
That may be the case for certain arbs, and so called free money, and it seems definitely it does get harder to find the free money. However this is offset by increased liquidity. (I am old enough to remember what its like to have real gaps with nothing in between)
Does not that just mean that when everyone switches to the new ideas then the old ones will work again. (remember the new economy and the internet bubble where people thought you buy something for $1, sell it for 20cents and will make money , and that this is now the "new normal" as we are told in the media) Nothing works all the time, but certain fundamental truisms will give you greater odds of success.

Technical analysis is nothing more than a road map. I dont believe in all the indicators etc; this is a game of averages, and doing the same thing over and over again is where the money is made. The simple things of making more than you loose, by running profits, and cutting losses.
I know of enough people who have tested trend trading models that show that entries, patterns and the like dont necessarily make a difference. However if you can find a low risk pattern as a setup that does repeat in the right context (and the time frame suits your mentality) then great. Use it as a tool, a guide.
You dont need banks of computers to find value in instruments, or stocks, and when you hear it from someone saying this is the new thing, I think great. When I hear this is the new thing and all you oldies are idiots - I roll my eyes and think lets wait for the next black swan event. (you know the ones many quants discount as rarities - the same ones that create opportunity)
There is always value and opportunities everywhere. Ask that old dinosaur Warren B.

As a local/retail trader trying to compete in speed etc with computers is plain nuts - most people trading successfully seem to only trade a few times a day. The day market making firms stop making markets then you will know that the edge has gone - I remember being at Uni and told this would all be arbed out - however volumes are larger than ever and people are still doing it.
Put it another way - a bicycle may not be as efficient (or it may be) as a car, yet it still provides a good mode of transport for the individual and is a lot less maintenance.

[thalestrader]

Originally Posted by DugDug »

I am old enough to remember what its like to have real gaps with nothing in between

I am old enough to have traded the S&P's watching a 10 tic chart back when a 10 tic chart would still fit an entire day's price action on a screen without needing to scroll back to see the open! Now a 10 tick chart will fill right to left in just a matter of minutes.

Originally Posted by james_gsx »

Let's take a long term view of this. Right now, we can find various technical patterns - be a specific pattern like H&S or VSA - and historically they probably work. But the way major institutions (the ones we try to ride the tail for bigger profits) no longer use those same patterns.

But this turns technical analysis on its head, in effect putting the cart (price) before the horse (the institutions/commercials/large money traders who lead price).

Such institutions never used these patterns, i.e. they never made trade decisions based upon those patterns. Quite the contrary, it is only as a result of the large money's activities that those patterns are created. Far from following them, the large money makes them.

That is why TA works - highs and lows, lower highs and lower lows, higher highs and higher lows - are the tracks the large money leaves, not footprints that they follow (all a H&S is a an uptrend rolling over to give the first indication that the trend has changed from up to either sideways or down - it is simply tracking, i.e. following the lead of the willingness or lack thereof of the large money to bid higher or offer lower). The horse leads the cart, and we retail traders follow along and try to keep up the best we can, taking care not to get trampled when the horse decides to turn back on us, and careful not to get stampeded in a panic (and yes, the big money is human money and it does panic).

All UB is doing is organizing data to track the large money. Does it work? Yes. Does the small retail trader need UB's maths to compete? No. Are the indicators that ub uses that result form the programming services UB sells "technical analysis"? Yes. Do those indicators trump good old fashioned Support and Resistance? No. Like all indicators, they are designed serve to help give the trader who does ot have confidence in price alone, or in his or her ability to derive from price alone the clues necessary to that trader to support a decision to buy, sell, or do nothing. Whether or not any particular indicator succeeds in that is going to be more a function of the trader applying it than the indicator itself. In this respect, an automated system based upon those indicators is able, to some extent, remove the emotional component that frustrates most who seek to succeed as discretionary traders.

Let me use one of UB's indicators as an example. Here is a picture from UB's website where presumably you can purchase various indicators, have automated trade strategies coded, etc. This is a screen shot that ub has posted here at TL in the past showing what is called a "net new" indicator:



In this example (my notes are in the margins and the in-chart text and annotations are in ub's original screen capture) price has traded in a line or a rectangle consolidation. The net new buying indicator indicates that accumulation is taking place. Accumulation leads to what? Higher prices! But that is nothing new. That ub has programmed an indicator to sort and track large commercial trade from retail trade may be new in the way he has done it, but anyone who has read Baruch or Livermore or Wyckoff know that they did the same thing using nothing other than a ticker tape recording sales and size. I do not mean to take away from ub's work, but all this indicator does is resort and repackage the data in order to provide a different visual presentation of the data. This is no different than using using different sorting and grouping criteria for price, e.g. time, range, constant volume or candlestick, Renko, point & figure.

Have things changed? You bet they have! I thank my lucky stars every day for the rapid growth of quants and high frequency traders. I remember the days when a 60 cent rally in oil took a month, and if you caught 30 cents of you were quite happy. Yesterday I had 7 trades in oil and my average profit was nearly 60 cents. I remember when it would be unheard of for a currency to rally over 100 ticks from the Frankfurt open to the New York open only to retrace the rally and decline by half again as much by the NY close - now it happens twice each week in some form or another. So, yes, some things have changed a great deal.

What has not changed is support and resistance, supply and demand, buyers and sellers. The problem with those who have been seduced by what ub calls "recent advances in intelligent data mining, data processing, data visualization and higher frequency automated systems" is that they seem to have forgotten just what the source of that data is - it is buyers and sellers exchanging dollars for something that each anticipates is going to change in value, though they disagree as to the direction of the change. Buyers overcomeing sellers we call support. Sellers overcoming buyers we call resistance. If net new buying ovecomes net new selling, we anticipate upside breaks of resistance. If net new selling overcomes net new buying, we anticipate downside breaks of support. After all, in the ub chart example above, where does the entry point come from? where the stop loss? When does one take profits? While ub does not annotate the chart with such details, I would venture to say that such salient points as where to buy and where to sell come from nothing other than price and where it is in relation to S/R and what it does when it gets there.

While some might claim that they have discovered more intelligent processing of data prior to visual presentation, but in the end, there is nothing new under the sun. People are people, and buyers are people and sellers are people, and programmers are people too.

One reads in Ecclesiastes the simple enduring truth that "[o]ne generation passes away, and another generation comes, but the earth abides forever." For our purposes here, one might say that one generation of traders passes away, and another generation comes, but price action bides forever. And while the sun also rises, there is truly nothing new under the sun - just a lot more of the same dressed up a new fashion.

Best Wishes,

Thales

[james_gsx]

Originally Posted by thalestrader »

What has not changed is support and resistance, supply and demand, buyers and sellers. The problem with those who have been seduced by what ub calls "recent advances in intelligent data mining, data processing, data visualization and higher frequency automated systems" is that they seem to have forgotten just what the source of that data is - it is buyers and sellers exchanging dollars for something that each anticipates is going to change in value, though they disagree as to the direction of the change. Buyers overcomeing sellers we call support.


One reads in Ecclesiastes the simple enduring truth that "[o]ne generation passes away, and another generation comes, but the earth abides forever." For our purposes here, one might say that one generation of traders passes away, and another generation comes, but price action bides forever. And while the sun also rises, there is truly nothing new under the sun - just a lot more of the same dressed up a new fashion.

Best Wishes,

Thales

I actually agree with most of your post, except the first part I quoted. I don't think quants have forgotten what the source of the data is, maybe in the journey of finding a more sophisticated edge to move large amounts of money it is easy to lose sight of said "source". I wouldn't know, I don't trade billions of dollars a year and I don't design those complicated models.

But they also know retail traders (assuming of course, they even care about retail traders which they probably don't) look at the potential supply and demand. In fact, this is quite obvious in many "quant" strategies. I'm sure you know of them and how they work, and they are most definitely in tune with the idea of supply and demand.

I wanted to touch on the last part of your post, as it was something I left out but was in the back of my head. As we've all seen over the years styles come and go, trends (not price trends) change. Once it was merger arbitrage, then it was level 2 quotes, tape reading, we can name all of them. But they all change as the market becomes more complex, and that's exactly what we are seeing now - change. Of course price action will always remain relevant, but some traders will adapt and some won't. The ones who don't adapt (not saying they must become quants) will lose, just as in the past.

But I will make one more comment. I do find it interesting when I read quant forums there is never any talk of technical analysis, rather mostly mathematical (well, sometimes) models and programming. But when I visit a site with predominately retail traders (not this site, as this is the probably the third quant related thread I've seen here), the "flaws" of the quants are quickly shown and they revert back to their comfortable strategies. This is not a good or bad thing, just an observation that I find interesting and displays the evolution of trading. But I am glad this is one of the more intelligent forums where we can have civil conversations about this without people getting offended.

At the end of the day, no one is really right or wrong. It's all a means to an end, in this case profit.

[UrmaBlume]

Originally Posted by james_gsx »

But I will make one more comment. I do find it interesting when I read quant forums there is never any talk of technical analysis, rather mostly mathematical (well, sometimes) models and programming. But when I visit a site with predominately retail traders (not this site, as this is the probably the third quant related thread I've seen here), the "flaws" of the quants are quickly shown and they revert back to their comfortable strategies. This is not a good or bad thing, just an observation that I find interesting and displays the evolution of trading. But I am glad this is one of the more intelligent forums where we can have civil conversations about this without people getting offended.

Very well said James.

While this is certainly not a quant forum and is most definitely made up of mostly retail and wannabe traders, it is, thanks to James, the friendliest and most civil.

I too applaud the traders that can use such dated methods as candles, VSA, profiles & Wyckhoff to make consistent profits.

However, the fact remains that the guys that consistantly make the most from theese markets, especially in the shorter time scales, don't use any of those approaches and, in all probability, the users here that do, do so because they have no access to and are unable to engineer for themselves the more optimal trade decision support technologies and methods.

Almost 30 years ago I spent some weeks at Peter Steidlmayer's mini-ranch at Butte Meadows learning profile trading and profile theory. There at the same time was a friend that I still talk to today. This friend has successfully traded and operated as a trade consultant using nothing but his knowledge of makets as explained by Peter and the profile ever since.

This old friend has had limited access to our work and in just the last couple of months has started to ask me about price mean reversion to regression/least squared fit lines in periods of low volatility, time of day normalized volumes and buy/sell net trade calculations.

He has come to realize that his results are dependent on the quality of the information that supports his trade decisions (Information = Equity) and that there is quality information that is not available from the profile alone. That's progress and my bet is that his good results will get better and continue to do so as long as he continues to seek new and better information and methods.

While none of the software we use for trading has ever been seen by the public, some of the software we use for training the traders that operate in house and in the prop shop/hedge funds and joint trading ventures we manage has been published here and elsewhere. Some of the brightest here have used those posts to create their own versions of these tools and report positive results from their work.

There is a lot of very tough competition for every trading dollar and the sad fact is that the huge amount of dollars involved attracts many who will never muster up the extreme effort required to get beyond the easy and readily available explanations, technologies and methods. Even sadder is the fact that 90+% here lose and will always lose and the few that make it will make it because they did the work to get beyond what is readily available to everybody.

We get hundreds of requests to buy our software and they are all refused. Our posts are made to try and motivate the really smart ones to look beyond and for us to spot talent. We recently formed and registered a hybrid hedge fund/prop shop LLC and every investor and trader involved has a multi-year history of trading success, is a member here and none of them have ever posted anything.

If a trader's method is working, great, but he should always consider that the most important quality of any approach is that it be adaptive to change.


cheers

UB

[thalestrader]

Originally Posted by james_gsx »

I actually agree with most of your post, except the first part I quoted. I don't think quants have forgotten what the source of the data is, maybe in the journey of finding a more sophisticated edge to move large amounts of money it is easy to lose sight of said "source". I wouldn't know, I don't trade billions of dollars a year and I don't design those complicated models. ....

Perhaps you'd be more in agreement with me if I were to say that the tendency amongst the mathematically inclined is that they come to elevate the solutions their various equations derive from price, volume, time and sales data as being somehow superior to the data itself. As such, they convince themselves that the only way to succeed is if one has access to the products, sums, quotients and differences generated by their equations (I mean no disrespect to UB when I point out that such conceit is evident from the disdain that he in his posts explicitly expresses for those of us who do not agree with him).

As to this assumed superiority the quants have of their methods, it is demonstrably false. Both retail traders and quants are equally susceptible to immense failure. Quant funds quietly blow up everyday, right along countless retail traders.

You are of the opinion that the markets are becoming increasingly complex. I would agree that the markets are complex, but I would disagree that they are becoming moreso. No matter what we human creatures develop or derive in order to try to profit from speculation, it all begins with a buyer and a seller. And at that seemingly simple level is contained all the complexity of the whole.

What is often (I would say always) lost sight of by the modelers and algo-jockeys is that the word "markets" describes not a "thing" at all but rather it is signifies the collective activity and behavior of a crowd of people involved in a specific type of exctivity - speculative exchange. If the markets are a "thing," it is a thoroughly human thing, through and through.

Humans are incredibly complex. Our reality is far too complex to be modeled comprehensively. Whereas the quants seek to understand better by breaking things up and getting farther from the whole, I am of the opinion that truer understanding comes from seeking to keep things whole, and to understand the phenomena as it is, not as I would have it to be. Understanding comes not from reducing the whole to its component parts, but from observing the whole as a it comes to us naturally. I cannot deduce, much less understand a man's loves and hates, fears and hopes, from a microscopic examination of a slice of his cerebral cortex. But let me be the proverbial "fly on the wall," and observe him as he lives his life over a period of time, and I could reproduce his character through words so vividly that you too would come to know him, though you had never met.

In the end, no matter how one approaches these markets, the starting point is always the same. It all begins with a buyer and a seller. It is the same today as it was in the 17th century Rice exchanges in Japan. The fact that there are now more products traded, more traders trading those products, and more approaches being applied to the trading of those products has not increased the complexity or the dynamic of buyer and seller motivated largely by fear of loss and desire for gain. So while ub believes the "most important quality for any approach is that it be adaptive to change," I would say that the most important quality of any approach is that it is firmly anchored to those aspects of market action that endure.

As to the criticism that I am showing the flaws of the quants and reverting back to the comfortable, I think you view me unfairly. I have no doubt that some quants can use their mathematical skills to derive formulae that derive useful information from the raw stuff of the market. I am equally certain that just as the majority of retail traders never succeed as they had hoped, so too do the majority of would-be quants never achieve their dream. If anything, the difference between my post and those of ub is that while I can recognize the potential for value in a quant approach, he not only fails to see the see the same potential in an approach that uses the raw flow of the market itself, but treats those who differ in opinon from him with contempt, and in fact, he fairly seethes contempt for others using "dated" methods.

I have no such contempt for traders of his ilk. I simply am of the opinion their methods, on the whole, are no more or less superior to any other method that uses derivative data t support trading decisions. I also do not think that "quants" represent anything new at all. After all, what is a moving average but a "mathematical" trend line?

I have now been trading more than half my life, having started back in 1986. While you are convinced that things have changed irrevocably and that we are dealing with a present and future far different from an irretrievable past, I am firmly convinced, now more than ever, of nothing more than the old saw that the more things change, the more they stay the same.

Best Wishes,

Thales