There is something that took me quite a long time to notice in my behavior with trading, and it was a peculiar obsession with trying to find exact measurements of price action. Once you kick the habit you begin to see other traders doing it all the time.
They discuss how RSI reached this particular value, or the ever present fascination with fib numbers, or how to correctly and precisely draw trend lines or support and resistance, and the endless combinations of indicators. You really need to shift from this kind of black and white thinking to a more "shades of grey" frame of mind - is price GENERALLY going up, down or sideways?
If you just think about what price IS and how many players are pushing it around then you'll see that its folly to bother measuring things with any precision. The human mind can actually find patterns if it looks for them - hence the old game of lying in the grass and looking at clouds to see what they look like - "oh that one looks like a rabbit - that one looks like an old man - that one looks like a womans breast!" - You can do this with price action too; you do after all have a MOTIVATION to find something as on a core level you believe that the pattern contains profits.
Lets just call this activity "looking for trades"... A good rule is that if you are looking for it, its not there.
When I do my technical analysis these days it is a more "broad brush" kind of activity - if I see a fairly obvious trend line I will approximately mark it out, and the same for price patterns, and S/R... The best description I heard or read somewhere was that these areas are like a wire fence that the bulls and bears push up against - not brick walls. There are no hard lines in the market. If its obvious I put it in, and if its not then just consider it to be noise.
Or at least I TRY to do this - there is a peculiar seductive fascination with chart tinkering... Its strangely pleasurable and amusing, but in terms of trading as a business there's really no place for it. Take up chess instead.
Loosen up in your technical analysis - the real picture is more blured. Wait for obvious patterns. Don't chart-tinker for amusement. Good rules all, not so easy to follow.
Friday, November 21, 2008
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5 comments:
Once again great post, I wish you had more readers, because it seems like no one is commenting. I don't know what that means though...
Those chart tinkerers don't realize that just one person can collapse the pattern.
The most important things to my profitability are #1.Time of trade: only trade when the most people are there and likely to drive price in a certain direction for awhile. #2.How much noise is present in market movement: Scale your size and stops to accommodate the current risk. #3.Stay on the right side of the trade. #4.Get out when your goal is met no matter how great a move you are "missing"
Great post and great comment..
-HT
>>Those chart tinkerers don't realize that just one person can collapse the pattern.
For some reason I actually found it beneficial with any breakout that didn't make sense to attribute it to one large player buying or selling large volume. I have no idea why, but it helped me to stay out of moves that didn't seem to make any sense.
Superpost. I love the idea of simple vs complex, shades of maybe. The lure of complexity and optimization, seems to prevent people from testing the simple premises. Few acknowledge the absence of:
1) a complete theory explaining the inter-workings of the myriad moving parts
2) complete information on those parts.
Interesting post. I'd agree on the folly of seeking precise patterns in a blurred price action, it's easy to get swept up by the content instead of the process.
This seems to suggest that simple ways of seeing price can be as effective as more complex, plus a simpler process would seem easier to duplicate consistently.
I'm a little confused by the 'shades of grey' analogy - 'shades of grey' sounds like a complex process as opposed to 'black and white' which sounds like a simple process.
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