Traders' delusion with random patterns

[Starcraftmazter]

Just thought I'd share this:
http://www.streetcoup.com/2011/12/traders-delusion-with-random-patterns/


I read in the last few days that somewhere around 50-70% of US managed funds underperformed sp500. Wonder if there is a correlation there

 

[tech/a]

Re: Traders’ delusion with random patterns

Just thought I'd share this:
http://www.streetcoup.com/2011/12/traders-delusion-with-random-patterns/


I read in the last few days that somewhere around 50-70% of US managed funds underperformed sp500. Wonder if there is a correlation there

A statement that's been around for as long as charting has been popular.
I've not seen a study of these "random" patterns.
" The Encyclopedia of Chart Patterns" was very disappointing.
While I have no doubt that in isolation ANY analysis fundamental or technical can be seen of little or no value.
There are patterns which repeat with enough accuracy to enable a trader to anticipate a move profitably.
The restore of most traders to be right rather than profitable ( the two don't always align) you can be right 70 % of the time and still be in loss.
You can also be right 30% of the time and be very profitable.

So I'd like to see some papers on " random" patterns rather than mice feeding habits.

 

[suhm]

Re: Traders’ delusion with random patterns

Chart patterns are a reflection of events and people's interactions with one another to form the market and hence are reflective of their underlying situations and belief in the shares so are not random.

Even if this includes chartist using TA, trend following is a popular method and other people will see the same trend thus it will become a self reinforcing trend.

I use charts to help with entry and exit points, not to pick the underlying stock.

 

[pixel]

Re: Traders’ delusion with random patterns

Fund managers ignoring charts and probabilities derived therefrom, are at best one-eyed. And they're leading the 50-70% of "investors" that are completely blind.

A fund manager tried to solicit my business by pointing out that they never sold a stock; they merely rebalanced their next round of additional purchases. Sounds good in theory - but will only work if you're consistently getting new funds. Another form of a Pyramid.

Not surprisingly, my mate, who had introduced me to them, lost heaps.

 

[notting]

Re: Traders’ delusion with random patterns

Disregarding technical analysis and the value of being wrong more often than not
If your an astute, perceptive and smart person, nearly smarter than everybody you meet, especially when it comes to business and are good at controlling your nerve etc etc. then you’d think you'd be brilliant at trading!!. The very fact that you are smarter than the pack and right about what you think is really going on will most likely make you a lousy trader!!
Everybody else is thinking something different because they’re wrong and not as smart as you - so the trading is generally going to be going against you who are right!
The very fact that your smarter than everyone and can see that the market is just over reacting etc etc you will know what the sensible thing to do is whilst the market is not being sensible! Yep, you will be sensible and lose against it!


Sometimes the worst thing that can happen is when the market really does align with your thinking and you are hot! Everything you do just seems to work, that's when you get the one loss that wipes out all your winning!
Reminds me of Charlie Sheen.
I'll think I'll get some cups and T shirts made with 'LOSIING%' written on them!

 

[motorway]

Re: Traders’ delusion with random patterns

Just thought I'd share this:
http://www.streetcoup.com/2011/12/traders-delusion-with-random-patterns/


I read in the last few days that somewhere around 50-70% of US managed funds underperformed sp500. Wonder if there is a correlation there

It reminded me a lot of the senseless undertakings that traders do to seek logic in random price action:

Well who can argue with that statement ?
Who would seek logic in Random Price Action ?

Maybe a lot of price action is random !
So do not seek logic in it !

But it only needs a little of the price action to be non random in order for there to be trends and turning points and real support and resistance.

How much of the daily volume in the share market is random ( from one perspective ) ?


What can look like random movements at one scale can at another be a definitive trend. Many processes in nature are like this. Bacteria or a virus invading your body for instance. It also depends on what and how you measure.


EG the bacteria; invasion of your body will follow a S curve not withstanding that at some level each cell will be invaded randomly.

What matters is the volume that is not random !

It reminded me a lot of the senseless undertakings that traders do to seek logic in random price action

Seems a reasonable observation.

motorway

 

[Gringotts Bank]

Re: Traders’ delusion with random patterns

Disregarding technical analysis and the value of being wrong more often than not
If your an astute, perceptive and smart person, nearly smarter than everybody you meet, especially when it comes to business and are good at controlling your nerve etc etc. then you’d think you'd be brilliant at trading!!. The very fact that you are smarter than the pack and right about what you think is really going on will most likely make you a lousy trader!!
Everybody else is thinking something different because they’re wrong and not as smart as you - so the trading is generally going to be going against you who are right!
The very fact that your smarter than everyone and can see that the market is just over reacting etc etc you will know what the sensible thing to do is whilst the market is not being sensible! Yep, you will be sensible and lose against it!


Sometimes the worst thing that can happen is when the market really does align with your thinking and you are hot! Everything you do just seems to work, that's when you get the one loss that wipes out all your winning!
Reminds me of Charlie Sheen.
I'll think I'll get some cups and T shirts made with 'LOSIING%' written on them!

I agree. I try to think instead: "is Joe Average excited about buying this?" "is Joe Average still excited, or is he getting nervous?". Sometimes this can be quantified, eg. Joe Average is always interested in stocks that are running up really hard on huge volume.

Alternatively, I use my imagination and do some acting (see: http://en.wikipedia.org/wiki/Method_acting). If for the next 5 minutes I immerse myself in what it would be like to be Paul Rotter, then would I be buying or selling right now? If one has the temprament for this approach, it can be remarkably useful.

 

[motorway]

Re: Traders’ delusion with random patterns

consider the building of a sand pile

A sand pile is a recognizable thing !

Even though the individual grains can randomly arrive and locate.

So two questions arise . How many grains does it take to make a sand pile ?

and

How many does it then take to cause an avalanche and a collapse of the sand pile once the sand pile has been built ?

Now markets are two way auctions.

Sand Piles in the market. collapse Up and Down



Motorway

 

[Wysiwyg]

Re: Traders’ delusion with random patterns

Randomness appears when the intentions of the variables (the minds participating) are not known. Are you accumulating in distribution and distributing in accumulation?

 

[pixel]

Re: Traders’ delusion with random patterns

I agree. I try to think instead: "is Joe Average excited about buying this?" "is Joe Average still excited, or is he getting nervous?". Sometimes this can be quantified, eg. Joe Average is always interested in stocks that are running up really hard on huge volume.

Alternatively, I use my imagination and do some acting (see: http://en.wikipedia.org/wiki/Method_acting). If for the next 5 minutes I immerse myself in what it would be like to be Paul Rotter, then would I be buying or selling right now? If one has the temprament for this approach, it can be remarkably useful.

that approach may have worked 10-20 years ago when the market consisted of lots of Joe Averages. Since the introduction of computers, Joe has to a large extent been replaced by R2D2 and his 'bot mates. All they play by are t/a rules. And they very rarely get excited by anything.

 

[motorway]

Re: Traders’ delusion with random patterns

Randomness appears when the intentions of the variables (the minds participating) are not known. Are you accumulating in distribution and distributing in accumulation?

IF I tell you the sun is crossing the equator !

Could you tell me if it was Summer or Winter approaching ?

You always need know TWO THINGS to have the context.

You need both NOW and BEFORE ( Where in the cycle )

you need to know Position and Trend ( The Technical Position )
You need to know this Dynamically .

Then identify the turning points

By the change of behavior of PRICE VOLUME & TIME

By these Contracting and Expanding

motorway

 

[Wysiwyg]

Re: Traders’ delusion with random patterns

IF I tell you the sun is crossing the equator !

Could you tell me if it was Summer or Winter approaching ?

You always need know TWO THINGS to have the context.

You need both NOW and BEFORE ( Where in the cycle )

you need to know Position and Trend ( The Technical Position )
You need to know this Dynamically .

Then identify the turning points


motorway

Dear T/A traders, I am experiencing a run of pattern trades that fail. Trading breakouts from channels and consolidations or buying/shorting support/resistance , the price will reverse the breakout after a brief period. The support or resistance line hits are from a few to many defining a definite channel or pattern structure and the line breaks are what would be considered false retrospectively.

So the question is why? Are my experiences price manipulation to trip stops lower than support/higher than resistance or a bull/bear trap for traders that trade the breakouts?

 

[Wysiwyg]

Re: Traders’ delusion with random patterns

This within the last hour live trading EUR/AUD. Trading hourly I initially bought the support line but the channel broke within minutes ( strange that) so flipped and went short. The result was a reverse back into the channel. They look deliberate to cheat the game!

 

[CanOz]

Re: Traders’ delusion with random patterns

I feel your frustration wysiwyg and I've been there. I find the shorter the time frame the more useless the patterns are now. I can't help but see them, but they're not part of my plans and haven't been for a few years. Sometimes I get all warm and fuzzy if there's a pattern that has confluence to my play of the moment. EOD I take more note of them...

To me , it's beyond coincidence that they fail so regularly. Perhaps there are Algos designed just to hunt pattern traders in fx.


Cheers,


CanOz

 

[sinner]

Re: Traders’ delusion with random patterns

This within the last hour live trading EUR/AUD. Trading hourly I initially bought the support line but the channel broke within minutes ( strange that) so flipped and went short. The result was a reverse back into the channel. They look deliberate to cheat the game!

View attachment 64041

Notes:
* You're trading EURAUD intraday outside of AUD session time.
* You anticipated the low of a pretty tenuous pattern (IMHO anyway) and it does look like the price rallied off that low, 5 or 10 pips is the most I would expect at the "high probability" end of the spectrum on that kind of line. I would put the expected probability of it bouncing magically off that line and going straight up to the top of the "channel" at less than 25%.
* I would have instead placed a buy stop at 1.6+spread+1 pip if I was looking for channel highs.
* Not sure why you shorted. Pattern failure is not a reverse signal. i.e. there is no guarantee that because a bullish pattern failed that bearish price action will ensue.
* You will note the bar you shorted is basically >4 consecutive down closes. Terrible place to short.
* You say the result was the reverse back into the channel, as if this was a large bull move, but (at least from your screenshot) the high of the bar is lower than the low of the bar you initiated your initial long from.
* Channels and whatnot in general are ways to visually identify consolidations. The trade is consolidation breakout, usually pro continuation. Looking at the chart, to me the channel your software has drawn is not a consolidation. The real consolidation is on a higher timeframe, visible as multiple highs and lows on your chart between ~1.625 and ~1.585.

Meanwhile, nearly every single inside bar (i.e. consolidation which probably shows up as a channel or whatever on smaller timeframes) on that chart paid out at least 1:1.

 

[Trembling Hand]

Agree with Sinner. They are just poor setups and terrible trades.

 

[cynic]

Although I cannot make specific comment on Wysi's analysis (I am not an active FX trader, and do not use chart analysis) I can say, irrespective of anyone's opinion of another's analysis, that I definitely I do know of OTC derivative providers that have done some highly questionable things with their pricing to the detriment of their clients. Whilst I am unable to prove that such behaviours were deliberate, the frequency and regularity of such occurrences increasingly leads me to believe it to be very much the case.

 

[sinner]

Although I cannot make specific comment on Wysi's analysis (I am not an active FX trader, and do not use chart analysis) I can say, irrespective of anyone's opinion of another's analysis, that I definitely I do know of OTC derivative providers that have done some highly questionable things with their pricing to the detriment of their clients. Whilst I am unable to prove that such behaviours were deliberate, the frequency and regularity of such occurrences increasingly leads me to believe it to be very much the case.

except Wysis example has nothing to do with that, he traded these prices of his own volition. retail brokers are not watching crappy automated EURAUD channels trying to move the entire EURUSD AUDUSD complex to scalp Wys and the other 5 people using the same software on EURAUD hourlies for 20 pips.

 

[cynic]

except Wysis example has nothing to do with that, he traded these prices of his own volition. retail brokers are not watching crappy automated EURAUD channels trying to move the entire EURUSD AUDUSD complex to scalp Wys and the other 5 people using the same software on EURAUD hourlies for 20 pips.

Next minute you'll be telling me that my broker didn't get caught filling my orders at inferior prices on some of their index futures CFD instruments!!

 

[sinner]

Next minute you'll be telling me that my broker didn't get caught filling my orders at inferior prices on some of their index futures CFD instruments!!

No, I'm just telling you it's not relevant here.