Is Modern Technical Analysis Predictive?

[desmond]

My Opinion: A firm NO.

Firstly, by "Modern TA", i mean TA that uses mathematical formulas and their derivatives, not chart patterns. Example would be a 20-day simple moving average (SMA). Let's say the market price closes above the 20-day SMA today. This only means that todays price is higher than the average price level for the past 20 days. Nothing more, nothing less. It doesn't mean that the market will go higher the next day or more.

But why do many still use these tools or at least refer to these when making trading decisions? Why do many still buy when golden crosses happen?

[Maxforce]

Agreed. But then, same goes with everything else, whether its EW, Patterns, Candlestick or Astrology even.
Market moves wherever it wants 

[desmond]

Actually, if you compare modern TA with support/resistance levels, pivot points, Fib levels/time, chart patterns, market geometry or astrology, modern TA pales in comparison (i don't really trust EW, so no comments here).

Simply put, modern TA only reacts to market movement. Unlike, for example, fib levels which have a definite/fixed number we already know way before the market reaches it.

Based on my experiences (and limited success), i find that the most accurate trading method is by following astrological patterns. They are accurate about +/- 1 days' time but only for a definite period (about a few months' time for certain markets) then will change to different timing.

My experiences (with limited success) tells me that more research/concentration needs to be done on other predictive methods rather than relying on modern TA. Just my 2 cents.

[Maxforce]

Well, yes, Fib has fixed numbers but then maybe its the fixed numbers that made it look nice.
Same with support/resistance.
And Patterns has so many price targets.

In real time movement, we have NO way of knowing IF a support/resistance would be sustainable.
E.g. uptrend. Then price retrace to 38.2% of Fib. Does this mean it will stand? Or will it go beyond and stand at 50%? Or 61.8*% then?
Or Uptrend. Then price retrace to recent low. Does this mean it will stand? Or will it go beyond and to the next support (the nearest low)?
Or Triangular Breakout. We got a price target calculated. Then it moved beyond and looked like a another bigger triangular breakout. Then we have another price target. Then another and another - as if the trend will never end.

This is all same with Indicator (the modern TA you re referring). E.g. Uptrend, then price retrace to trendline in Indicator. So does this mean it will stand?

The point I m making is not to downplay the methods but to suggest that all methods could never predict with absolute certainty. Statistics will show itself which method has what sort of percentage. And at the risk of over generalising, patterns has about the same reliability rate as Indicators.

[desmond]

Yes, non-modern TA is more or less hit and miss if you only use it individually but what if we combine the fib time, astrological turns, market geometry and Gann to determine TIME? We'll get a time window where market is highly probable to turn.

Next, use price level tools like Fib level/pivot points, S&R, and MurreyMath to determine highly probable PRICE ranges. Granted, your computer screen will look very messy but they should be areas on the chart which shows very compact lines. This should signify important time & price supports or resistances (turning points).

If you want to be surer, can try entering trades based on chart patterns that form at the compact TIME & PRICE lines. But if the chart patterns don't materialize, then you might miss the chance buying at the bottom or selling at the top.

To add more depth to your analysis, you can look at the different time frames using the same TIME, PRICE &/or pattern approach. They may even be better timing tools out there that can give a narrower time/price range. Definitely better than using modern TA (even if modern TA is combined with some patterns) and getting whipsawed frequently.

Sorry, I should mention that i trade the FOREX so i'm not sure if it'll work well in our local markets but i think i did post something about the low on 16/17 Aug for the KLCI. That was using Astrology + Gann. I was early 1 day but price-wise, i couldn't find the strongest support. That's why i'd prefer to further my research on time & price, rather than modern TA (modern TA couldn't possibly come even close to predicting that swing bottom).

[Maxforce]

Interesting concept. I think you got it, congrats 
Your method is workable.

Another one I am using is actually more to price itself using volume chart combined with s&r.
Works too.

Modern TA, which I prefer just to call it Indicators are merely Indicators, derived from formula.
And the formula would derive from price mainly and secondary - volume.
So, really, if one can read the price and volume, then no need to use indicators.

This method I am using also managed to called for the low in CI 17/8.
And on 16/8 evening, after market closed for the day, I did post in Ben's google group that rebound was imminent.
And on the weekend, I posted in Boon's blog that we re looking at market bottom.
Also, I attended the Ben's blog gathering on that Saturday and I also mentioned that we re looking at market bottom.
So, its workable as well.

But actually, I m no longer focusing so much on time.
If holding overnight positions, may be able to meet margin requirements - I am trading the ES (S&P500 Futures)
One two day miss, I may be hancur already. 
I am still learning to strengthen my mind to NOT predict but just react. I find that when I try to predict, I tend to lose or make less.
But when I react, I have better results.

Indicators, if combined, should not be compared like the manner you mentioned, I think its unfair
Say Indicator combined with Candlestick, Fib, S&R and Patterns, then you may not get time, but its a workable method as well. Statistically more than 50%

[bizfun]

Sorry, I should mention that i trade the FOREX so i'm not sure if it'll work well in our local markets but i think i did post something about the low on 16/17 Aug for the KLCI. That was using Astrology + Gann. I was early 1 day but price-wise, i couldn't find the strongest support. That's why i'd prefer to further my research on time & price, rather than modern TA (modern TA couldn't possibly come even close to predicting that swing bottom).

Very nice prediction. I am not good in Gann method but with little bit knowledge about it, is hard to master. May I know which date you had been alerted and spot the low on 16/17 Aug? I need to do some Gann drawing for this case study.

[desmond]

Very nice prediction. I am not good in Gann method but with little bit knowledge about it, is hard to master. May I know which date you had been alerted and spot the low on 16/17 Aug? I need to do some Gann drawing for this case study.

I actually had 2 dates: 16 August & 17 August, based on two separate astrology timings. Initially, i thought that both timings point to the same turning date with a one day variance. But after looking carefully, i think that it was because of the gap between 15th Aug & 16th Aug! This excited observation means that astrology timing either predicts a real top/bottom OR predicts that the supposedly "turning point" day would actually leave a gap from its previous day. I looked back at previous charts and found that it was very consistent in doing so. The bad news is that we'll never know for sure if it'll gap on the turning date or really reverse (it reverses much more often than gapping next day). I never had this problem while trading FOREX because the FOREX never gaps the next day!

Perhaps some sort of trading strategy can be formed by utilizing this observation... Anyway, i just combined the 0.618 fib retracement (drawn from 5/3/07 low to 24/7/07 high) at 1205.67 points with the 16/8/07 turn date (which was actually a gap down) and felt quite confident with it. I never thought market would dip as low as the next fib level of 0.764 but it did (went even much lower). I was rationalizing that if market went to 0.764 or lower, then it's more likely to break lower (become bear market) but didn't happen.

The problem with using astrology timing is that even if it predicts the exact turn date, you still have to find a price level to get in. In this case, maybe intraday golden crosses using TA will help or intraday pivot points. However, this strong pivot on 17/8/07 does not happen very often and astrology can still predict the swing tops/bottoms (with normal-looking ranges).

That's why i'm starting to add more horizontal & vertical lines on my charts and try to find strongest support/resistances instead of relying on astrology alone (even though at times it shows uncanny accuracy). Just to make sure there are no reliable tools left out.

[bizfun]

That is good, thanks for explaination.

[andylim]

Anyway, i just combined the 0.618 fib retracement (drawn from 5/3/07 low to 24/7/07 high) at 1205.67 points with the 16/8/07 turn date (which was actually a gap down) and felt quite confident with it. I never thought market would dip as low as the next fib level of 0.764 but it did (went even much lower). I was rationalizing that if market went to 0.764 or lower, then it's more likely to break lower (become bear market) but didn't happen.

1.Mind if you elaborate you used Fib.level 0.764 instead of 0.786 ?
2.Do you think KLCI index-weekly & daily charts now forming the right shoulder of head and shoulders pattern ?

[desmond]

1.Mind if you elaborate you used Fib.level 0.764 instead of 0.786 ?
2.Do you think KLCI index-weekly & daily charts now forming the right shoulder of head and shoulders pattern ?

1. 76.4 = 38.2 x 2 (it's just my style of using the fib levels)
2. Frankly, i don't know because i don't analyze the daily/weekly KLCI in detail. I rely on 1 or 5 minute chart patterns (forex) and not daily patterns. Sorry, no help here.

Best i can do is just let u know a few turning dates (remember, turning dates could also become gap days in the same direction!) which i found but cannot confirm yet:

20/9/07, 26/9/07, 4/10/07, 8/10/07, 10/10/07, 17/10/07, 29/10/07, 12/12/07

WARNING!!: Never think that market will top on 20/9/07, then bottom on 26/9/07, then make top on 4/10/07, etc...!

I DEFINITELY did not find ALL the turning dates which are listed above! Use them if u want, at your own risk. I don't trade FKLI so i didn't bother to confirm them or do extra analysis. Use them as a secondary opinion in your own analysis.

This is how i trade in the forex: What i would do is to see if the market is steadily going up/down towards the turn date, then watch the intraday market movement on the turn date itself and try to find a short/long (short if daily trend up, long if otherwise). Style is counter-trend/fading the market. Cut losses very short & fast. I'm not afraid to jump in the trade again if given the chance. On average, i lose 2.776 trades (3 trades) before catching the top/bottom and hold on until next probable support/resistance. Reward:risk is typically 5.44:1. This would translate to an average of 5.11% net gain every 4 intraday trades, using a 50:1 leverage. I also should mention that i also get stopped out break-even at times while trading.

I do not know if i can trade like this in our local futures. The multiple losses can be very scary for small players and psychologically far more difficult.

[desmond]

Best i can do is just let u know a few turning dates (remember, turning dates could also become gap days in the same direction!) which i found but cannot confirm yet:

20/9/07, 26/9/07, 4/10/07, 8/10/07, 10/10/07, 17/10/07, 29/10/07, 12/12/07

Correction, i think i made a mistake. I'm changing my opinion to:

20/9/07, 24/9/07, 26/9/07, 27/9/07, 1/10/07, 5/10/07, 17/9/07, 22/10/07, 24/10/07

And might change my opinion again after market closes. 

[desmond]

 

[Maxforce]