I remember I was a big Tech-Head, I have 100+ Technical Analysis books in my library, I've been to half a dozen seminars and I was just around the point when T.A. started to lose some of its usefulness, but was still pretty reliable.
What happened? Why did these technical patterns work so well for nearly a century (in some cases like Japanese Candlesticks, for several centuries as rice traders used them) and then change?
As I explain in "Understanding the Head-Fake Move... How Technical Analysis Went From an Asset to a Trap" and in the second part, "Motivation" (both are linked on the member's site at the top right), it wasn't until the late 1990's that the Internet was pervasive and online brokers were causing many to handle their own accounts, but they didn't have time to follow the Peter Lynch and Motley Fools and spend hours doing Fundamental research (which I think is 100% useless any way, they all lie on their earnings so you are starting with flawed information from the start) so following price and a couple of moving averages was much more appealing and then the mass migration took place and Technical Analysis (when I was first using it) went from a joke and "Voodoo Analysis" to mainstream. As soon as that happened and because of the main appeal of T.A., "laziness", TA didn't change much and Wall Street knew exactly what technical (retail) traders would do in almost any circumstance because the dogma was so ingrained.
In fact, those who wrote books selling the greatest, new trading system (and years later I backtested every one I could program and couldn't find one that would hold up in different market environments) would have you so brain washed that you'd believe "If the system failed, it was because YOU didn't show the appropriate discipline in following the system".
The only systems I know of that really worked, like the "Turtle Traders", weren't ever disclosed to the public until years after they were no longer being used and even the most successful systems like theirs would see multiple years in which they suffered significant drawdown before bouncing back.
Back to the point, probably around 2003, a trading buddy of mine (David DT from Russia-many of you know him) sent me a research paper that showed technical price patterns had less than a 50/50 chance of working according to all of his back testing. I didn't want to believe that, but I was seeing it.
This is why I started creating my own indicators or using existing ones in different ways, I don't want to see what everyone else sees. This is also why it took me so long to comprehend what 3C was telling me because I believed I knew how Wall St. operated, to see something contradict years of study wasn't easy to swallow or believe.
Eventually I just couldn't ignore what I was seeing daily any more. I don't have all the answers, I'm not a guru, I'm a lifelong student of the market and I learn more by teaching and helping others than I would by myself.
So here's the point of today...
Here's what the market at larger (retail) sees.
Here's what we see...
The typical 5 points of contact for most consolidation/continuation patterns are there and the next thing they'd expect is a breakout to the upside, that didn't happen.
When a technical pattern fails, TA teaches to reverse your position which means they all went bearish as out earlier sentiment report made clear, THIS IS LITERALLY WHAT T.A. TEACHES TRADERS!
Now the next thing most traders will expect is a "test" of resistance at the lower triangle trendline, most traders will expect the market to fail there and then head lower.
This is what is more likely given Wall Street's propensity to use TA concepts against traders.
At "1" the market moves to resistance, "2" the market makes a little jiggle making it look like resistance is holding, shorts will enter, longs will generally sell, "3" then the market blast above the triangle, new shorts are squeezed, older shorts from Friday are squeezed and their buying sends the market higher, traders see that it was a dip they should have bought and they chase it buying too, now you have all the bears buying to cover their shorts and the bulls buying to chase prices above the triangle, Wall St. doesn't have to do anything but wait.
At "4" volume should pick up as shorts are squeezed and longs jump in. This gives us our "Crazy Ivan" shakeout, we look for distribution in to rising prices, that's where we want to dump any longs and get our shorts in order.
*This is what I see as the most probable outcome, some details may differ a bit as there are a lot of dynamics in the market, but that's the gist of it.
Now we have seen this so many times that this is why it is what I'd expect, but the market is as dynamic as anything you can imagine, millions of extreme emotions all being pulled in different directions and we have a big hedge fund, SAC capital that has to sell a lot of stock to meet redemptions, so while this is what I expect, if I see something change or something different, I'll let you know.
A Guru is simply someone who tells you something is going to happen and they say it with 100% certainty and people LOVE that in a market that is far from certain, the "guru" doesn't know any better than any one else, in fact more often than not, they aren't very well informed, but people will forgive a lot for someone who sounds absolutely certain.
We just want the truth, if it changes, we changes with it, that's not being a guru, that's being smart.
No comments:
Post a Comment