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Random Line Theory
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Random Line Theory

  #111 (permalink)
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Fat Tails View Post
...Our brain interprets random events as having a cause.

Examples:

Random Lines: What ever line you draw, with hindsight it may look, as if it had an impact on price. Fake lines look as convincing as real S/R lines. It is difficult to separate fake from real lines. ..


Yes it is difficult so much indeed that people feel the need to look at the reaction of price around these so called key levels. If a level is important it should act as an inflexion point more so than any other point but despite of this people will prefer to wait and see how price reacts around that level which begs the question, why do we need them if anyway we monitor price action around these 'fragile' but significant levels ? Why most people are afraid to place a working order there before the fact ? I think the importance of these levels are over stressed in the mind of most traders. People are being told that they serve to evaluate your profit which can be done using more precise process. That was the message of this thread in my opinion.

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  #112 (permalink)
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Another brain fooler

And here is another image which allows you some insight, how your brain works:

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  #113 (permalink)
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Here is 5-Jan session...

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and for 6-Jan session

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Harvest The Moon
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  #114 (permalink)
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No Disrespect,

but I think this thread - although highly thought-provoking - is incredibly irresponsible. If you buy 100 shares of Apple, is that going to move the market? No. What moves the markets? Institutional involvement. Do these institutions use pivot levels? They do. Therefore... pivot levels are important and significant. Do they always work? No. Nonetheless, I do believe they provide an edge.

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  #115 (permalink)
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Also,

I don't understand why everyone is so cynical and jaded.

You seem to be saying:

Egad!- indicators don't work! That's for suckers!

Phooey - trading is hard, and we just do the best we can.

I don't need no support and resistance - what a scam!

Woe is me - Life sucks, and then you die!

Remember that you don't trade the markets, but rather your beliefs about the markets.

Change THOSE.

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  #116 (permalink)
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tosmonkey View Post
but I think this thread - although highly thought-provoking - is incredibly irresponsible. If you buy 100 shares of Apple, is that going to move the market? No. What moves the markets? Institutional involvement. Do these institutions use pivot levels? They do. Therefore... pivot levels are important and significant. Do they always work? No. Nonetheless, I do believe they provide an edge.

I would be very surprised to learn that institutions use pivot levels. They don't need these widgets as they make the markets. They provide volume and if they want to bring price at a certain level they won't pass by this route.

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  #117 (permalink)
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trendisyourfriend View Post
I would be very surprised to learn that institutions use pivot levels. They don't need these widgets as they make the markets. They provide volume and if they want to bring price at a certain level they won't pass by this route.

What is an institution? Large commodities traders and hedge funds do use pivot levels, so be surprised. It is not a widget but a meeting point. Meeting points work, if many agents know them. In application of game theory, you will find that it is a dominant strategy to enter and exit positions at meeting points. If several actors agree to do so it is a Nash equilibrium, which is stabilized by its repeated application.

The pivot level is not magic nor scientific. It serves as a meeting point in a similar way as a trendline or classic S/R. These levels work and do provide an edge.

But that is not the point of this thread.

This thread was just meant to show that any line drawn looks logicial with hindsight, as you can find a non-existant causal relationship between line and price. This relationship is an illusion. The illusion makes it difficult to make a distinction between real and false meeting points. Fake and real meeting points look alike.

The fact that you have seen a fata morgana does not mean that everything you see is a fata morgana.

Also, you have overestimated volume. No trader can bring price up or down, except for some of the narrower markets such as softs. Usually those who try to corner these markets lose huge amounts of money, as the other market actors make them pay dearly, when they want to get out of their huge position.

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  #118 (permalink)
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Irresponsible?


tosmonkey View Post
but I think this thread - although highly thought-provoking - is incredibly irresponsible. If you buy 100 shares of Apple, is that going to move the market? No. What moves the markets? Institutional involvement. Do these institutions use pivot levels? They do. Therefore... pivot levels are important and significant. Do they always work? No. Nonetheless, I do believe they provide an edge.

You did not read careful enough. Nobody said that S/R or pivots is not working and you did not get the message.

The message is that fake lines and real S/R look alike, and that you should be careful not to use snake oil. For example pivots are meeting points. They provide an edge, but if you look at the detail, you will find

-> Level PP and levels R2 and S2 are high probability levels, but can you use R1 and S1 profitably, or is it just an illusion?
-> Floor pivots work quite well for commodities such as CL or GC, but do they work for FOREX?
-> ETH pivots work well for FOREX, but can you use RTH pivots for currency futures?

Be aware, all these levels look convincing, if you put them on a chart, but not all of them may provide a real edge. Don't trust your brain, it will create relationships and pattern that do not exist.

Sorry, this type of reasoning is not irresponsible, but just reflects an experience that we aquired in front of our screens.

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...The pivot level is not magic nor scientific. It serves as a meeting point in a similar way as a trendline or classic S/R. These levels work and do provide an edge.
...

3 points away above the opening print at 9:30 is as much a gathering point as R1 is or 3 points away below the opening print at 9:30 is as much a gathering point as S1. I have not found any serious statistics about these levels that would be significaqnt enough to provide an edge or my definition of an edge is completly wrong. How many times do you place a working order at R1 or S1 before price hits one of these levels ? If you telll me you need to look at price action when it gets there then i don't understand why you would need them since your main focus is price not this virtual or fictive level.

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Fat Tails


I got the message, and it's one that - over the years - I've taken to heart.

The message is: develop your own system, and stick with what works.

The message is: trust, but verify.

The message is: turn off the tv and get off trading forums and trade, trade, trade until you find what works for you.

Further, you actually made my point for me, namely, that pivots levels aren't merely random lines.

I thought this exercise was very instructive - don't get me wrong.

But - now that we've determined this, we then need to determine which s/r levels actually work and are actually useful.

That would be more instructive and constructive, and that's where my focus is.

That's all I'm saying.

I'm enjoying this discussion - thanks!

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