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Random Line Theory
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Random Line Theory

  #151 (permalink)
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Random Lines for TF

Later ill come up with random lines for ES

899, 883, 867, 851, 835, 819, 803, 787, 771, 755, 739, 723, 707, 691 & so on

Use Fibs between these lines, for some reason my indi not working on ES anymore ill have to figure out & ill post later, remember these numbers are the bigger picture, I have scalping random lines too but they keep changig everyday, These are solid levels I dont know if they are random u see for yourself... These lines are displayed long before the mkt even reaches these levels, for instance i could go on beyond 899, 915, 931, 947, 963....... & so on it only changes when mkt condition changes but so far so good.


Last edited by bugsbunny; March 1st, 2011 at 07:07 PM. Reason: typo
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  #152 (permalink)
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Random Lines for ES

Okay i made it work this time

ES 1404, 1390, 1376, 1362, 1348, 1334, 1320, 1306, 1292, 1278, 1264, 1250, 1236, 1222, 1208

Last time i discussed about this indicator i was banned so this time i wont talk much about it, ill just keep posting....

GoodLuck

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  #153 (permalink)
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Fat Tails View Post
From my personal observations (screen time, not backtested) the folowing meeting points are important for daytrading:

- trend lines and trend channel lines
- highs and lows of the last 10 days
- floor pivots
- VWAP of current day

Other traders watch these levels for orientation. If they are not S/R, they are at least decision points in a way that price can be observed around these levels. Price action can then be interpreted as either bullish or bearish.


I wish I had never started reading this thread today, as all it has done is make me question a very large part of my thought process behind how I look at the markets! (and I already question myself way to much as it is) But I am very glad to hear you say this Fat Tails, as this has also been my personal observations. Right or Wrong, but my personal observations anyway.. Hell I even started a thread yesterday about “Determining Areas of Interest” in which trend lines and confluence play a large part.

Just going back many posts ago, out of memory, and I did not look at most (any of the charts BM posted), the random generator picked numbers like .38, .87, .88, .92.. Don’t necessarily recall them all, but kind of funny, as in my opinion only, after watching crude for awhile, those are natural areas for bounces or reversals. Especially the larger numbers, and the first time it approaches the Big Round Number..

In any case, Mike, Fat Tails, or anyone that has been following this thread from its conception, I would be interested in hearing what you have concluded from this exercise. Has it affected or influenced your use of lines, and how..

Edge

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  #154 (permalink)
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Hindsight Bias and Availability Heuristics


EDGE View Post
I wish I had never started reading this thread today, as all it has done is make me question a very large part of my thought process behind how I look at the markets! (and I already question myself way to much as it is) But I am very glad to hear you say this Fat Tails, as this has also been my personal observations. Right or Wrong, but my personal observations anyway.. Hell I even started a thread yesterday about “Determining Areas of Interest” in which trend lines and confluence play a large part.

Just going back many posts ago, out of memory, and I did not look at most (any of the charts BM posted), the random generator picked numbers like .38, .87, .88, .92.. Don’t necessarily recall them all, but kind of funny, as in my opinion only, after watching crude for awhile, those are natural areas for bounces or reversals. Especially the larger numbers, and the first time it approaches the Big Round Number..

In any case, Mike, Fat Tails, or anyone that has been following this thread from its conception, I would be interested in hearing what you have concluded from this exercise. Has it affected or influenced your use of lines, and how..

Edge


Generating random lines is sort of a childish play. Random lines can not have any edge by definition. However our mind, which was shaped by evolution to identify all sorts of patterns, will conclude that the random lines have contributed to support and resistance.


Hindsight Bias

Hindsight bias is the inclination to see events that have occurred as being more predictable than they were before they took place.

In the case of random lines we assume an inexistent causality between the lines and the price action. Availability heuristic - the random line that we see on the chart clearly rejected price at 10:30 AM - leads us to conclude that the random lines have had an impact on price action. This is impossible, as the lines are random.

This means that all sorts of support and resistance lines which are drawn on a chart will look more impressive than they really are. The human brain is set up to identify patterns, even if they don't exist. Random events are interpreted as having a meaning.


Support and Resistance

Does this invalidate all S/R concepts? No, it does not. Just don't trust your brain. If you conduct a detailed statistical analysis, you can prove that some S/R concepts do have an edge. The edge can be detected via a higher than usual probability that price reverses. I believe that at an edge, if it exists, is created by self-fulfilling prophecy - that is S/R zones widely used by traders only work because they are widely used, hence the notion of meeting points.

Trading is both a psychological and a mathematical game, but as this example shows, I would put psychology first.

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  #155 (permalink)
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Wow... terrific experiment Mike. It is this sort of thinking that helps us to see through our projections, and hopefully mitigate their negative impact on our trading through awareness.

I am not astonished that we project patters on the market; I am astonished seeing some people on this thread purposefully misunderstanding what the thread was all about. But then again.... I can understand that, as we all tend to protect our illusions of orderliness to the best of our ability (safety need is HUGE).

Embracing the complexity of chaos has likely higher long-term expected value than pretending it does not exist. How many traders blew their accounts believing they had an edge because they knew THE pattern? Of course, then the market changed. The pattern disappeared. I would argue that it was never there in the first place.

PS the Madelbrot book mentioned in the thread is really worth checking out.

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  #156 (permalink)
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All the same technical analysis / reaction points?

IMHO, Would seem like the basic technical analysis patterns, come in to play in all trading systems I have seen .. Even market profile has it reaction points/lines based on volume at price,,, then A technical pattern(h&S, flag, etc..) is looked for at these "reaction point lines",, the odds are with the technical pattern(why?, maybe because everyone recognizes them?), the reaction point just helps one to narrow down to a few trades and can add no or some odds to the trade....
Or does one just trade these lines with no confirmation,, seems like when I do this, I get killed....
Its the time frame that makes these patterns appear and disapear.....

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  #157 (permalink)
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Anagami View Post
...I am astonished seeing some people on this thread purposefully misunderstanding what the thread was all about. ...

Embracing the complexity of chaos has likely higher long-term expected value than pretending it does not exist. .

My opinion is that this thread was interesting in that it showed that many systems or trading cosmologies are based on thin air or subjective analysis. But to win at this game you need more than thin air, you need a winning edge, that is, the skill and knowledge necessary to spot low risk and high odds entries. To gain an edge, you need to understand certain aspects:

Namely, why many traders enter and exit at the wrong times or levels. Realize that moves are driven by mass phychology. Properly identify and utilize support and resistance and how it translates on a chart. As we know, the only objective information available to us is price and volume. All else is either subjective or a derivative of price and volume. Talking about random lines maybe fun but it won't help you very much to find low risk entries and high odds entries. This is where your focus should be placed along with phychology and money management.

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  #158 (permalink)
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Great thread.

I've seen this done live too. It says a lot about technical analysis in my opinion.

People in trading have a tendency to buy into a method of analyzing the markets without looking for reason that the chosen methods are valid. Furthermore, they take this on faith without doing any independent analysis or knowing anyone that makes money using the techniques.

I like the fact that Mike showed random charts with meaning and then other people showed charts that had as much meanings as Mikes as evidence that randomness wasn't at play.

There are some cognitive biases that cause the TA proponent to read meaning into levels on historical charts.

In my opinion - the ones that effect traders the most are:

Anchoring – the common human tendency to rely too heavily, or "anchor," on one trait or piece of information when making decisions.
Bandwagon effect – the tendency to do (or believe) things because many other people do (or believe) the same
Confirmation bias – the tendency to search for or interpret information in a way that confirms one's preconceptions
Congruence bias – the tendency to test hypotheses exclusively through direct testing, in contrast to tests of possible alternative hypotheses.
Experimenter's or Expectation bias – the tendency for experimenters to believe, certify, and publish data that agree with their expectations for the outcome of an experiment, and to disbelieve, discard, or downgrade the corresponding weightings for data that appear to conflict with those expectations
Information bias – the tendency to seek information even when it cannot affect action.
Neglect of probability – the tendency to completely disregard probability when making a decision under uncertainty
Hindsight bias – filtering memory of past events through present knowledge, so that those events look more predictable than they actually were; also known as the "I-knew-it-all-along effect.

Thanks to Wikipedia. Full list here: List of cognitive biases - Wikipedia, the free encyclopedia

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  #159 (permalink)
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gg80108 View Post
IMHO, Would seem like the basic technical analysis patterns, come in to play in all trading systems I have seen .. Even market profile has it reaction points/lines based on volume at price,,, then A technical pattern(h&S, flag, etc..) is looked for at these "reaction point lines",, the odds are with the technical pattern(why?, maybe because everyone recognizes them?), the reaction point just helps one to narrow down to a few trades and can add no or some odds to the trade....
Or does one just trade these lines with no confirmation,, seems like when I do this, I get killed....
Its the time frame that makes these patterns appear and disapear.....

I agree with a lot of what you say.

I trade Horizontal lines. I set them up before the open and they quite often hit to the tick. The thing is - I have a reason for putting these lines where they are and they will work on the ES and not on the CL and there is a reason for that too.

I can explain these reasons - but I'll presume people don't want to be bored with it.

Confirmation and context is King for me - when we get to an area of interest - I have to see certain activity or I don't get in. If I get in without this - I quickly get run over.

The fact is - 99.99% of technical analysis is utter nonsense with no reason it should possibly work. A good example is Fibonacci levels. What a lot of utter nonsense is the theory behind these 'numbers that exist in nature'. Now - can someone using Fibonacci levels make money - of course they can and I can explain that too but will presume people don't want to be bored with it.

People that make speculative trades will buy in the hope that someone will buy from them at a higher level later on. It is the greater fool theory. In Day trading futures & stocks, there are people that exist with such vast sums of money that they can move the market for a period of time. There are also areas where we know people will be feeling pain and will bail out of their trades which will cause acceleration. Greed, fear & manipulation - that's what should be the basis of technical analysis - the ability to spot which is going to move the market.

Just my 2c

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  #160 (permalink)
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DionysusToast View Post
...The thing is - I have a reason for putting these lines where they are and they will work on the ES and not on the CL and there is a reason for that too.

I can explain these reasons - but I'll presume people don't want to be bored with it.
...

It's always interesting to hear about other people perspective. If your analysis is based on supply/demand then there is no reason why it should not work but maybe i am missing something.

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