Someone mentioned actually trading or setting up a trade plan around the lines.
A buddy of mine recently joined a trading chat room, Leading Edge Trading, and he claims that that is exactly what they do; Take trades off lines on the ES charts. I'm guessing that the lines, however, are not random.
I sent him over here to read this thread, but he'll now have his work cut out for him since it has grown 7 pages since the last time I was here.
The discussion on random lines just makes the point that many charts are clustered with lines in a more or less random fashion. There are lots of secret pivots and lines which have never been tested but are sold to retail traders. This thread has only been created as a warning that many lines and indicators just create an illusion. Our brain will make sense of any lines with hindsight knowledge. It will even add order and causality between indicators, lines and price, where no such order and causality exists.
The playschool picture was just posted as an example to show how our brain plays tricks on us. I believe that we interpret charts with lines and indicators in a similar way. I also believe that pattern recognition is a route to failure when it comes to trading. The only tools that are beneficial in the longer run are those that have passed statistical tests.
The criticism of random lines - or any set of untested lines with an unknown expectation of how price will behave when approaching them - does not imply that all lines that can be drawn on a chart are random lines. It is just impossible or difficult to differentiate between valid and invalid tools by using pattern recognition alone.
And yes, I do use support and resistance zones and they do give me an edge. But I am neither a follower of Gann (too much numerology and hokus-pokus) nor Elliot. Wave counts are very much like random lines. With hindsight you can always explain how the wave count had to be applied and why the random line acted as support or resistance.
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In reading some (though I confess not all) the posts in this thread. I get the impression that many feel that many lines used in charts are figments of our imagination as far as usefulness is concerned.
Certainly, lines placed randomly on a chart are useless. Bounces off of these are nothing but coincidence at best.
But to deny a pattern recognition of resistance or support is to deny the competition of buyer and seller.
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this chart shows horizontal resistance and diagonal support.... these are not random lines... Admittedly they are subject to interpretation by the chartist and in most cases will be a best straight line or even a thick line. But these lines are not drawn randomly but rather an extrapolation of data observed and reflects the battle between the buyer and seller.
Lines drawn a random ARE useless...there is no theory involved here.
But lines drawn based on observation of data repeatedly fall to and rising from (or reverse) consistent points are NOT random and extrapolations of those lines are very useful in locating breakouts when they are breached.
Not all lines are equal.
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Hi, @Underexposed. Normally I would not respond to a post in this thread any more, because I basically became burned out by the whole thing.
This was an old and inactive thread, originally started by @Big Mike, but I put up a summary post recently giving some of my thoughts on it, and it revived for a time.
I think you may have received the wrong impression of the point of the thread, at least as I understand it, which is not that all lines or levels or other things are random, or are nothing better than random, or that none of them work or none are useful. I use many of them, quite happily, every day.
Since I gave it my very best shot in that post (and some subsequent replies to other posters), I recommend you take a look at it, if you haven't seen it. Here it is:
I think I fielded about 2 million incensed replies to this post, most of which told me that not everything is random. Which I sort of knew . Hence the burnout....
It would not at all hurt my feelings if you were to read it, and decide I didn't know what I was talking about. That's happened often enough, and sometimes I don't.
However, as a contributor to this thread, I do want to tell you that I agree with what you wrote in your post, and I do not think that it conflicts with the point that is being made here at all, which also is not really about lines... it's about what the person who is using them does with them.
Anyway, just wanted to point you to that if you hadn't read it, and let you know that I have no problem with the chart you posted.... which might be a slight surprise to you.
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Hi Bob...that was quite a rambling post but I think it can be condensed to these paragraph which I do agree in the main.
Pattern recognition, IMHO as a person who in his many careers was once a research chemist at the beginning of his working life, is an essential part of scientific discovery.
Their researcher analyses their data set based on a hypothesis that something may or may not be true. They discover a pattern that if they do something and get a predictable response they have a possible pattern for something bigger.
So they then invent other tests, essentially doing a larger test or maybe a variation on the test to try to disprove the pattern they first saw. If the pattern repeats itself often enough the hypothesis may graduate to a theory. There may be exceptions to the theory but in general the pattern repeats enough to be reliable in most cases.
This is not to saw that one should accept all patterns that are postulated as gospel. Candlestick patterns are really bad for this. Every year new patterns of candle formation seem to be promoted. Many write books on just such a subject... you would be foolish IMHO to believe all these patterns as being true predictors ... in fact any book on candlesticks worth their salt tells you to wait for that 4th candle to confirm what the pattern suggests. Frankly, memorizing candlestick patterns are a waste of time in my opinion... what you really need to do is understand the struggle between buyer and seller, as each candlestick is presented to, to make a prediction on a price movement... no need for memorization.
But I digress here..... Random lines are meaningless when added to a stock chart.... Looking at a collection of chart data and drawing resistance/support lines is not a random event. The chartist has made a hypothesis and extrapolated those lines to test that hypothesis. As long as that hypothesis holds, the movement is predictable, breaching established lines becomes more significant with each additional time the extrapolated lines are tested and the resistance/support holds... and the chartist knows that a breach of these lines up/down will result usually in a major change and he looks for another pattern to test.... This is not a random process
So as I said, these lines are very subjective when drawn... and they may not be universally agreed upon...but they are NOT random.
Having said that, I don't adhere to all line generator algorithms, Standard pivot points don't really mean much to me and Fibonacci pivot points have the same effect, these lines seem contrived to me... they are not random as they have a calculation involved with their generation but my tests have yielded nothing that I could not figure out with simple resistance support determinations. I don't follow Elliot wave theory either...basically because I don't understand the math behind it and I don't find it particular useful as a fit with my personal TA.
If I try to understand what Mike was trying to suggest in this experiment, (and I may be wrong here) is that many purported published line patterns are of little value and blind application of memorized pattern formations without understanding the buyer/seller forces at work in the price movement is a recipe for financial loss.
hahaha... I guess this is the end of MY rambling post on the subject
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