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EP170: Does Technical Analysis Ever Stop Working?
In this episode of Truth About FX, Walter digs into the psychology of technical analysis and would it work for a naked trader. He highlights the importance of understanding your own system and biases and building your strategy around that. He also shares an interesting book by an Australian trader about parabolic up-trends and how can this help you work on your strategy.
Download (Duration: 06:25 / 15.4 MB)
In This Episode:
00:56 – what’s the underlying reason?01:57 – innate in humans03:02 – a different President04:15 – an abstract thought05:21 – a concrete example
Tweetables:Choose the right technical analysis
@TruthAboutForex http://fxtr.co/a7" rel="noopener noreferrer">[Click To Tweet].What is the system doing? [Click To Tweet].Work on a simple strategy [Click To Tweet].
Announcer: Sometimes, forex trading is a wild and wooly place to be. That’s why Hugh is here, to post your questions to Walter, the naked forex guy. Hugh’s got questions and Walter’s got the answers. Here at the Truth About FX Podcast.
Hugh: Hi, Walter. Why does technical analysis / price action / naked trading work and will it ever stop working?
Walter: It’s a good question. I’ve heard this before. First of all, I think you have to choose the right technical analysis. You might love Bollinger Bands and I just think that’s crazy so I just have to go with what I believe which is mostly support and resistance, reliable patterns, that’s the kind of thing that I like.
If it doesn’t make sense to you, you can’t trade it obviously. We’ve talked about that a lot but I think really what this question gets at is, what’s the underlying reason for why these things keeps happening. I think you have to step back and say, “What have I constructed here?”
For example, if you’ve constructed a strategy, a system and by the way this did exist. There used to be strategies that would take whatever the news release was from the non-farm payroll report and they would actually trade the entire month based on that news report.
It was good for the USD, the strategy, the system would be is just buy the USD for the next 30 days. Those kind of things existed. Now the question is, what are you doing here? What is the system doing?
The system is taking advantage of the most important news release at the time. No longer is but it used to be. It’s taking advantage of that and it’s kind of setting the tone for the month. I think that’s the key thing here.
If so, the way I look at it is sort of broad simple terms. I know it’s not simple but just for the discussion here. Is your strategy getting at something that’s kind of innate in humans? Is it like a psychological thing that it’s tapping into or are you kind of gaming the system and just taking advantage of like a flavor of the month, so to speak.
This speaks to curve fitting and over-fitting systems in adding variables, in degrees of freedom and all of that sort of stuff that you get into, specially if you’re on automated trading.
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By Walter Peters (FXJake) and Hugh Kimura (Trading Heroes)In this episode of Truth About FX, Walter digs into the psychology of technical analysis and would it work for a naked trader. He highlights the importance of understanding your own system and biases and building your strategy around that. He also shares an interesting book by an Australian trader about parabolic up-trends and how can this help you work on your strategy.
Download (Duration: 06:25 / 15.4 MB)
In This Episode:
00:56 – what’s the underlying reason?01:57 – innate in humans03:02 – a different President04:15 – an abstract thought05:21 – a concrete example
Tweetables:Choose the right technical analysis
@TruthAboutForex http://fxtr.co/a7" rel="noopener noreferrer">[Click To Tweet].What is the system doing? [Click To Tweet].Work on a simple strategy [Click To Tweet].
Announcer: Sometimes, forex trading is a wild and wooly place to be. That’s why Hugh is here, to post your questions to Walter, the naked forex guy. Hugh’s got questions and Walter’s got the answers. Here at the Truth About FX Podcast.
Hugh: Hi, Walter. Why does technical analysis / price action / naked trading work and will it ever stop working?
Walter: It’s a good question. I’ve heard this before. First of all, I think you have to choose the right technical analysis. You might love Bollinger Bands and I just think that’s crazy so I just have to go with what I believe which is mostly support and resistance, reliable patterns, that’s the kind of thing that I like.
If it doesn’t make sense to you, you can’t trade it obviously. We’ve talked about that a lot but I think really what this question gets at is, what’s the underlying reason for why these things keeps happening. I think you have to step back and say, “What have I constructed here?”
For example, if you’ve constructed a strategy, a system and by the way this did exist. There used to be strategies that would take whatever the news release was from the non-farm payroll report and they would actually trade the entire month based on that news report.
It was good for the USD, the strategy, the system would be is just buy the USD for the next 30 days. Those kind of things existed. Now the question is, what are you doing here? What is the system doing?
The system is taking advantage of the most important news release at the time. No longer is but it used to be. It’s taking advantage of that and it’s kind of setting the tone for the month. I think that’s the key thing here.
If so, the way I look at it is sort of broad simple terms. I know it’s not simple but just for the discussion here. Is your strategy getting at something that’s kind of innate in humans? Is it like a psychological thing that it’s tapping into or are you kind of gaming the system and just taking advantage of like a flavor of the month, so to speak.
This speaks to curve fitting and over-fitting systems in adding variables, in degrees of freedom and all of that sort of stuff that you get into, specially if you’re on automated trading.