Trading Incrementally improving strategic accumulation using TA & other info

After beginning an interesting discussion on the potential value of technical analysis (TA) methods in improving accumulation strategies here.....

Warning , Warning , Warning , Will Robinson ....Guru Alert

it has been suggested I start a dedicated thread for the topic. Would definitely help to read the prior discussion for anyone interested.

To re-iterate the theme, we are not intending to engage in a discussion on aggressive trading strategies and I'm sure we all agree that strategic and sensible quality asset accumulation is the most appropriate long term approach to wealth building for the vast majority.

Given this starting point, it is worth exploring any possibilities that may allow us to achieve a consistent, incremental edge over the standard 'scheduled' regular accumulation method by simply applying some principles and tools used traditionally by TA practitioners or using other info that is at our disposal. For example there is an investment approach that focusses on searching out the names of people commonly on Board of Directors for highly successful companies then looking for new companies that include the same names on their board.

Price chart analysis and TA is often thought of by the public as specific to the domain of a 'trader'. The reality is that institutional level investment decisions in involving massive exposures will almost always consider TA research as part of the decision making process. Many TA tools and techniques can be equally applicable to long term investors as well as short term market participants.

An example worthy of attention and not overly complicated to learn and apply is the whole concept of relative strength (not referring to the RSI indicator, relative strength as developed by Julius de Kempenaer) and how it can be used as a market filter to quickly identify and compare opportunities in the market. His specialised tool known as an RRG is used to efficiently ascertain a wealth of useful information identifying where comparative strength is to be found in the market. For example in a matter if seconds you can find out which instruments are currently outperforming the market benchmark by the greatest margin and rank then from strongest to weakest. Or discover which instruments show long term strength, however, are currently in a short term pullback phase and offering attractive pricing for accumulation.

I am re-posting below some of the recent points from the other thread as a starting point to continue on with the conversation.....


"@austing interesting conversation, the Gann-Elliott combination that your friend favoured is also my mentor's core teaching along with some more modern giants that have extended the structural geometry and numerical principles at the core of Gann-Elliott. Successful non-commercial (private) large position holders in futures markets are almost exclusively discretionary swing traders. They (as do I) use higher time frames and are more akin to 'short term investors' as positions are held for extended weeks and months and into years at times. To me it's about using a well reasoned approach to speed up the entire investment process.

Particularly interesting that you mention the big 'G', a very controversial and over marketed 'name' in the industry. Been reluctant to go too far down this rabbit hole on PC for fear of inciting violence ......what I will say is that the publications he left in the public space are a trail of breadcrumbs that most people can't follow, many are critical that his 'esoteric' seeming techniques don't work as well as they are reported to. If used exactly as he wrote them up they will not work, to unlock their effectiveness you need to properly understand scaling. Gann's teaching is phenomenal when used with the correct scaling principles and forms the roots of the Market Geometry school of TA that many have built on and made more accessible since. His non-esoteric basic trading rules such as "old tops often make new lows" and Gann swing theory are still as valid today as the were in early 1900's particularly when primarily trading off daily, weekly and monthly charts. There is a lot of Gann material and it deserves full attention, something my mentor constantly said to me when I struggled with the sheer complexity of it all was ".....you don't get to be a doctor without knowing a lot of biology".

Elliott made a phenomenal contribution to TA and has brilliant predictive characteristics for those who 'get it'. My mentor believes that the purist Elliott users who try to label every wiggle in price eventually go insane and it's best to work with recognisable patterns of the common wave sequences such as 5/3 or 5/5, plus build a thorough understanding of the structural principles of simple vs complex correction types, typical fib proportions in price and time of each wave, alternation principle, ending diagonals, subdivision of wave sets, fib clustering etc. There are a mountain of useful predictive probabilities that arise from a thorough knowledge of the structural characteristics of your typical 5 wave set.

I should clarify something at this point for those who may not realise (a lot of you guys on here obviously already know this). Systems trading and discretionary trading are two completely different schools of thought....

A systems approach is basically technology driven with complex algos and programming, backtesting, monte carlo simulation, various methods of risk evaluation and is immensely complex. Big institutions can afford to make it work but few mortals ever will due to most attempts suffering from the disease of curve fitting and the fact that markets change character. The idea has always been to get a computer to trade for you and remove the human element. Good in theory but it's damn near impossible to teach a computer to trade!! The problem is markets will change character over time and a mechanical system that works for a period of time will suddenly stop working.

A discretionary approach is built upon the skills, ability and decision making of a human being. Inevitably the trader's breadth of knowledge including fundamentals, current news, understanding of sentiment, market knowledge, seasonality, etc will influence the over all bias and outcomes and many who favour this approach are highly eclectic in their understanding of markets and have a clear long/short bias before they even come to the TA portion of their decision making process.

The majority of large position holding non-commercial private traders who commonly hold multi million dollar positions (such as Tim Morge) prefer a discretionary approach.

In the world of discretionary trading since Gann-Elliott we have been fortunate to have publications by modern masters such as Andrews, Babson, Morge, Kennedy, Proctor, Jenkins, Pesavento, Borodin, Miner, Kane, Carney and others all of whom have discovered a pathway to a genuine edge with related characteristics and yet each have their own unique style (@Xenia made a very valid point - knowing yourself is true wealth, in fact it's written at the top of my site). I have a recommended TA and trading psychology book list that is a guaranteed cure for insomnia - if anyone wants it let me know."

 

It will be interesting to see how many are interested in this thread on a "property" forum.

Given that this thread is TA focused hopefully any discussion will be constructive without any of the negative responses in the other thread.

Given the type of investors here I think discussion on longer term focused investing based on your earlier comment shown below would be great in initially getting others interested:

That might get others interested and not be scared off.

We both know that the greatest wealth destruction occurs when investors buy in boom during euphoria then sell in gloom due to fear. It's impossible to pick the exact long term turning points but any system including behavioural aspects that helps an investor navigate the dangerous times of boom and gloom is very valuable.

Stan Weinstein system in its day wasn't too bad for this. But unfortunately nowadays it's a lot tougher so greater skill is needed.

Bear in mind I barely remember much of this nowadays so I'm unlikely to add much value. But keen to see how the thread progresses.

 

I'm certainly interested,
Having studied various TA, price action, etc. over the last 3-4 years,
Only succeeding to very very slowly deplete a $1k play account on forex. (Yay for money management)
Once it was empty i admitted defeat and joined the ranks of the DCAers into 'never-sell' holds,

However I have found a slight performance improvement when investing counter-cyclically to a SMA, so using that as a basis for judgement of weakness at the moment.
*watches thread*

 

watching

 

We can't all just watch...

 

This thread has given me insight into myself and my attitude towards investing. I didn't get past the first paragraph - and couldn't be bothered reading all that Alex writes. This really does tell me that I need to just DCA and never sell. So much easier.

Edit to add - Alex this is not a reflection on you or what you are saying. It is just me.

 

@Alex Straker being an software engineer and musician myself, I find the concepts here intriguing.. From what I gleen, TA is essentially pattern matching, which is what has drawn me to the former disciplines. Patterns help us to form mental models of how things work, without having to be 100% correct. They are heuristics if you will.

All interesting stuff in and of itself... For me at least.


I think before I could begin to contribute to this thread though, id have to spend a week googling each sentence in the OP. You mention a list of books, do you have a list of blogs, besides your own that are good for absolute beginners to TA like me?

 

Hey @Alex Straker - what charting package are you using?
Custom or something off the shelf?
It looks cool.

 

I'm a big TA fan - much prefer it to FA, as it incorporates every buy and sell order into one tiny package. Personally I like candles and no other indicators - price action is king.
Stan Weinstein - best hair in the industry

 

I thought that was Barry Gibb from the BGees. "Staying Alive" is the name of the game in the world of trading.

 

You can see he's a fan - he's just finishing the dance!

 

Leading up to staying alive:

 

Firstly thanks for the posts thus far, all most interesting!

Hey @austing yes, re: point quoted above, this was a major concern for me in the FP industry when during GFC many portfolios were hit rather hard and for many 'buy and hold' investors it was all too much.

Even though a matter of 18 months later the majority of quality portfolios were back in the black and patience heals all wounds I could not help think to myself what an advantage TA was during that period not only to help preserve the capital but mainly for the fact that it assisted in defining an incredible opportunity to accumulate the likes of which we may never see again this century.

What I am about to say will challenge you and I am only really hinting at something here, the truth would blow your mind. I anticipate many will struggle to believe me when I say this - the fact is scaled geometry (specialised TA technique) revealed the precise market low that ended the GFC!!......AND the next major low.....AND the next one as well.....I'm sure you get the idea Before you assume this can't be possible be my guest and take a look for yourself....

Of course I don't advocate using a single technique in real decision making like in this example and there were plenty of other hints the GFC leg down was almost over and other indications supporting the technique shown (eg: nearing completion of Elliott 5 wave set allows you to measure typical end of wave 5 using fib structure, etc). If you follow my work you will quickly work out that I advocate an approach based on 'layered slight edge' theory and using multiple pieces of information (not just TA either!) to confirm market decisions.

@jprops Hey bro, good to see some musos here, what do you play or do you sing? Love to hear your stuff. I did a B.Mus at UQ many moons ago and am still involved in the Jazz scene. Ironically music and numerical frequencies of sound vibes bear strong relationship to Fibonacci based structural relationships of markets

@sharon Bless you on your path

@BKRinvesting I use Optuma TA platform, not cheap but by far the best for Market Geometry (and Gann) school of TA. Highly specialised tools no other platform has AND get this.....developed by an Aussie!!

When I have more time I will write something on the pros and cons of using various markets and instruments for learning to invest and/or trade. Your Forex story reminded me of why for those looking to build skills, some markets are better than others for completing the inevitable 'apprenticeship' period until you demonstrate consistent success as an 'active' style investor or 'make the turn' as a trader.

@Jess Peletier Agree with that view. Even if you take away all the TA a simple price chart ALWAYS gives us a common sense view of the trend direction (or lack of) and whether price is currently high or low relative to history. That has to be useful even if only at an instinctive level.

 

Glad someone has ventured into this area of discussion, home ground for me. Props to @Alex Straker for having the b*llocks to start a TA thread on a property forum To important of a skill set to ignore IMO

Having met some true chart masters over the years I can say that success can come in many flavours. Really fascinated to see your scaled techniques in action. I guess to be blunt the sceptic in me wants more proof, can you provide other examples in different markets? Maybe something recent? Thanks in advance.

BTW Alex I have been lurking on your site for a while now, it's refreshing to see an FP of your stature with obviously genuine technical skills and making accurate calls. Your whole approach to the market is superb from what I have seen and that is coming from a retired stockbroker. Really liked your use of median line sets, these have been a very popular tool with CTA's for a long time.

 

I've started looking at @Alex Straker's Relative Strength and Rotation course and I'm very impressed with what I've seen so far. This is a very practical course which would be of great benefit to beginning and experienced active investors / traders. It's different to what I expected but in a very good way. This approach requires minimal time and trades as the time frames are longer. The tools are far more powerful than expected but at the same time easy to use. Of course trading is a probabilities game, hard psychologically and the failure rate exceedingly high. But there's no doubt that a lot can be done to increase the odds in your favour.

I'm unlikely to trade again in the future given that we have way surpassed our wealth creation goals, are now retired and my priorities lay elsewhere nowadays. So I can only compare what I see with the years spent trading when I was younger. And what I see is impressive. The instruction is of a high standard and Alex himself a genuine professional, very knowledgable and experienced, very helpful and a genuinely sincere and friendly individual.

I have to be upfront and admit that I believe most will be better served by sticking to simple long term, buy and hold investment strategies. But I know from personal experience that a number of us at some stage won't be able to resist the urge to actively buy and sell shares. If you are going to do this at least give yourself the best chance of success. This course at a relatively small cost will certainly be very helpful in this regard.

I'm not liscenced to give advice so the above is just my personal opinion. DYOR and check out Alex's website and elsewhere for more background on this. Beginners would be well served by just focusing on the Relative Strength and Rotation material initially. The more advanced material which is not compulsory will be confronting for many at first if not familiar with such concepts.

 

@Wiz of Aus thanks for your interest, to answer your question...plenty!! Thanks for getting on board with my Relative Strength & Rotation course. I'm sure there are plenty of members including myself who would be keen to hear more about your broking background etc, no doubt you have seen a chart or two

Here are some recent examples of scaled geometry below from various markets as per your request. The techniques is universal, strictly mathematical and consistently repeatable. The basis of the scaling formula comes from Pythagoras theorem.

The thing I want to say is that it's a bit meaningless seeing these scaled charts unless you understand how the mathematical principle of how the scaling was produced and that is something I am certainly not disclosing here, however I will show an example of why scaling is extremely important for some schools of TA (in fact some techniques do not work at all without scaling).

Here's a Gold chart that has not been scaled correctly with the action/reaction (purple) and 45 degree (black) lines added...



The lines clearly have no value due to the fact the correct scaling has not been calculated and applied.

Below is the same example again with the scaling done correctly...


Scaling makes all the difference, price is now clearly reacting to the lines accurately

In this post on 12 July 2017....

...one of the reasons I called the low on Gold was price had just touched the reaction line (there were also a lot of other reasons).


Another scaled example in currency market below...



....and for those hardened sceptics that still think this is some kind of voodoo a couple of recent ASX stock examples...





All of the action/reaction lines are set up well before price goes anywhere near them (as soon as the pivot high of the 'seed' price-time vector on left hand side is formed) so the market anticipation available from this technique is hard to beat. As I have said repeatedly before I do not advocate using a single techniques such as this, probability of success improves using a 'layered' edge approach with multiple techniques and biases.

I fully understand that without actually being privy to the theory behind scaling and how and why the formula works you can only accept this on faith. I am currently in close communication with respected member here @austing and in order to independently verify the method is genuine I have offered to teach him the scaling theory and formula. It is something that hides in plain sight and is a very elegant mathematical principal straight from Pythagoras.

Let me know how you are going with the RS&R material and if you have any questions. Lot of opportunities on the horizon ATM.

@austing Thanks for chiming in and apologies I haven't been around much lately, looking forward to continuing our discussion.

 

For me

I don't have the time, aptitude, resources, nor the expertise to outperform the market

 

Similar to myself my red-feathered friend - although I skew more towards mathematics so my random walk has taken me from software development into business and data science. You have the aptitude and expertise, don't kid yourself that well built algorithms can't defeat human beings; the time and resources are a different matter. I've thought about this myself, and with a well-written program with full market information you could build your own LIC with a cap-weighted version of the market avoiding resources or whatever you calculated to be expensive. Absolute minimal fees and tax concessions mean you could beat most ETFs on fees alone. You wouldn't shoot the lights out but you'd do well. The only issue, as you mentioned, is getting enough money to make it worthwhile. Start an ETF called RED, put out an initial offering to generate 50 million. As the guy from the ADam Sandler movies says: "You can do it!!!"

 

Random walk, that often happens to me after too much home brew