Yes, there is no consensus there on the Kahuna thread. And before I realized it, apparently I am in some sort of "challenge" on "predicting" the market, which as you know I do not believe in. All I did was to give a bullish longer term view of the market and that I will keep with this trend being in place until invalidated, and not a moment before this happens. Many do not understand this position. Also I suspect "Bobby" on that thread is seeing this as a "prediction" instead of an assessment of what I see as the current probabilites including going with some simple well-known and well-followed rules as far as trend goes. This is important because an established trend tend to continue. In other words, when it comes time where the trend can be invalidated, the price action tends to continue to validate the trend more often then invalidate it. Some people just enjoy the competition they make for themselves I guess.
IMO much is dependant on how one plays the market. Part of this is evaluating the trend and OB/OS status of the market for instance. But since this is never comes with "crystal ball" accuracy, much depends on how a trader plays a trade. For instance, just because a stock is in an uptrend, even a strong one, I still purchase stock close to support. This has saved me more than once. I never forget where the areas of S&R are for a stock and then see how the stock responds when it crosses one of these areas. When the stock begins to show selling in fading resistance or breaking through support, I can detect it in time and respond intelligently. The same thing goes for buying activity that allows it to break through a resistance. So a technician does not have to "predict", just needs to observe, assess, and respond. Playing on the side of trend and momentum greatly improves the odds of a successful trade.
But a good trader does not have to be anywhere close to 100% accurate to be profitable. This trader does not even have to be 50% accurate to still make money. But some traders just do not get it. They apparently have a need to predict and even be right. I guess some hidden need for control. The market and life in general is simply not that way. But that does not mean there isn't a way to deal effectively with either one. Much if this has to do with risk assessment and comparing that to the profit potential of a trade that is being considered which is different than predicting where the price will be at a given time. You know I have found this type of approach used not that often by the technicians here on SI? Particularly in the area of risk assessment and management. No wonder many of them have problems when there is not an obvious strong trend and they try to "predict". Then they choose a poor entry that involves significant risk which then backfires on them. So even though their indicators tell them that the stock will go "up", they really do not realize what risks they are taking on in the trade itself.
However, I can see where the "predictive" class of technical tools like Fib lines can be very helpful as part of the overall toolkit a technician uses to manage the risk part of a trade. But I would play them differently than most apparently do. In other words, I would use them to help me anticipate (not predict) the price action of a stock. For instance, lets say a cluster of fibs are at 5 points higher than the current price of the stock. I have not tried this with fib except for one attempt I have made in this direction with successm but I will explain a technique I use for an anticipated resistance which may apply just for you to understand my thinking here. As with any indicator, particularly of potential support and resistance, I would wait to see it validated before responding. If the price moved through the resistance, then I know the trend is going to continue and play the stock accordingly. If the resistance was faded, perhaps the trend is ready to cycle down before continuing up. If then the price moved down to support which it invalidated, then perhaps the trend has become weak and will not continue up over the short term. This is different than thinking that because the trend is in place, the resistance will be broken, or the resistance will be respected and the price will fade, and then play as though this must happen as one wopuld in a prediction. If the stock is in a well-established trend with strength (momentum), then I usually end up with warning signs before the price ends up fading the resistance and moving down. This gives me the opportunity to get out capturing most of my profit or increases my chances of at least breaking even on the trade. Now if a stock making new highs, then the stock does not have previous price action to help anticipate (not predict) resistance. This is one area where I see the use of fibs to be of value.
Of course the fibs can be played differently as in for instance using them as a measure of movement to determine where profit is to be taken and when a position is to be taken at the time the fib is invalidated. It all depends on your approach or "system" with respect to the fib lines. And that system has to consider the profit potential to risk of a given trade which can be using fib lines as a tool for this purpose. This profit potential to risk can be played many different ways with using different tools. So you see I do not need to "predict" the stock or the market to make money using TA, and neither does any other trader who is willing to lean *how* to trade the technicals (price action) of a stock. But the predictive type of techniques can be utilized as a *tool* in managing this profit to risk picture of a given trade in a stock. But in playing the results this type of tool gives a technician, the difference between using it as a "prediction" and using the tool as a way of anticipating price action in terms of evaluating the risk to profit potential of a trade is all in how the trade is executed with respect to what information the tool is giving the trader.
Just some thoughts. Is this making any sense?
Bob Graham |
