Hi Kevin! Good to see you again!
You raise what is actually the very core issue in both this thread title and, indeed, the entire question of Indicators v. PA. And that is “profitability”. That is the only yardstick that gives any purpose at all to the debate concerning which approach to use.
Whilst I don’t doubt your own experiences regarding other traders’ dubious results with PA, I think the key indisbutable evidence about this is provided by the brokers themselves.
It is not for fun or pleasure that ESMA brokers now have to place warnings on their home pages regarding their client failure rate. They WOULD be happy if it read, say, “only 1% of clients lose”. But the reality reads as follows and it is a different message all together - and it is a similar message across ALL the ESMA regulated providers:
“CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 70.24% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.”
This is a disturbingly high figure by any yardstick, but are we to assume that the remaining 30% profitable retail traders are the PA guys whilst the 70% losers are all the Indicator guys?
I don’t think so. Rather, what this statistic is shouting out loud and clear is that asking whether PA is better than indicators in profitability terms is actually asking the wrong question!
A retail trader’s profitability is much more influenced by other factors such as risk and money management, emotional control, discipline, etc than whether their trading method contains indicators and/or PA-based techniques.
A bad workman will make a mess of things no matter how refined their tools are.
But what is interesting is that it is the advocates of PA who are emotionally unstable and who stand up ranting against challenges to their “Sacred Cup” and resort to personal attacks on their perceived enemies" whereas those who have included some indicators in their trading, and have done for years, are just quietly carrying on with it without any need to shout and fuss! There are a number of such people even here on BP who will include some PA considerations but also include indicators. They are not emotional about this issue because their undoubted consistent profitability is dependent on those other factors.
PA activists have two basic misconceptions that blinker them to the truth that the process is identical whether one is trading indicators or PA.
The first is the first thing that they will throw into the ring - that they trade “current price” which is not lagging. It is true that current is not lagging (it cannot be be by definition). But the lie is that they are “trading current price”. They are not. Just as with indicators, they are trading the relationship between current price and, what one could term, a significant value that has been derived from historical price.
The proof, if needed, is easy. Give any trader a screen that just shows the current price as a moving dot with no history whatsoever visible and ask them to trade it according to just what they are seeing real-time. Not only will it prove impossible, it would also demand that the trader sits staring at that dot non-stop ad-infinitum.
Apart from maybe a few specialist scalpers, no PA trader can claim that they sit staring at the current price with no reference to historical price action.
But, of course, current price is important, but only as it approaches a pre-defined significant point based on historical data, i.e. lagging the current price. This significant point may be, for example, a previous high or low or a line connecting previous significant levels and then projected foward to the current price vertical line, or maybe a pattern, etc. Either way, current price is only relevant with respect to these pre-identified points. Its wiggling around in between, in “no man’s land” is simply the transition from one price “point of interest” to another.
The other misconception is “lagging”. Even PA gurus will agree that historical points are important and that it is a relationship between these two values that creates the trade. We only enter trades when we believe price will proceed to a level other than where it is now. This analysis process is based on historical price data which produces a projected value point on the current line and we trade the probability of current price moving to that defined value point.
Whatever method we use, indicators or PA, that value point is based in price data that is lagging behind the current price and is being updated as and when the current price is forming new significant values.
Lagging is a feature of both indicators AND PA and, far from being a “sin”, is, in fact, an essential ingredient in the process of defining our value points that form our trading points like targets and stops.
One example of the similarity in process is two traders, one trades fibbonacci number levels based on previous high/lows and another trades horizontal support/resistance lines projected forward from a series of historic points. They both project forward a series of horizontal lines forward from historic data but one is based on mathematical formulas and the other on earlier price candle/bar extremes.
They are different in approach and underlying principles, but the process of deriving current value points is the same -and they have the same difficulty - which, from the derived series of horizontal lines will hold and reverse and which will break and move on to the next.
…which returns to the original issue - is the PA trader or the indicator trader the most profitable? But the answer is surely that this is the wrong question. You use what works for you to build your risk/reward, money management, discipline, patience, when to stay out, etc, etc, etc,
Ditch the argument about whether PA or indicators -they both offer ways to analyse what the market is doing and they all need historic price to function.
And whatever you choose, avoid emotional instability - it will infiltrate into your trade, especially once you migrate to significant position sizes, and ruin both your financial and you psychological well-being!
