Do you subscribe to this idea?
“There are 2 types of technical analysis, predictive TA tries to see what the market will do in the future based on the pattern on the chart. Reactive TA uses signals in the price action for buy & sell decisions to create good risk/reward ratios & go in the direction of the trend.”
And also, what are some easy to spot mistakes traders new and experienced make when using TA?
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I don’t believe in “predictive TA vs reactive TA”.
It is the same TA. We look at historical data (reactive) to make a decision (“predicitve”). The difference lies in how trader uses the signal ie. what compromies he is willing to take. With chart patterns for example - we can anticipate that pattern will break and take position or we can wait for retest or another confirmation. This is the same TA but different approach acknowledging the compromise between early entry and lower probability.
Still the “predictive” is very strong word. With best TA we can barely move odds in our favor.
I would say, that biggest common mistake in TA is believing it can be indeed predictive Understanding, that forex is more game of probabilities than predictive analytics problem is a step in right directions.
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@wilczasty
I actually disagree - I think there are two camps.
Predictive uses market orders - the assumption being that price has hit bottom already (or top) and the price will suddenly do what is expected.
Reactive is where buy-stop orders are placed above the market in anticipation of a breakout (breakdown).
That’s my definition is anyway, as for buy orders placed below a market - I haven’t got the foggiest which camp this belongs too
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I think it’s more of an academic discussion
Hypothetical scenario:
- You see potential breakout and forgot to put pending order
- You get back to the chart after breakout and see it is doing a retest
- You drop market order
Are you reactive or predictive trader? I see this in a way, that we always react on something and expect some positive odds in our favor. Pending order is also reactive in a sense, that we don’t predict what will happen, we just put another factor to react to in the future (automatically)
I am very much a reactive trader.
As an aside I’d say that the Gann, Elliot Wave and Dow theory types of analysis are the most predictive forms - and from what I have been led to believe the Elliot Wavers are the worst performing group as a whole - not at all surprised in that.
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