Probabilities dominate speculation and add an edge in an uncertain outcome.
The markets are uncertain just like poker.
Who ever obtains the highest amount of probabilities consistently, wins.
The sooner you understand that, the sooner you become aware of avoiding being the sucker, arriving at knife fight with a toothpick.
It isn’t an irrational statement, it’s a fact.
Price Action only is the sucker at the table and to add insult to injury, some services offer it as a solution to trade the financial markets.
This post is to educate beginners on the importance of probability and why price action only is capped in its capabilities and is the most inefficient and most difficult way for new traders to learn to trade consistently and sustainably.
I’ll be more than happy to help you understand more if you have any questions
You have to stack probabilities with as many objective (not subjective) conditions as possible. That way the market tells you when things have changed and the market is indicating to you the odds have improved in your favour.
That is what indicators are really used for, building a probability stack not predictive purposes as many are led to believe.
Naturally, that is what an objective dominant strategy is. A minimal amount of the analysis being a subjective overlay which in turn aids the consistent approach and when implemented correctly is reflected in your returns.
I believe this method of teaching / trading up-ticked in popularity with the increase in use of social media, almost normalized it as the go to way to trade.
Clean charts are often portrayed as something of value, yet the only benefit is they may look good on an Instagram post of a monitor on a trading desk…
Equally, what’s the easiest way to dupe an unsuspecting naïve trader?
Re-package trading as a simple pure price action approach with clean charts.
Very appealing
The winners; the guru selling it and the other market participants
Stacking the odds in your favour through conditions being met sequentially.
Less discretion aiding accurate implementation.
Only a minor part of the strategy is based on judgement/discretion
Most if not all new traders believe a rules/conditions based strategy is the only solution. It’s only 50% the other 50% is implementing it accurately and consistently.
An interesting discussion.
If I have understood the issue correctly then we are saying that indicators are objective, and not subjective, because they produce a concrete image of the current situation?
If so, then that may be the case in a set situation, but many indicators have a range of parameters that the trader is free to alter as they think fit. And this often leads to so-called “curve-fitting” where we set the indicator parameters to best reflect price movement over the recent past. Is this not, at least partially, a subjective exercise?
In addition, whatever parameters we might choose to historically curve-fit one timeframe will not necessarily work for very long into the future on that timeframe, nor will it necessarily work so well on different timeframes, where the same indicator with the same settings may well give an entirely different probability picture. Does this not also introduce a subjective and selective element into the total picture of the market?
I have never understood the “either/or” about using indicators or PA. They both have their limitations and their benefits. The key issue (IMHO) is to have a deep understanding of what these techniques are actually doing and showing and what data they are using and how it is handling it, whether they are classified as indicators or PA techniques. In which case, any mixture of the two is fine as long as they serve a designated and properly understood purpose?
I believe a little understanding is a dangerous tool, especially with more complex indicators like MACD, Stochastics, Ichimoku, etc.
Or there again, maybe I have not properly understood what your thread is actually about!
I think the thread is about applying probabilities that would support your trading decisions. Contrary to what someone may do by using feelings when looking at the chart.
The term “Pure Price Action” is an argument in itself as it can be subjective. What exactly do you mean by pure price action? Is it a completely blank chart, a chart consisting of a moving average (that’s probably considered an indicator), is a chart consisting of S/R levels and trend lines marked off considered pure price action?
That is correct! The conditions are binary. It either has or hasn’t occurred.
You cannot ‘curve fit’ binary conditions. If for example 8 sequential conditions have been met. You test these conditions, there is no debating they were met as you can visually confirm this.
The subjective nature is ‘what’ conditions.
With binary conditions this can be tested on all time frames to arrive at a conclusion.
There will always be a subjective over lay as mechanical strategies are another strategy all together. My conditions simply get me in and out of the market. The subjective overlay is reading the market and adding further edge to increase my probabilities.
Indicators give you an increased number of conditions to confirm and add to your probabilities on a objective basis, actually simplifying the approach, ironically.
Given Price action is portrayed as simplified trading it really is the opposite. Price action is simply capped in its ability to obtain probabilities. You have too much discretion in approach and implementation, therefore there is either a reliability on a pattern or there is a reliability on your judgement either way to carve a probabilistic edge is near on impossible for traders to implement ’sustainably’
But to understand them and simply observe and confirm what’s happened with one is to understand them if it adds towards an increased probability of price heading in a certain direction.
Most trading success is out there for free, on you tube, on here etc…
The trick comes from knowing how to put it all together give you the best chance.
Price action only leaves you with the least chance of sustainable success and this is not to upset anyone it is to educate.
How do you implement a probability-based strategy for trading FX? How are you quantifying probabilities (and, probabilities of what exactly) and wrapping a strategy around that concept?
Many people try to throw around the word “probability” when it comes to trading. However, many people fail to actually quantify and share their strategy with a truly objective and truly probabilistic approach.
Think implied volatilities + options strategies. These are the only types of instruments that offer up real (and objective) probability-based strategies as far as I’m concerned.
