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Technical Trading is not Trend Following

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@Turnip230248,

Interesting. Would you then enter a trade based on 'best guessing' the immediate future?

I think here comes the notion of 'balance of probability' and 'odds'. If you can trade with odds in your favour based on probability then I can see where you are coming from. 

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On 03/12/2018 at 20:30, TrendFollower said:

@Turnip230248,

Interesting. Would you then enter a trade based on 'best guessing' the immediate future?

I think here comes the notion of 'balance of probability' and 'odds'. If you can trade with odds in your favour based on probability then I can see where you are coming from. 

Balance of probabilities -no one knows the future at the hard right edge

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Yes and to trade using the theory behind the 'hard right edge' would be extremely difficult. Hindsight is a wonderful thing!

All we can do is merely identify indicators based on trends and patterns which we can use to make a decision on whether to enter a trade on the 'long' side or 'short' side or even not to enter at all. We can let the strength of the trend, volume, price action and momentum assist us to make an informed decision. It can still be the wrong decision based on hindsight but this is where the element of risk comes into trading. It is not easy and is extremely difficult and anyone who suggests otherwise is either lying or does not know what they are talking about.

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I agree with some of @Caseynotes points that a lot of us with have some form of 'Trend Following' built into our strategy. However there are a few who could be adopting 'Contrarian' strategies. These strategies work best in my opinion when markets are not trending strongly. For me 'Trend Following' strategies work best during bubbles and immense speculation. This is why the best way to trade Cryptocurrencies and its 'bubble' is to use 'Trend Following' rather than 'Contrarian' strategies. Trend Following can be used effectively in Commodities too. Some of the best 'Trend Followers' traded Commodities.

Now Systematic trend following strategies usually involve a moving average cross over (MACD) or a breakout either above or below a moving average (depending on long or short trade). I mean for a more 'defensive' trend follower they may buy when the price rises above the 200 day moving average and sell when the price falls below the 200 day moving average. A more aggressive trend follower may buy when the price rises above the 20 day moving average and sell when the price falls below the 20 day moving average. There will be traders who do the same but with either 50 day moving average or 100 day moving average or a combination of all of them depending on the market and asset they are looking to trade. 

I am not saying 'Trend Following' is better than any other strategy. For example a 'Contrarian' strategy being used by the right type of trader can be more effective than adopting a 'Trend Following' strategy. This supports the point  @Mercury was making. Sentiment data isn’t really used by trend followers. It’s mostly used as a contrarian indicator. I accept that there are other trading strategies that could be more effective than 'Trend Following' if used by the right trader with the right skill set, knowledge and level of experience. 

There was an important point that @Caseynotes made on another thread and I totally agree with him. Traders think indicators are all they need. First and foremost you need a trading system and this is one of the most important things in trying to become a successful and profitable trader. 

I accept that 'Trend Following' is a form of technical analysis. The point I am trying to make is that it is not predictive technical analysis. In my personal opinion the point I am trying to make (albeit badly) is that it is reactive technical analysis. If traders conduct technical analysis and it is predictive then I think they will end up losing more trades than winning. Trend Following does not require the trader to use RSI (though I do) and Elliot Wave Theory (which I know @Mercury) does. Now it seems @Mercury has a really good understanding and application of EWT. This can prove to be extremely profitable for him. I am not suggesting otherwise. What I am saying is that indicators by themselves can be dangerous. These indicators such as Gann and the rest try and predict the markets. However, I do not think it is possible to predict the markets unless you can tell the future. Using only predictive methods then comes rather close to gambling in my opinion. As someone who has adopted a 'Trend Following' philosophy I try to react to markets so my trading style is purely 'Reactive' rather than 'Predictive'.  

This is why I am suggesting that 'Technical Trading' alone is not 'Trend Following'. 

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