Trading Pal Blog

It's a pity we can't go back and trade the 1950s market with what we know today. There is a lie that people want to believe that says that there must be out there some efficient market indicator that would consistently pull profits out of the market.

Sorry to shatter your dream but there is a cute term for this - it's called financial astrology!

Just think about it; If indeed there was a bullet-proof trading method and everybody was using it, there would be nobody left to trade with. The fact that you think it's time to buy a given stock today implies that someone else has decided exactly the opposite: for them it's time to sell that same stock.

Let us look at some famous snake-oil methods of trading which still today have their ardent followers.

The Elliott Wave is great entertainment to explain after the facts that such and such market move did precisely comply with the arcane rules of the system (waves within waves to map out the fractal nature of the market). The problem is who decides what is a major wave or a minor wave (!) I have codified the basic rules of the Elliott Waves Principle and my personal experience is that it is much worse that other simpler indicators.

W D Gann Square of Nine is a way to map the gyrations of the market to some phasing or vibration and it is totally useless in the 21st century.

J. Welles Wilder gave us the Relative Strength Index which is based on a sound observation but again does not pull any profit in today's markets (ie blue chip stocks, forex or commodities).

There is conjectural evidence that some of those methods might have worked in the past. In particular J. Welles Wilder gave actual logs and hand written charts to support his conclusions.

So why don't they work today and why do some people want to hang on to them?

They don't work today because the market is much more sophisticated. When we have so much CPU power on everybody's desktop any discrepancy in the market is being cancelled out as soon as it appears through automated trades.

People love a good story and it spreads all by itself. WD Gann died in 1955 and took his secrets with him. Ralph Nelson Elliott died in 1948 and is resting in peace. They did their research with kerosene lamps and plotted their charts by hand. Why would you want to go back in time? You can hire a horse-drawn carriage for your daughter's wedding if she is romantically inclined but for your superannuation you'd better move with the times...

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