TrendLines... Do they make sense?

Posted By: Nanitek

TrendLines... Do they make sense? - 11/22/15 11:59

Hi

I remember that in the tutorial of the 1.32 version, there was a part where it was described the trading methods that do not work.
I cant remember if the tendency trend lines were between them.
I ask over here becuase I was thinking about coding them but I do not want to spend time doing so if it is better to through a coin.
Posted By: Sphin

Re: TrendLines... Do they make sense? - 11/22/15 19:08

In http://www.financial-hacker.com/seventeen-popular-trade-strategies-that-i-dont-really-understand/ jcl stated clearly that it is neither proven nor disproved that traditional TA works. Many TA instruments are dealing with trend recognition, trend following and recognition of trend reversals. Often I read that the quantity of instruments is an indication that TA won't work, because otherwise one or two with predictive power would be enough.
I'm not sure but it seems to me that there is often a discrepancy between the usage of TA's indicators and the way they should be used. Consulting the TA 'bible' (J.J. Murphy, Technical Analysis of the Financial Markets) I read there more about a concept where indicators' results are used as puzzle pieces that if cleverly choosen, interpreted and arranged can constitute an image of the present markets' situations and with more or less probalility can also make forecasts of further developments. Murphy describes the importance of indicators that deal with one intrument or market as well as the importance of indicators dealing with intermarket observations or secondary paramters like e.g. the volume and the use of those instruments in different time frames to determine the actual trend situations in markets which are additionally interdependent.
I do not read there that any indicator or any fixed combination of indicators based on one intrument alone can reliable predict its future price curve. Therefore the fails of such tries should not be very amazing. To cut it short laugh - in the field of using technical analysis and therewith analysing trends there is IMO still very much room for improvement!
Posted By: Nanitek

Re: TrendLines... Do they make sense? - 11/22/15 22:02

Thanks for the explanation Sphin.

I was not referring to the trend indicators really but to the lines one creates by connecting two maximun values and two minimum values which allows the trader to create a channel where the prices moves in trend. Not sure how it is actually called. I thought they are named as trend lines. I am not sure if this is the kind of trading strategy that jcl is referring to in as Harmonic Trading in that post.
Posted By: Sphin

Re: TrendLines... Do they make sense? - 11/22/15 22:16

From the theory the trendline itself in an up-trend connects the minima and in a down-trend the maxima. The second line above/below creates the trend channel.
What information do you expect from the lines?
Posted By: Nanitek

Re: TrendLines... Do they make sense? - 11/23/15 01:05

I just want to play around. See if it works to buy when the price hits the down channel and sell when it hits the up channel.
Not sure what I will get.

"up-trend connects the minima"
It's just use something like LL(10) and LL(20) and I use both to create a y=ax+b?
Posted By: Thirstywolf

Re: TrendLines... Do they make sense? - 11/23/15 15:50

Hi Nanitek

Trendlines definitely DO work, but as Sphin suggests in his reference to "Technical Analysis of the Financial Markets" it is not as simple as them just working. You will see a lot of false breaks to trend lines or channels, and the gradient can change as well in really long trends. I would suggest using trendlines as one part of a strategy, not as a strategy itself. Also, so long as you are looking at trendlines, look at support and resistance as well. This tends to be cleaner and more meaningful.

Also, in regards to both of these you will find that every market behaves differently. The E-MINI loves to find support and resistance, break them, clean out all the stops, and then just fade the whole move, whereas a break of a significant level in the DAX tends to be more meaningful.

Thirstywold
Posted By: Nanitek

Re: TrendLines... Do they make sense? - 11/23/15 17:37

Intereting. Thanks for your inputs.

If they do/may work. How could I paint them? by using LL(10) and LL(20)
and creating a y = a*x + b?
Posted By: Sphin

Re: TrendLines... Do they make sense? - 11/23/15 22:54

For painting you don't need the equation, if you have the bar and the price from e.g. the minima, plot it with:

Code:
plotGraph("Line",LocalMin1_Bar,LocalMin1_Price,LINE,BLUE);     
plotGraph("Line",LocalMin2_Bar,LocalMin2_Price,LINE|END,BLUE);


But how do you determine useful minima/maxima for trend lines?
Posted By: Nanitek

Re: TrendLines... Do they make sense? - 11/23/15 23:13

Thanks for your input Sphin...

Yeah... that maybe the question.
Posted By: boatman

Re: TrendLines... Do they make sense? - 11/24/15 11:20

I know of one professional trading shop that trades several different systems. I don't know all the details, but I know that trendlines feature heavily in one of their systems. As I understand it, they trade breaks of established trend lines based on daily charts. Typically, they wait for a trend line to be broken, but they do not open a trade until the candle that broke the trend line is itself broken. As to an 'established' trend line...that's based on their traders' discretion.

If I was going to code up an indicator that identified trend lines, I'd probably start with identifying areas where price clustered and then build a linear regression model using these points.
Posted By: Nanitek

Re: TrendLines... Do they make sense? - 11/24/15 18:12

Your approach looks really interesting.
Let us know if you write some of the research in your blog.

It is not trivial to plot the S/R trendlines and it would be interesting to see what they can offer in a automated trading system
Posted By: j2ee

Re: TrendLines... Do they make sense? - 12/25/18 15:50

This is a very interesting topic. There is no way to prove if it works or not except someone can write code and backtest it.
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