2. Can Stock Charts Predict The Future ? Trading Systems



Case Study:So can charts really predict the future?
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Transcript:
Today we will be answering an interesting question, over the years I have been asked this question several times. How can you predict the future when the only thing you know is the past, can data predict the future (stock market). Can charts predict the future using technical analysis? I’m going to answer this question with a small case study, so we can understand this better.

Well first, the premise of the question is actually wrong, you don’t need to predict the market in order to make profits, what you do need is a system which you have tested properly add a dash of money management and you have got a recipe to be a profitable trader.
Number two crowd psychologies, now every time you put on that trade be it a buy or be it a sell you are trading with another human being. Alan Greenspan once said “irrational exuberance” for a great bull market; this is also the reason why you see stocks plunge in one day, which we call a crash. This happens because people become greedy and scarred in an instant. Crowd [psychology plays a very important role and charts can imprint that.
number three, empirical data, traders use historical price as we say, over many years, they analyse it which we call quantitative analysis and try to find or decipher a commonly recurring pattern, this helps us identify something that keeps happening, add a way to manage risk and you are on your way to success.
Now the theory part of this is over.

Case study: Your trading system

Let’s suppose you are great at trading the symmetrical triangle now for those people who don’t know what a symmetrical triangle is it is basically price converging at the acentral point ther are grouped under continuation patterns and once you reach the end of the pattern; this is what it looks like it will generally break upwards (in an uptrend) or fall down (in a downtrend).
Now let’s say you decide to make a system out of this, you need
1) Time frame (15min charts)
2) Method/setup (trade the symmetrical triangle)
3) Stock List (list of 5 stocks to trade)

Its impossible to trade all stocks on the nifty index (50 index) , so lets take 5 stocks which we trade everyday and trade this pattern. Reliance, reliance capital, GMR , LT Larsen and toubro and Nifty futures, so this is your stock list.

Backtesting
Now we will take these conditioned and run it though a test of 2-3 years and see what we get.
Let’s suppose we see that :
70% of the time trades move 2% in your favour

Now this is a great find, all we need to do now is manage our risk and reward. The main thing in trading is not the method but money management. Preserving capital and managing risk is what we are doing to earn living trading stocks.
So 70% stocks move in your favour and 30% of the time they are against you.
so out of 10 trades, 7 trades are profits of 2% each

Therefore
7 profit * 2 = +14%
3 loss * 1 = -3%
Net gain 11%

We limited out losses to maximum of 1% per trade, this enabled us to get a great risk reward.

This is why you don’t need to predict the market, you need to follow a system, that is tested thoroughly and manage your risk and make sure that your losses are smaller than your profits.
This is the holy grail,, this is the “magic indicator” this is the most important ingredient in the trading strategy cauldron.

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22 thoughts on “2. Can Stock Charts Predict The Future ? Trading Systems”

  1. I'd like to see something more technical and detailed. Would you know where I can find something like this?

  2. Just a thought, wouldnt it be counter productive promulgating this informtion. If we can prempt market trends due to the fear, greed principle and not from sound methodological calculation then it follows to reason that the more people who follow your method the less it will work (negligible at the outset for sure, but the butterfly effect should never be underestimated!). Of course doing the opposite and promulagating information tailored in such a way as to misslead the neophyte into making bad decisions would in effect maintain the status quo for the traders (assuming those squeezed were not infact either gluttons for punishment, or indeed completley retarded then they would eventualy pack up tools and head back to the bookies, and therefore a regular stream of neophytes would be necessary to maintain the status quo. And what better way to do it than give out free methods!)

  3. Your videos are the best instruction I have seen for new traders like me. Thank you and keep up the excellent work my friend!

  4. Great Video clip! Apologies for chiming in, I am interested in your initial thoughts. Have you ever tried – Saankramer Earn Infinity System (just google it)? It is an awesome one off guide for Learing how to automate online trading like pro without the normal expense. Ive heard some awesome things about it and my old buddy Taylor after a lifetime of fighting got cool results with it.

  5. Now you tell the truth. This is what exactly a traider should hear from the deep heart. Thanks for teaching these valuable points from your side.pls upload more points related to this

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