Even lines drawn randomly on a chart can appear to be meaningful in hindsight, even though they have no connection to any market reality and are not predictive -- your mind sees things in hindsight that don't really exist, which should make you cautious about what you put your trust in without skepticism and testing.
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The concept is discussed extensively here:
Extract:
Quoting
If you expect your method to encompass an edge, then it would seem basing the method on a truly random line is not beneficial except from the psychological side.
Maybe @Fat Tails or someone else can explore the methodology aspect. My intention was simply to demonstrate that a lot of traders put faith in their indicators, they seem to assign value to these indicators (like prediction). Now here we are in the process of demonstrating that a purely random line can be assigned those same values. What does that do to your belief that your own indicators are useful in the way that you once believed they were?
Imagine for a moment the title of this thread was "The Next Holy Grail?" and in the first post I told you that I labored for the past two years and have created this indicator which consists of 2,000 lines of code that I labored over day and night. Then I proceeded to post the same
screen shots as you see in this thread, saying "Ok, here is what the indicator is showing for tomorrow". You could substitute "showing" for "predicting".
It wouldn't be a stretch. The thread would resemble many others. The thread would resemble what some vendors claim, for instance. The trick is seeing past that. You know the truth here -- they are random lines. How do you determine the "truth" for something else?
More to the point, some traders (myself included, although I hope I am learning) have a tendency of assigning after-the-fact properties. For example,
pivots are a good candidate. I use them in my own trading after all. If price moves to a
pivot , stops, and reverses, then I could easily say "that pivot was
resistance ". The difference naturally is the pivot is used by other traders. That exact same pivot. Enough traders that it becomes a sort of self-fulfilling prophecy. Just like if thousands of traders suddenly started using the exact same random lines I post in this thread (exact to the tick the same), then price is likely to react on those lines.
We assign these properties thinking the line somehow carries weight or importance. Given what is shown in this thread, how do you feel about that?
