Slope of Hope

I sometimes read this blog called ‘Slope of Hope’ by Tim Knight. Tim is a Silicon Valley guy who started a little business selling technical analysis charting software. Prophet charts or some such nonsense. I believe in TA but I think simple stuff works best, Support & Resistance, Relative Strength, Volume, etc. but none of the indicators/oscillators have any predictive value IMO. By far the most useless aspect of TA is ‘Elliot Wave Theory’, I won’t even bother explaining it if you’ve never heard of it, you’re better off that way.

In any event, Slope happens to be an extremely popular website. It caters to market Bears making it a great psychological attraction. There have been numerous studies in behavioral finance that individuals tend to gravitate to bearish scenarios much easier then bullish stories. One point I continue to harp upon is the importance in understanding human and behavioral tendencies. Prominently displayed on his site, even after writing the passage displayed below, is charts plotting the next ‘wave’ of some up/down cycle which is guaranteed to change the next day. The problem with EWT is that it has absolutely no statistical rigor applied to it and completely hindsight biased. Check out what Tim wrote:

As I sit here, watching gold and silver explode yet again to new highs, I can’t help but think of the tens of thousands of dollars in profits that I denied myself. And – – I really gotta say – – it just pounds a few more golden- and silver-plated nails into the coffin holding the body of my faith in Elliott Wave as a basis for forward-looking decisions. It’s all very cute and precious and lovely in retrospect, but for predictive value………..I’m really having grave doubts.

The posting is here. Guys, EWT is crap. There is something to say about cycles and patterns but EWT is utter crap….

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~ by largecaptrader on December 6, 2009.

3 Responses to “Slope of Hope”

  1. I’ve only just discovered this site, and have found it a real treasure trove of common sense in an area dominated by half facts. Thanks for your insights on Elliot Waves as I trust your judgement enough to leave it well alone. You are correct on other aspects on TA though as it can be very smoothly and predictably profitable when built from simple rules using simple indicators. With the right MM and position sizing, TA alone can produce good strategies but finding them is not trivial.

    • Thanks for the great comment. I see from your site that you are involved in genetic algo’s and I assume machine learning techniques and I wish you all the best. I believe that machine learning and especially pattern recognition will be the next evolution in systematic trading.

  2. Completely agree. I now have a powerful tool that I can fairly quickly prove which TA ‘indicators’ deliver any repeatable benefit and which don’t. I was surprised to find that quite simple combinations of popular indicators can build repeatably profitable strategies over many years and several asset classes when applied at the right time series. I think I’ve also proven that it is almost impossible to build a strategy from the same indicators that is repeatably profitable at smaller timescales when paying retail spreads.

    So I would go so far as to say that a purely TA approach (i.e. only looking at previous prices and volume) to trading does work in the long run. There are dozens of strategies (combinations of indicators) that can be used that will work and combining these can produce some very smooth equity growth curves with excellent sharpe ratios.

    So the future for machine induced trading strategies is very bright and I suspect they are already in use within some HF’s and prop trading houses.

    I am a little skeptical of ‘Slope of Hope’ and similar sites and those dozens of youtube videos of the ‘perfect TA trade’ as they only show the winners. Show me the Monte Carlo simulations or backtests of the same technique with the statistics that prove that these things make a consistent profit over time ! Whenever I’ve tried to code up some of these strategies and backtest them every single one has lost money in the long run.

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