Lot of people rely on buy/sell advice provided by numerous analysis and Broking houses, while they have varied performance, its usefulness mostly depends on the individual himself who is looking out for such service, are they lucky to find a real guy, trust him and integrate well with his trading style. Markets have the good, the bad and the ugly all three types, finding a bad will be automatically simple, contrast to a good analysts who is hidden underneath piles of ugliest.
Legal analysts – the bad
For our discussion 2 types of analyst exists in the market, first one is a registered financial advisor and second is our young Harry who operates through social media, likes of FB, Telegram and WhatsApp. Registered analysts have legal permissions from regulatory institutions to allow them share views to the public. The other individual Harry operates “illegally“.
Now I don’t want to stereotype all cases but ironically – tips from registered analysts tend to be often wrong, unfortunately their selling point is not by accuracy of buy or sell advice they generate, instead their business model is complex and different. Compared to individual Harry, they are much better equipped with links and money. They are able to pay hefty fees to stock regulatory bodies to maintain these licenses. It is not exaggerated to say that, they are paid for giving advice that fail.
The good and ugly guy
The other guy Harry may have worst or best skills, but if they consistently give advice ending up in losses, they will be out of market soon, on the other side a registered analyst has access to TV media etc, and mostly importantly support from their big bosses sitting offshore, they can keep giving miserable tips and still survive. Another way to look at this would be anyone with high skills would have no reasons to indulge in such activities. They will either trade with their own money or operate in a small group of high paying clients.
So the conclusion is always check the success rate of any stock market analysts for long enough, before investing any real money with their advice. Don’t just jump on because they are registered or heard his name. Specially be careful of those analysts who are very famous or have a lot of fan followings.
Ideally a regulatory body must ask to log each tip from these registered advisors, and cancel their license if the success rate falls below 50% for that particular analyst.
Any sorts of trading algorithms can be categorized in two broad category, A trend following system and reversal, note that a trend following does not mean some combination of certain indicators like MACD or RSI, definition of a trend following exists without any indicator, although a trend following system can be made using built in indicator. For most time trend following systems are used.
A one liner definition for trend following can be a logic – whose nose is always ( or attempting) pointing to current price movement.
Beauty of trend following is that they always generate a signal when price based mathematical conditions are met, so you never miss any move and also due this, stop loss is built into the system, therefore money management is never an issue for trend system.
Downside of trend following is, that they suffer from significant lags, and if lags are tried to reduced, whipsaw problem starts surfacing. Usage of trend following system is suitable only for longer trade like swing trading or for investing.
Now coming to other type of signal system called Reversal, which is opposite to trend following system, they are not for everyone and you must have expert trading skills and swiftness, they can be used in intraday trading, reversal signal attempt to head-on with active trend, this is why they feel risky to many traders.
A reversal system usually gives buy/sell signal, towards the end of steep rally or fall, when slow churning moves happen they don’t generate signal. mostly you also need a stop loss to use them. reversal signal may provides you best price for entry when done with manual analysis they can be excellent day trading tool.
To many of us in our algorithm design phase, use of tick data frame might appeal magically as opposed to traditional minute charts, we might feel what if it can give better accuracy in signals !
While a tick data may certainly be helpful in machine learning (ANN algorithms) for the fact that candles they generate are smoother and gradual hence the training of neural network can be made easy, but they are also crippled by multiple challenges inherent to tick data.
Tick candles are highly sensitive to liquidity – take for example two options (strikes) of same instrument applied with 200 tick grouping chart, so you will signals at different time for those two strikes, whereas the spot movement could be advancing with its own pace.
Candlestick patterns – candlesticks patterns generated by ticks are not reliable and not may not come at the places when you expect them. this is mainly because tick traders working on market may be using any arbitrary number of tick grouping (like 20, 100, 200). so there is lack of agreement, whereas in minute chart options are limited.
In the light of above context, I did not see much use case of using tick data, other than for the traders doing scalping in ultra short time in forex market.