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Chriswaterguy comments on Welcome to Less Wrong! (2012) - Less Wrong
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I used to trade the stock market, getting into Bollinger Bands and other kinds of chart analysis. Had some successes, but the times that losses came, they were sudden and brutal. In the end, I decided I didn't enjoy it enough to do it well. And I wasn't quite sure I had the ability - the charts seem to work in hindsight, but there were a lot of factors that made looking at patterns in old charts deceptive - the fact that bankrupt stocks were removed from the data history by my data supplier was one obvious problem. And almost every other trader I knew seemed to be hopeful of making a buck, rather than already making a buck - with only one exception, a guy who did brilliantly, but I could never work out his methods.
I'm now earning some money as a consultant, and when I've got enough to put in the market, I'll be doing it longer term, probably in some variation of the "Dogs of the Dow" methodology, with a basic ethical filter. Or if that's too much work, an index fund. Maybe I could have been richer if I'd dedicated myself to paper trading and then working hard on real life trading, or maybe I would have lost more money. Either way, I'm happier with my life now - but that's just me.
Good luck!
In my experience most technical analysis and indicators are unreliable, and most of the patterns that many traders use and teach others are spurious. Like with the Bollinger Bands, let's say the price approaches the extreme of the band, people will tell you it means it's moving and it will break out, or that it is an extreme value and soon will go back the the average. But which one is it? No one can really tell you, and if you try to calculate the probabilities with past results it comes out around 50/50, as you would expect by the theory of efficient market. In hindsight it works every time, but when you are trading you might as well toss a coin. And the same happens with many techniques people trade with, trusting them without questioning them, blinded by winning streaks, or by apparently excellent results in hindsight.
The only thing I found useful for day trading is that the price most of the time moves in sudden little bursts, so if you can detect a burst early you can hop in and capture 5 to 30 pips from the move (1 pip is 0.01% of a currency value). It's a work-intensive way of trading, but I am having good results with it so far. Another problem is that it relies a lot on intuition. Most people who do this kind of thing cannot explain very well why they took a position, they just felt the move was about to happen after lots of experience in the market. I am sure bayesian analysis can help with that.
A trader once said to me that price cycles aren't consistent, but volatility cycles are. Bollinger Bands can be good signals of sudden volatility... but as for what to do with that to reliably make a profit, I don't know.