How much can you rely on technical analysis alone?

[Black Swan]

I use fundamentals, technicals, market context, positioning etc all together to form my view of the financial markets. Sometimes one is dominant over the others, sometimes not. Saying '50%' is completely and utterly pointless imho.

There is important info contained in ALL of those sources. Someone trading a purely technical 5 minute scalping strategy which tells them to go short eurchf just as the SNB / BIS start hoovering it up like a supermodel attacking the bolivian marching powder at precisely the levels any savvy trader would be watching just because they can't be @rsed to learn about anything other than charts is frankly retarded imho.

great post

 

[Technically Fundamental]

I didnt exactly expect quantative answers when i posted the question tbh lol

 

[Neoripley]

Interested to hear your views guys. And also to hear what other important factors you consider when trading you chosen market. Not asking you for your trading plans here just a general.

As I understand, it depends on the COMBINATION of technical indicators you choose. No one indicator is going to be right in every situation. The idea is to come up with a combination of indicators integrated into a strategy that works more than 50% of the time. 'That works' meaning signals telling you when to trade AND WHEN NOT TO. I think a good tech strategy has to be protective as well as active. Add to that fundamentals and market internals and you're headed in the right direction. Or so they say. Personally I don't like math indicators and agree that all the info is already on the chart anyway imho.

 

[arabianights]

Aaron, can I recommend a book you might enjoy if you haven''t read already called Evidence Based Technical Analysis? It's full of interesting stuff, not all of it TA...

 

[Technically Fundamental]

Soundz right up my alley.

how credible is this Dave Aronson guy?

 

[arabianights]

so far as the book is concerned, very

no knowledge of him apart from the book, so he may well be a child molesting serial killing stamp collector, but he probably isn't.

 

[Technically Fundamental]

buy it for me.

 

[arabianights]

no

 

[Technically Fundamental]

Always passing up the chance to become a banking philanthropist

 

[arabianights]

I prefer to be thought of as a wanking philanthropist

anyway it's not as though accountants are dirt poor, buy it yourself!

 

[Technically Fundamental]

Bob Cratchit - Wikipedia, the free encyclopedia

 

[Calinor]

I've read Aronson's book, and I think there is a big danger that on reading it you will come to a wrong conclusion about technical analysis. He looks at very basic indicators like stochastics, CCI, and then does statistical tests on various instruments on a daily timeframe (looking at different strategies of how to use stochastics), and finds technical analysis doesn't work (to statistical significance). That seems true to me too. If you expect to use a lagging indicator (which lags at the timeframe you are looking at-in his case you are lagging an entire day!) and make money just with that, then good luck!

He doesn't use support and resistance or trend identifications (which are surely the most important part of TA), and he doesn't even use combinations of indicators, or look at lower time frames where the lag might not be so bad. In short, the book will tell you very little. To be fair to Aronson, he does do his statistics nicely, and he does mention throughout the book, that traders using TA will rarely just use a stochastics on its own, and he also mentions some research papers in which TA has been shown to make statistically significant returns. Also he is one of the few authors that have actually approached the problem.

If you are really interested in academic research, you should take a look at some of Andrew Lo's work (MIT). He has done some interesting research, is an advisor to many hedge funds (maybe he even runs his own now, no idea), and he gave the Nomura lecture this year in Oxford.

 

[Aspire]

I use fundamentals, technicals, market context, positioning etc all together to form my view of the financial markets. Sometimes one is dominant over the others, sometimes not. Saying '50%' is completely and utterly pointless imho.

There is important info contained in ALL of those sources. Someone trading a purely technical 5 minute scalping strategy which tells them to go short eurchf just as the SNB / BIS start hoovering it up like a supermodel attacking the bolivian marching powder at precisely the levels any savvy trader would be watching just because they can't be @rsed to learn about anything other than charts is frankly retarded imho.

GammaJamma hit the nail on the head. You need to use all the information available to you to form as full a picture as you can of what is going on and act accordingly. Using T.A. alone is like driving a car, looking at nothing but the rear view mirror.

It seems to me that too many people think of trading as some sort of technical analysis competition giving it way too much attention. New traders often get into the habit of focusing too much on technical entries. It can be a hard habit to break as it is much easier to blame the market for the trendline/ neckline/ S/R etc not holding while telling yourself that you did the right thing than to recognise that your trading is flawed and to improve it.

 

[Technically Fundamental]

Thats what I'm trying to sort out but I'm finding it difficult to find out what information is relevant and what is rubbish. Plus there are a million people on here trading in different ways with different opinons and they all know more than do. I'm paralysed with information overload.

 

[Aspire]

Thats what I'm trying to sort out but I'm finding it difficult to find out what information is relevant and what is rubbish. Plus there are a million people on here trading in different ways with different opinons and they all know more than do. I'm paralysed with information overload.

Really the best way to sort the wheat from the chaff is just to think things through properly for yourself, spend a lot of time at the screens and think for yourself what seems to fit and how and why. As long as you're honest with yourself, remain open minded, independent and don't get married to ideas a good understanding should just develop over time.

You need to know all your fundamentals and although certain things can be interpretted in different ways most of it you can just read and learn from books, websites and the press.

It's very easy to get bogged down in T.A. People can spend years looking at charts, covering them in fancy lines, oscillators, waves and not getting anywhere as a trader. I would strongly reccomend keeping it as simple as you can. The simpler, the more people are seeing it, the better.

More important than both of these however are psychology, Knowing the market(s) you are trading (It's characteristics, recognising the behaviour of any particular big traders or algos etc) and thinking through what people are doing (Very few people on here seem to have grasped that the markets move because people want to buy or want to sell).... and manage your risk/money properly.

 

[Black Swan]

Good stuff on this thread, Aarron got lucky with this one. Can I just add one important issue for newbies gravitating to using TA; It slows the decision making process down from a knee jerk punt to a considered bet...

For example, if the stoch/s, cci, rsi, macd, MAs.. are all giving off the right indications/signals that probably the market will move in a certain direction that's an excellent way to start trading, in fact its the only way to truly begin trading (once you've blown the first few quid thinking it's a doddle). Then (IMHO) its a question of time and experience in order to import your developing discretionary skills in deciding when to take the trade.

We all know it's a 'game' of probabilities and if you can get to the stage of managing yourself and your money correctly, (entering a trade based on TAs), suggesting a good chance that the trade will probably go in your favour, that's arguably as good as it will get, over the short to medium term for a new trader....

 

[shadowninja]

Doesn't this depend on what you call TA? In my view, everything from Bollinger Bands down to bars are TA. You draw a support line, that's TA. In fact, if you even open a chart, you're using TA: you open a chart, you look at which way it's going, you're using TA to work out the trend.

If you just rely on numbers, in a table on your broker's website, then you're not using TA.

 

[GammaJammer]

The problem many newbise face with TA is that they completely fail to grasp the fact that the shorter the timeframe, the lower the signal-noise ratio, and also the higher the relative transaction costs. So the chnce of it all going wrong end up increasing pretty much exponentially. Which, frankly, as a basis for a business plan, FAILS......

 

[Technically Fundamental]

The problem many newbise face with TA is that they completely fail to grasp the fact that the shorter the timeframe, the lower the signal-noise ratio, and also the higher the relative transaction costs. So the chnce of it all going wrong end up increasing pretty much exponentially. Which, frankly, as a basis for a business plan, FAILS......

I've experienced this first hand. There's no point in trading if you can't afford it i.e. less than a few k to whack in the acount. I went from waiting and trying to catch one big move (I don't SB remember) to getting stopped out on a few attempts due to entries that in retrospect were self rationalised to fit in with my account size. I then moved to the lower TFs to try recoup the losses. I got back to break even and then stayed on the lower TFs and strangled my account through spreads and unrealised targets due to "noise".
Expensive lesson but one I think I'm the better for learning first hand. Live trading, esp when losing, exponentially increased my focus and your my ability to see when something was happening behind the chart.

 

[Black Swan]

I've experienced this first hand. There's no point in trading if you can't afford it i.e. less than a few k to whack in the acount. I went from waiting and trying to catch one big move (I don't SB remember) to getting stopped out on a few attempts due to entries that in retrospect were self rationalised to fit in with my account size. I then moved to the lower TFs to try recoup the losses. I got back to break even and then stayed on the lower TFs and strangled my account through spreads and unrealised targets due to "noise".Expensive lesson but one I think I'm the better for learning first hand. Live trading, esp when losing, exponentially increased my focus and your my ability to see when something was happening behind the chart.

How low were the TFs?