TA Doesnt work!

[Victor90]

PS. I belive that TA (Technical Analysis) does indeed work, i just wanted to get som attention

I just bought a new good book in finance and of course the professor isnt so very found of TA. This is from the book:

Here's a simple example of TA. based on an analysis lf ABC's historical stock price, you've concluded that it fluctuates in a band btween $25 and $35. When the price gets close to $25, it inevitably goes up, and when the price gets close to $3, the price goes down. This leads you to develop the following money making strategy:

* Buy ABC when the price gets to $25.50; since this is very close to $25, the price will have a very high probability of moving up. In any case you'll have little to lose, since the price can't go below $25.

*Sell ABC when the price gets to $34.50; since this is very close to $35, the price will have a very probability of moving down. In any case at $34.50 yo have very little to gain.

This sounds like a money-making strategy, but on the other hand it's selfdefeating: If all investors try to implement this strategy ( and why should'nt they, since your analysis is based on publicly availible information?), then the "price band" will narrow - no one will buy ABC stock when it gets close to $34.50 or $24.50.
But now everyone will try to implement a profit strategy based on the new price band. And so on and so on...
The conclusion: There is no price band!!! It may be that ABC's share price has been between $25 and $35 in the past, but this says nothing about its share price in the future.
In fact you could make a broder conclusion: As long as there are many people trading in a market, a strategy based only on past and current price cannot be profitable.

A range that gets smaller and smaller...sounds like a triangle pattern! Hehe :whistling

This is so stupied! "As long as there are many people trading in a market, a strategy based only on past and current price cannot be profitable". HAHA

Love to hear your comments about the Efficent Market Religon against the TA! :smart:

 

[Trader333]

In my view the market is ultimately efficient but not all of the time. If you are able to determine when it is not efficient then that is when profits can be made. The problem with anyone stating that TA does not work is that they invariably argue the particular to the general case (as above) and this is not how the real situation is. There are thousands of TA approaches and unless someone has been able to go through all of them then they are not is a position to make blanket statements with any real authority.


Paul

 

[Crap Buddist]

Please Sir can you Pump it some more...

you've concluded that it fluctuates in a band btween $25 and $35. When the price gets close to $25, it inevitably goes up, and when the price gets close to $35, the price goes down.

Well if this is an example of the thinking traders "foundation of speculation principles" in action, then its no wonder the professors are going nutty!

Your homework for today.

Write 500 times ,on lined paper...

I know F*** all about trading.

 

[shadowninja]

TA is a curious thing. I think it helps that a lot of it is partly down to self-fulfilling prophecies. If enough traders believe that number is support, then it will be support unless some big news or an large player decides to break that support.

 

[Masquerade]

From one of the supposedly best investors of our time - Warren Buffett: "I'd be a bum on the street with a tin cup if the markets were efficient."

 

[arabianights]

In an efficient market it simply cannot work.

Anyone who thinks markets are presently efficient by any meaning of the term... I've got some oil to sell you .

 

[TheBramble]

Write 500 times ,on lined paper...

I know F*** all about trading.

Fair enough.

Crap Buddist knows F*** all about trading.
Crap Buddist knows F*** all about trading.
Crap Buddist knows F*** all about trading.
Crap Buddist knows F*** all about trading.
Crap Buddist knows F*** all about trading.
.
.
.
.
.
Crap Buddist knows F*** all about trading.

 

[Crap Buddist]

:cheesy:







Well, the professors hardly gone quantum on us.

 

[TheBramble]

Victor, I think the book’s author has inadvertently given an erudite explanation through example of precisely why TA does work, and indicated circumstances where it will tend not to.

That’s also part of Technical Analysis – recognising where and when patterns are failing. The reasons why, as with most things, are often pasted on post hoc and of little concern to us – unless we want to write books...

I disagree with Trader33 that the markets are ultimately efficient, but totally agree with his statement regarding the sheer number of TA approaches effectively providing relatively comfortable insurance against any one particular approach being so uniformly utilised it terminally trades itself out of existence.

 

[Trader333]

I disagree with Trader33 that the markets are ultimately efficient,

As you know Tony I am open to changing my view based on convincing explanations as to why you think they are inefficient


Paul

 

[TWI]

On think that does work is well considered and disciplined money management. Not sure about anything else.

 

[trader_dante]

Who cares whether it works? It's perfectly easy to make money as long as you can accept when you are wrong, cutting losses quickly and without hesitation whilst having the balls and the foresight to stay in the market when it goes in your favour.

 

[Atilla]

In an efficient market it simply cannot work.

Anyone who thinks markets are presently efficient by any meaning of the term... I've got some oil to sell you .

Markets are efficient if you assume

1. perfect information
2. many buyers and sellers in the market place

Which markets are we talking about here?

You can't generalise without assumptions!

PS there is nothing wrong with the price of oil. Anybody ask US whether it was worth spending $800 bn to take Iraqi oil???

I think oil is grossly underpriced. I read somewhere that a can of coke or a bottle of water is umpteen times dearer and who needs coke???:cheesy:

 

[TheBramble]

whilst having the balls and the foresight to stay in the market when it goes in your favour.

It doesn't take any balls to stay in a position that's in your favour. :cheesy: The trouble starts when you think you need balls to stay in a losing position....

 

[TheBramble]

As you know Tony I am open to changing my view based on convincing explanations as to why you think they are inefficient

Paul, I don't have the intellectual rigour nor depth of knowledge necessary to make a convincing explanation of why EMH does not lead to ‘ultimately efficient’ markets.

What I do have a problem with is the formal hypothesis as proposed by Fama in his teleological treatment of the market. He considers, if I’ve understood it correctly, the market ‘knows’ all information and this is reflected in the price. My contention is threefold.

First, the market doesn’t exist except as a medium of price exploration and discovery between two or more parties. If individual traders ceased to exist, the market would remain in stasis – as information only has impact on price when there is a reaction to it, or lack of reaction to it. It (the market) does not react in and of itself.

Second is the utilisation of the verb ‘knows’. The market ’knows’ and has ‘known’ information and creates a price based on that knowledge. There are wide discrepancies between the levels of trading involved in any given market or instrument, and the knowledge of that market or instrument at those various levels. So which level determines what the market ‘knows’?

Finally, EMH neatly tucks under the hypothetical carpet any unknown knowns (or known unknowns) by suggesting that anything the market don’t already ‘know’ that occurs (news for instance) is unknowable in the present and appears ‘randomly in the future’. Well, NSS!!!

There is a currency to use EMH to suggest all prices tend to equilibrium where buyers and sellers are in agreement where volatility decreases, range diminishes and volume becomes static.

Experiential evidence suggest pretty much otherwise in just about every facet just described. Could just be my view.

 

[trader_dante]

It doesn't take any balls to stay in a position that's in your favour...

I'm not convinced...

I think that it takes a lot of balls to forget about your unrealised profit and concentrate on where the market might go. This is particularly the case when the market is retracing against you.

 

[TheBramble]

I think that it takes a lot of balls to forget about your unrealised profit and concentrate on where the market might go. This is particularly the case when the market is retracing against you.

Not being pedantic, but if the market is retracing against me, it's NOT going in my favour.

I appreciate my personal style of trading is precisely that and would not suit everybody (anybody?), but I don't ever let it get more than a mere whisker away from my best-yet, even from entry, before pulling the plug.

I'll get back in if entry conditions reassert themselves. I do a lot of trades and take quite a number of very small hits.

It's not a question of 'balls' (or lack of) more a question of sensible trading.

I always get a little wary when the macho side of trading creeps into any conversation. It's normally less to do with trading and more to do with personal issues.

 

[Mr. Charts]

Balls have nothing to do with trading, contrary to popular belief.
If a stock price moves against me I can sometimes, not always, use level 2 T&S to get some idea whether it's a reversal and the end of the move or simply a pause or wiggle. It's not infallible, not a holy grail, but a clear and definite edge.
Because trading is a probability business, I will either exit the whole position and bank my profits or scale out of part of the position raising the maximum trailing stop. This locks in some profits and allows me the opportunity to gain even more. If after scaling out the move continues against me, I will simply exit the trade completely and not wait for my adjusted trailing stop to be hit.
For me this is the way I achieve my profits every day, day after day.
In brief, position size and position manage.
As TheBramble implies, balls involve testosterone, a surfeit of which leads to extreme difficulty exercising self control and emotion, both of which engender a lack of objectivity.
Not conducive to good trading, imho and ime.
Richard

 

[normbeef]

Personally my view of TA is that like "any" trading system or technique or belief system...

it is only as good as your money management.. full stop !!

Therefore you could say that a good system in the hands of a S**t trader will not work regardless !!!

 

[trader_dante]

Balls have nothing to do with trading, contrary to popular belief.
If a stock price moves against me I can sometimes, not always, use level 2 T&S to get some idea whether it's a reversal and the end of the move or simply a pause or wiggle. It's not infallible, not a holy grail, but a clear and definite edge.
Because trading is a probability business, I will either exit the whole position and bank my profits or scale out of part of the position raising the maximum trailing stop. This locks in some profits and allows me the opportunity to gain even more. If after scaling out the move continues against me, I will simply exit the trade completely and not wait for my adjusted trailing stop to be hit.
For me this is the way I achieve my profits every day, day after day.
In brief, position size and position manage.
As TheBramble implies, balls involve testosterone, a surfeit of which leads to extreme difficulty exercising self control and emotion, both of which engender a lack of objectivity.
Not conducive to good trading, imho and ime.
Richard

Hi Mr Charts and The Bramble,

I completely appreciate your points and I think I may have given you a wrong impression of exactly what I meant. I trade very differently to both of you. I work on confirmations - that is to say, I buy once support is established and we are trading well above it, and I do the opposite with resistance. That means that the market will invariably go against me after entering and I need to give it much more room to move. Since I do this, I need to take big winners. Often I am in a trade for days or weeks and part of following the trend is allowing the market to retrace and form support on each leg up (if you are long) Believe me when I say that watching a market like Cable come 200 pips against you, even when you are in profit, takes strong conviction and belief in yourself - which is, akin to "balls". Just my opinion.