why use technical analysis?

[tommog]

I was just interested to know what makes you read the markets with charts as opposed to fundementals or watching news reports or any other trading technique?

I have nothing against technical analysis i wish i knew more about it but i just have a few concerns.

A support level: How sure sure can you be that just because a price has bounced off a certain level twice before it will do it a third time, are you relying on it becoming a self fulfilling prophecy, whereby the reason the price bounces is merely because everyone else hopes it will?

News: Markets can turn on their heads in minutes if a major news story breaks, no charts can predict these and they happen fairly often.

what in your opinions are the advantages?

thanks

 

[ChartMan]

Fundamentals are useful for longer term "investing". Charts are, in my opinion, essential for short term trading. As for support bounces etc. it's based on sentiment. e.g. last time the price dropped to X ,there were no more willing sellers and buyers thought the price represented "good value", so it goes up. At the next attempt, sellers still do not want to sell,thinking the price won't go lower, and buyers still think it's good value , so , again , it goes up. And so on, until the market changes its mind, for whatever reason. The price doesn't bounce on "hopes"..True, the market can turn in seconds, as you say and that can really catch out the unwary.TA will not help you here.

 

[sidinuk]

News: Markets can turn on their heads in minutes if a major news story breaks, no charts can predict these and they happen fairly often.

Actually the charts can and do 'predict' news events. The major markets are extremely efficient and as such the current price will take into account all information which is both publicly AND privately known.

 

[elliottmillion]

the same news can make a market move up one day, and down the next. market trends (what all succesful traders need to spot early) are not based on news stories. (e.g. The dow had already began moving downwards before 9/11 ).

 

[techst]

I'm with the above, i see the news as investors and traders justiying the price action. Each piece of news can be seen in a positive or negative light and may be taken either way depending on the recent price action.

 

[a320]

From another thread....

For my style of scalp (plus the odd swing) trading...
The first priority is to learn how to read the chart patterns & the second priority is to control risk.
One can only control risk through patten knowledge so they both go hand in hand.
The more you learn about patterns the more you get to understand that traders & markets develop habits. Patterns are you guide (map) to the money flow & money flow determines where the market eventually goes.
CJ

 

[mr_cassandra]

Good points

I've had more luck with more mavcro indicators like vix and put call ratio, to gauge the crowd overall effect, by weeks and months, not days or hours.

I was just interested to know what makes you read the markets with charts as opposed to fundementals or watching news reports or any other trading technique?

I have nothing against technical analysis i wish i knew more about it but i just have a few concerns.

A support level: How sure sure can you be that just because a price has bounced off a certain level twice before it will do it a third time, are you relying on it becoming a self fulfilling prophecy, whereby the reason the price bounces is merely because everyone else hopes it will?

News: Markets can turn on their heads in minutes if a major news story breaks, no charts can predict these and they happen fairly often.

what in your opinions are the advantages?

thanks

 

[Rhody Trader]

Actually the charts can and do 'predict' news events. The major markets are extremely efficient and as such the current price will take into account all information which is both publicly AND privately known.

Sounds like we have an efficient market theorist in our midst. :cheesy:

Your statement seems contradictory, though. Efficient markets should not be predictable. I suppose you could argue that current price incorporates all potential future outcomes in a manner of speaking, but that's not the same as being predictible.

If, however, you are saying that charts (meaning historical prices) can be used to predict news events, then you are saying Efficient Market Theory is wrong. Personally, I'm in that camp. There are just too many holes in it - especially in the distribution of information and in the assumption of rational behavior.

 

[TheBramble]

RT - the post you quote was from over 3 years ago. I don't think Sid was espousing EMT, more along the lines of the current 'debate' on the other TA thread. A position, as you know, I totally support.

 

[Theta2000]

the same news can make a market move up one day, and down the next. market trends (what all succesful traders need to spot early) are not based on news stories. (e.g. The dow had already began moving downwards before 9/11 ).

Bravo! You're very correct, elliottmillion. DOW was heading SOUTH before 9/11.