Hey guys, Can any of you recommend some discussion forums for technical analysis, specifically in exchanging ideas for trading equities and currencies? I don’t have much experience in this area but have a real burgeoning curiosity, and would love to engage with others with similar curiosity for technical trading.
Also if there is anyone here that focuses on technical trading and would like to correspond with me, I’d be happy to explain my interest and ongoing studies in this area. I think I just need some pointers in the right direction because there is a lot of noise and crappy information on the web, and I’m not yet well-versed enough to be able to tell the difference all the time. Would really appreciate any guidance that any veterans here can offer.
Hey numi, My favorite site with lots of smart individuals is Morningstar.com, see here: http://socialize.morningstar.com/NewSocialize/forums/p/271821/2946363.aspx#2946363 Every month the TA guys start a new thread, so look for the January one in a few days. Lots of good info there. Plus there are other threads that pertain to currencies and the like, just look around or post your questions in the appropriate forum.
I suggest stockcharts.com’s Chart school to learn: http://stockcharts.com/help/doku.php?id=chart_school But I would just lurk on M* for a while to see what is important and what is not…
Thanks starbuk. I’ll check those sites out. Have you or anyone else used HedgeFundLive.com? What do you guys think of that site? Any posters there that you particularly follow or respect?
Elitetrader.com has gone down hill lately but there are a lot of gems from many of the originals. Also take a look at traderslaboratory.com. Most of these guys trade emini indices but price action theory can be transferred to anything with good liquidity. This thread below taught me more about trading and risk management than any book I’ve read… http://www.elitetrader.com/vb/showthread.php?s=&threadid=99283 or http://www.elitetrader.com/vb/showthread.php?s=&threadid=134042
If you have some notion of french (or used to deal with strange translations from google) the site: http://www.pro-at.com/ is a really good one - more particularly the analysis at the top of the homepage. The owners/animators post real interesting stuff (but unfortunately they have their part of a$$es too) The sister website http://www.invest-at.com also has some good things (but less active) It is certainly oriented towards the CAC40 analysis but some others trade crude and forex… Paul
I second tombrokaw’s suggestion. In my opinion elitetrader is one of the best resources on technical trading.
Check out the recommended readings section on the Chartered Market Technician (CMT)website: http://www.mta.org/eweb/DynamicPage.aspx?webcode=cmt-recommended-reading
I used to peruse elitetrader when I was learning technical analysis. Haven’t been on it in a long time though. You can probably just pick up a book and learn some indicators, but if you want to trade off of it you’re better off sitting next to a trader for a few days than reading a book or forum. IMO, it’s better to approach technicals systematically. Program a computer to find the patterns and buy/sell, then check if it is profitable. If the program executing perfectly wouldn’t have been profitable with the pattern (or combinations of patterns), what would you do differently to make yourself profitable?
Awhile ago I did a lot of TA study, reading books, etc… What I didn’t like is that most of the online discussions involve people who decided to lose all skepticism once they figured markets were inefficient. There is a readiness to believe all sorts of mumbo jumbo. Generally with TA, you’re constructing some trading rules without any fundamental basis (some people vaguely claim ties to behavior biases). Most of these rules will not work. So then you scheme up modifications and combinations of rules until you hopefully get some system that back tests profitability, with obvious perils of curve fitting. Maybe you find something; now what? Do you blindly throw money at some system with no solid underlying reason for working? What happens when you get a string of bad losses, will you (or should you) have the confidence to keep relying on your system of arbitrary rules?
Tombrokaw4, Pauluss, maratikus, Iginla2010 and jmh530 – thanks for the feedback. Quick follow-up for jmh530 and IARdude – what advice can you give to someone like myself that doesn’t have programming skills and am not working for a technical fund? What are we to do? And also, IARdude, I thought your insights were very interesting. I realize your questions are likely rhetorical in nature, but I’d think it would be helpful to us if you could provide some of your own opinions on the very questions you’ve posed. Of particular interest was your statement here: “What I didn’t like is that most of the online discussions involve people who decided to lose all skepticism once they figured markets were inefficient.” This is exactly how I feel because I’ve been skeptical about fundamental investing for a while, and that is a sentiment that has only intensified over the years. However, I also realize that technical analysis isn’t a cure-all for all the shortcomings of fundamental analysis. So, how does one reconcile the two?
I think there is some room for technical analysis. For one, there are enough traders that use it that certain aspects of technical analysis (support and resistance levels, etc.) have some validity simply because people practice them, so it becomes a self fulfilling prophecy… i.e. enough people believe in trendlines as support levels that the most obvious trendlines become supports simply because a bunch of people will think it’s a support and start buying when prices get close to them. Secondly, it takes time for information to disseminate throughout the market. This is really what the fatal blow to the efficient markets hypothesis is, as far as I’m concerned. That, combined with the fact that there is heterogeneity of interpretations of what the news is, and so it can take a while to sort out whether a positive earnings report represents a one-off event that should push a stock price up a little, or a sustainable improvement, which should push it up a lot. As markets digest this information, and knowledge of it spreads to more market actors through news channels, committee meetings, etc., the implication is that there will be momentum in markets, which is clearly something prohibited by the efficient markets hypothesis and which does appear empirically valid (e.g. Carhart model). Now there is some weird stuff in technical analysis. There is something about Elliot Wave theory that to me just sounds like it’s mystical numerology. I can sorta understand the idea of Fibonacci expansions and retracements, because it is believable to me that these ratios are connected to our brain chemistry, and that our levels of panic and euphoria may reach critical ratios when we see profits and losses at these magnitudes, and therefore create points of capitulation. There is a danger in data mining when you develop trading rules, which is why simple rules are generally better than complex rules. Every additional contingency you add into your rules adds to the chance that your backtest is purely spurious.
Numi, what makes you interested in TA? Without the ability to program or apply statistical methods technical analysis basically boils down to chart reading, which is really where this discussion has been centered thus far. Statistical arbitrage is really techinical analysis as well, although it is not as accessable as chart reading since everyone has eyes, but only some have the skills to understand and apply relatively advanced math/stat. Below is an example of something that I would consider techincal analysis that has nothing to do with chart reading. http://www.cs.utexas.edu/~fernholz/starb.pdf I believe that a disciplined fundamental analysis or technical analysis approach can consistently deliver returns in excess of the market, but you need to determine what your edge is and hone the approach to maximize that edge. In fundamental analysis, one way to do this is to follow a series of companies that you believe to have extremely stable earnings streams and wait for some event that depresses the stock price. If nothing has changed on the company then it is likely that the risk outweighs they reward and the company stock is a good investment. That’s just a simple example, but as stated above it is often the case that the simplest, most “common sense” approaches are the best. I invest in companies, not eminis or anything else like that, so everything I think about with regard to TA is in the context of the equity market. In my opinion, the “chart reading” type of TA is extremely useful in determining an entry and exit point for an investment but is not as useful for determining which security to buy/trade in the first place. This is almost certainly just because I use it as a compliment to fundamental analysis.
numi Wrote: ------------------------------------------------------- > Tombrokaw4, Pauluss, maratikus, Iginla2010 and > jmh530 – thanks for the feedback. > > Quick follow-up for jmh530 and IARdude – what > advice can you give to someone like myself that > doesn’t have programming skills and am not working > for a technical fund? What are we to do? > > And also, IARdude, I thought your insights were > very interesting. I realize your questions are > likely rhetorical in nature, but I’d think it > would be helpful to us if you could provide some > of your own opinions on the very questions you’ve > posed. Of particular interest was your statement > here: “What I didn’t like is that most of the > online discussions involve people who decided to > lose all skepticism once they figured markets were > inefficient.” This is exactly how I feel because > I’ve been skeptical about fundamental investing > for a while, and that is a sentiment that has only > intensified over the years. However, I also > realize that technical analysis isn’t a cure-all > for all the shortcomings of fundamental analysis. > So, how does one reconcile the two? TA is more or less pattern identification of correlated behaviours, and as BChad said if most of the people will act on technicals then the price curve is bound to follow technicals, market prices show what people ‘think’. You can learn variety of indicators, but the real edge as a technical trader you will get, when you will be able to identify which stocks are ‘technical’ stocks, and which are ‘fundamental’ stocks. For this you need to be in the game to find out how you actually make that distinction. And most important thing is that, usually technical and fundamental converge, just in some cases they will divert. So you aren’t looking for names which are impossible to decode fundamentally, your TA indicators basically represent correlated activity, they will give you stocks where a fundamental call can be taken without significant known risk. Why TA? Even if you are a long term investor, would you want to stay in front of a fleet of elephants running towards you? or would you sit in your room if you see gold raining on your street? TA is excellent screener IMO, if some stock is showing interesting technicals, then there must be something behind it and it’s worthwhile to look at fundamentals. And if I own some stock, and it’s showing interesting techincals and direction opposite to fundamental conviction, then it means there’s something which I may be missing out.
numi Wrote: ------------------------------------------------------- > Quick follow-up for jmh530 and IARdude – what > advice can you give to someone like myself that > doesn’t have programming skills and am not working > for a technical fund? What are we to do? > 1) Read like some encyclopedia of technical analysis (you can probably figure out all you need to know online, but get it for reference). 2) Set up an account somewhere where you can paper trade and check out charts and see if you can make money with technical analysis that way. 3) Learning programming will help with other things, I suggest you make the investment if you’re really interested. I greatly agree with the spirit of what Bchadwick said, though I consider them far more important intraday than on a daily/weekly/monthly horizon. (As an aside to Bchadwick, if you adjust EMH to incorporate the cost of obtaining and processing information, then it allows for the issue of information dissemination. For instance, complex securities are not expected to reflect all information since it is costly to obtain and process the information about them. If that’s the reason to be opposed to EMH, it’s not a very good one.)
numi, I will add a couple of thoughts to already excellent comments by bchadwick (beware of overfitting and think about sources of inefficiencies) and jmh (paper-trading). Trading is difficult and I would actually suggest staying away from it unless you have a really good idea of the kinds of inefficiencies you will exploit. If you still want to trade, open a small account for example here: http://www.oanda.com/ and start real trading using very small amounts. From what I remember oanda allows drawing indicators, etc. One of the key reasons I would recommend actual trading vs paper-trading is that slippage can be substantial but paper-trading ignores it. There are simple programming languages for traders. For example, TradeStation uses Easy Language that can be learned in a couple of days.
numi Wrote: ------------------------------------------------------- > And also, IARdude, I thought your insights were > very interesting. I realize your questions are > likely rhetorical in nature, but I’d think it > would be helpful to us if you could provide some > of your own opinions on the very questions you’ve > posed. Of particular interest was your statement > here: “What I didn’t like is that most of the > online discussions involve people who decided to > lose all skepticism once they figured markets were > inefficient.” This is exactly how I feel because > I’ve been skeptical about fundamental investing > for a while, and that is a sentiment that has only > intensified over the years. However, I also > realize that technical analysis isn’t a cure-all > for all the shortcomings of fundamental analysis. > So, how does one reconcile the two? Yea, basically the same Mad money growth stock idiot mentality is commonly found in the TA community, the difference being I can see the logic behind a fundamental system that tries to pick undervalued companies, while I can’t see the logic behind reading a tea cup pattern on a chart with a variable scale. It’s like people have a switch in their brains that either says “efficient markets, can’t earn alpha” or “it’s easy to make money”, but there aren’t enough people with the mindset of “possible but extremely difficult to make money and most techniques don’t work”. You can get the John Murphy TA bible and read about a lot of methods to predict prices, but everyone has read that thing and you won’t get any easy money from the listed techniques. Once you figure out that a simple 50 day moving average doesn’t make money, you have to either tweak the “50” number, add more rules on top of it like a MACD oscillator (which also has tweakable settings), or do both. Now you’re in data mining land and it will be difficult to know if you have a legitimate system or not. Curtis Faith has an interesting book on designing systems and addresses curve fitting. The best thing I’ve ever read on TA was in an interview with William Eckhardt http://en.wikipedia.org/wiki/William_Eckhardt_(trader) in the New Market Wizards book. Very skeptical guy who made a bunch of money trading futures. Also, a lot of trading (not necessarily TA based) requires a lot of leverage to make it worth your while. So some inefficiencies won’t be exploitable unless you’re trading with an employer’s money.
Numi, why the sudden interest in TA? I’m open minded, and there’s no reason you shouldn’t investigate what interests you, but this looks like a substantial change in direction from your usual focus. It sounds like there’s a deeper story there.