that is like saying evolution vs creationism is “my team vs your team” bs.
No, one uses fact and empirical evidence and the other is proven time and time again to be complete bullshit.
Long ago I wrote a good post to TA, but now I cannot find it. Igor?
To play Devil’s Advocate, why is FA so superior to TA?
Let’s look at some problems;
-Accounting is easily manipulated and often restated rending the reported numbers moot.
-Ks and Qs come out 4x a year while the market trades 252 days a year.
-A DCF is a DCF, how is one model going to materially change from another model? You can see analyst consensus generally close with very few outliers; and companies still miss or blow out earnings estimates.
TA bucks all this ish and relies only the supply and demand of stock in real time. Sure, you can model out the next 4 decades and assume this stock is underpriced, but who has 4 decades to realize return!? Not me. While I do not pay attention to TA since I trade very little and I do not have a job requiring market face time, I feel it would be especially important to help recognize entry and exit points in positions after conducting all of the FA diligence. Good traders recognize this and pay close attention to certain metrics including RSI, MA, and VWAP among others.
Bro will be the first to explain there are muppets and hucksters out there who market manipulate volume, liquidity, and so forth. FA won’t forewarn you to this trap, but TA might.
is there any actual academic evidence to back this up?
^ There probably is, but if you’re like me, you don’t think too much of academic evidence. I believe Cliff Asness once asked Eugene Fama at a conference, “If you’re so smart, why am I rich?”
This is my 0.02 based on my years of [Wall] Street Smarts.
I wear a merkin, because it helps my self confidence
Andrew Lo’s done a fair amount of research on TA and found demonstrable value.
Many TA tools are just crude versions of modern alternatives. EWMAs is a subset of GARCH models, ATR is a volatility metric, and there are a variety of filters with modern equivalents.
Just as there’s good/bad Fundamental analysis there’s good/bad TA. Looking at a stock’s long term moving average as an approximation for its long term growth rate can make sense where drawing an ascending triangle with the expectation of a breakout from it may not.
There are alternative benefits of TA as it can provide a risk management framework (rather than alpha generation) in line with an individual’s tolerance. There are even large IBs who employ full time TA specialists, so it clearly has some value to them (even if it is just in generating commissions). Tom DeMark was employed by SAC for a long time…perhaps there’s value add in pretending to trade on TA as a cover for insider trading.
I think people use it more than they know or care to admit to themselves and others. I don’t personally believe it has much value but can be useful as one of many tools.
even if there was data that showed correlation, you have to consider data mining problems. if you drill down deep enough, you’ll discover some random relationship… like buy stocks on every 3rd wednesday if the S&P is down.
I agree with DoW. It’s fine to say “TA doesn’t suit my investing style or personality,” or “my investing works just fine without it,” but I don’t get all the hate on it. Sure, there are charlatans out there, but there are charlatan fundamental analysts too.
TA can capture some of the behavioral aspects of trading. If you have a very long term investment horizon, those things probably don’t matter much and your time is better spent looking for more sources of fundamental value, but if you can keep your transaction costs low and have a shorter time horizon, there’s no reason it can’t work.
Acording to efficient markets hypothesis, TA shouldn’t work, but study after study shows that momentum strategies earn risk premia. And if momentum earns a positive risk premium, then technical strategies which mimic momentum work to add value.
And then there are things like currencies, which don’t have clear discounted value relationships, and commodities, which are challenging to value on a fundamentals basis. Yet their prices still move all over the place. If you don’t have a fundamental value to base an investment decision on, almost certainly technical analysis issues will come into play, because there’s no arbitrageable value to secure your analysis to and eliminate other TA players.
The key to TA based work is that you have to consider position sizes very carefully. You need to do this in fundamental investing too, but it tends to be much more important to pay attention to the position sizing issues in TA based work than in fundamental based work.
Why not invert the question? Where’s all the “academic evidence” that FA is superior? Last I checked, most academics show markets are pretty efficient. Except for that pesky little field gaining traction called behavioral economics that doesn’t look a whole lot different from TA with new lingo. For every 4 investors you show me that use FA to beat the market after fees, I’ll show you 6 that don’t. And why are we even basing trading methodology on academics? Isn’t it those who can’t do, teach? I can walk into a class on any university and hear about modern portfolio theory from a guy that will tell me Buffet, Soros and the like don’t exist.
The hate is that there are tons and tons of idiots buying stocks because they are going up who have no idea what they are buying or why.
Case in point: I’m blanking on the ticker now, but there is a stock that used to be an ethanol company. The ethanol company went bankrupt. The stock continued to trade for a long time, I think years. David Einhorn and Dan Loeb (biggest shareholders who got wiped out) recently did a reverse merger of a private company home builder that Einhorn owns into the former ethanol shell. Despite this, the stock traded exactly in tandem with other ethanol companies.
If you put the ticker into yahoo finance it was still being described as an ethanol company even though it had no ethanol assets. If you looked on twitter, retards would compare the trading action to other ethanol companies. If you overlaid the chart, it traded EXACTLY in tandem with other ethanol stocks. IT’S NOT A F–KING ETHANOL COMPANY YOU IDIOTS.
That’s technical analysis.
Edit: I think TA is useful for entering and exiting prices. My hatred for it is when people use TA exclusively. It’s good for tactics but not for strategy. And it’s used exclusively by a lot of idiots. The main guy in this thread rallying for TA is probably an idiot.
The quoted part is so stupid that I suspected some trolling at some point.
Do yourself 2 favors :
-
go pick up a book called The Intelligent Investor written by a guy called Benjamin Graham. Your posts suggest that you have never heard of him.
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read it.
I am not suggesting that TA is worthless. But suggesting that TA is all you need makes you worthless as an investor.
Or what about a block that gets dumped on the market ?
What are all these sweet lines going to do then ?
outta curiosity do institutional investor use the same TA tools as retail day traders? i am still in the final year of study so dnt have on job experience but of all the analysts that appear on the t.v fundamental analysts have outdone TA’s(atleast in the indian context).maybe because the buy and hold strategy has done really well in the last 2 years or so. i am biased towards fundamental analysis studying for the cfa and c.a
I once created a “stock chart” based on random flips of a coin, and then showed it to a pure TA guy. He proceeded to tell me exactly how I should trade based on the chart, the trends and patterns he sees and had strong confidence.
Then I told him how I creatd the chart. boy did he become unhinged quick.
Enron did a similar thing with their financial statements to the FA community.
I read that chapter in “Random Walk” too.
My .02 - I don’t have a lot of use for technical analysis. However, I also don’t think very highly of fundamental analysis either.
Obama changed his healthcare law again during thanksgiving hoping no one would notice.
oh wait… we are throwing around random things now ?
In fact there is an increadible amount of academic evidence challenging FA. I never said FA can lead to out-performance…i am just saying TA is full of complete shit.
and lol @ those who can’t do teach. You are in way over your head here, lol@ Buffet. I sincerely hope you never run into a professor telling you troughs of food are a figment of your imagination.
embarrassing
I’m not sure if you just don’t understand my point or if this was a very weak attempt at a rebuttal. You posted anecdotal evidence trying to discount TA, but my point was that most people here are presumably in favor of FA and you can make very similar points discounting FA. When I inverted the question and asked earlier for all this “academic evidence” supporting FA, the thread got strangely quiet. And as of yet none of my points have been replied to. We’re blindly supporting the practice of FA without strong evidence yet discounting those who believe in a different tooth fairy for practicing TA.
All I know is that I have heard from several quant and FA BSD’s that are much smarter and more successful than possibly anyone on this forum (I know, it’s a low bar) that they’ve personally seen TA successfully practiced to beat benchmarks in large firms and that I shouldn’t be so quick to disregard it. So I choose to keep an open mind.
I actually have no idea what you’re trying to say here and whether you are supporting or disagreeing with my point or who should be embarrassed.