i use TA for entering a trade or the market, especially in times of liquidity driven markets, things trade more “technical”, ie support levels, etc. I would never enter a long term trade just using TA. I would flip a trade using TA using stop losses. It’s sorta of a gamble, and sometimes I feel I am picking up nickels in front of a bulldozer, but I do it in my PA and my broker loves me for it. I can’t believe someone brought up Buffet in this discussion. He doesn’t “trade” he invest. You must distinguish. He doesn’t really care if he bought something at $19.5 or $18.88 if in 20 years it’s $5,000+.
SergeLang Wrote: ------------------------------------------------------- > You didn’t say anything that was not specious in > your statement. Their is a fallacy that long-term > (or short term) trends can be identified quickly > enough to exploit. In general, security prices are > stochastic, and that isn’t “academia,” that’s > emperical study. > I don’t think that you mean stochastic (which just means random) - I think you mean Markov which means that it is not path dependent. Proving that a process is Markov is pretty tough (read impossible). It’s easy to show that most securities do not have simple structure like anything ARIMA, but there is a vast infinity of other possibilities any one of which could lead to TA working fine. Of course, TA does not require that anybody identify a market model, just a technique that provides decent returns from the model. > > I may read these from “books,” but you have > provide me with at least an equally compelling > argument (with relevent data) to convince me that > “technical analysis” has any legitimate merit. Actually, I don’t because I don’t really care if you believe in TA. Here’s the scoop with TA. I’ve been around hundreds of millions of dollars of excess market return due solely to TA. The idea that TA ought to work is pretty obvious - everyone looks at charts of security prices and the idea that the path of a security price has nothing to do with it’s future is simply untrue. For example, are the effects of the last year’s explosive massive decline in the dollar the same as they would be if the decline took 10 yrs? Of course not (like so of course not my mother knows it). To make money with TA though, you need to do lots more than just say “Oh my chart tells me [blah]”. pdxanalytics gave you a taste of that, but I always tell people that there are 20 things you have to know and do. They are all simple, but if you do any of them poorly, you are sunk. From my point of view, the sort of fundamental analysis taught in the CFA program is every bit as simplistic as the sort of technical analysis that everyone who has never studied it at all says is nonsense. Really think there is anything in a BS or income statement of any use in equity trading by itself? If so, a stat arb program can do it better and faster than any person. How many CFA hopefuls are training to set up the stat arb programs? If they are, I’ve got a huge list of things they should learn that aren’t in the curriculum. (Stat arb works fine, too btw) More than that, I think dogmatism about just about anything when you are in your 20’s is really silly. Either you miss a lot or you end up looking back in 10 yrs and thinking how silly you were.
When I took L1, I just swallowed the CFA line that TA didn’t work because I figured that the market was at least “weak-form” efficient, even though my experience told me that anything that requires assuming that human systems are always efficient are almost certainly wrong. Since then, I’ve warmed up to TA, because if you start to read more of it, you find that there are genuine causal theories of human behavior behind (at least some of) it. Part of it was that the speed with which academics simply dismissed TA made me suspicious that there was bits of baby being thrown out with the bathwater… it is very common for people to feel that just because some methodologies are epistemologically trash, anything that resembles the trashy stuff must be trashy too. When you read TA and it sounds like “white crane on high chart mountain nips bear in butt,” that stuff sounds crazy, but when you think about support and resistance levels being areas where people start to panic and start to doubt their valuations and whether their estimations of risk are accurate, some of these chart patterns seem to be a lot more plausible. If you think of prices as “lumpy,” which means that there are certain price points where people doing fundamental analysis have placed stops and decided to sell, but that these points are not all the same, but may cluster around numbers that are divisible by 2 or 5 or 10, then it becomes plausible that market action may do nonlinear things around certain areas. As for efficiency. If markets are weak form efficient, you shouldn’t see autocorrelation or momentum in price sequences, but in fact, you do, and it’s easy enough to test. And it makes sense that there could be autocorrelation. Different institutions have different procedures for managing their trades. Some PMs have full authority to exit a position; others need approvals and committees to act, and then there are all the individual investors who may make TA work simply because they have decided to use it and TA becomes a self fulfilling prophecy. It makes sense that not all market participants can act instantaneously to market information. Some can do it in less than 5 minutes, others need a day or two, and others may only do it when they rebalance next month. And (although there may be an explanation for this consistent with efficiency), why would there even be a bid-ask spread, if markets are purely efficient. The attraction of the efficient markets hypothesis is that it talks about how future events are unpredictable and comforts us that the chance of good news coming tomorrow is about as good as the chance of bad news (which doesn’t make complete sense to me, because companies are highly ordered systems and random shocks may have effects on the “entropy” of a company, but that’s another matter). So, if you can’t predict what the news will be, then why not assume that the price is what it ought to be, given that we don’t known what the future will bring. If we did know what the future would bring, whether using TA for price signals or something else, we could then arbitrage away any price differences between the present and the future, and voila, we think we are efficient. I admit, that it is an attractive point of view, and if we all valued things in the same way and had access to the same information and had the same investment needs, maybe that would be good enough. I got into TA because sometimes you need timing signals, and FA doesn’t address them. For example… you look at the US fiscal and current account deficits over the last few years and you realize that eventually the dollar has to fall. But how do you determine when to buy and how much. This is where TA can help. Finally I wanted to point out that TA may work better for some securities than others. Commodities, for example, are driven pretty much purely by supply and demand, because there is no profit margin, operating efficiency, and future cash flows to consider. So this type of security may lend itself better to TA than looking at Microsoft or Halliburton. TA may work with indices better than individual securities, because FA tends to measure things relative to market conditions, without saying much about how the market conditions themselves change. It’s actually a very interesting field, and I have a lot more I could say on it, but this has gotten long enough already for one posting…
I was going to mention self fulfilling prophecy, but chadwick beat me to it. great post.
I’ve been using TA for 5 years as a trader making 6 figs consistently on a 35% payout at a small shop with tight risk parameters. I just used it to trade some RIMM and made a few grand by buying as volume started slowing down around 118. TA has worked well for me over the years, so I think I’ll stick with it. And for all the academics who say that TA is Malarkey, hasn’t it been proven that asset managers do no better of a job at stock picking than throwing darts at board? If I can continue to make good money doing this, why would I want to bury my head into a BS or IS putting in 50-60 hrs a week when I can make 6 figs working from 9am to 4:30.
Or in your PJ’s hanging on AF…
exactly. And I’m probably going to shut it down early today and get 18 holes in before I drive down to Miami to take L1 tonight.
former trader Wrote: ------------------------------------------------------- > I worked with a day trader who only uses technical > analysis to make his trading decisions. He’s been > in the business for 6 years. He makes 7 figures > a year (even made 8 figures one year). He was > also featured in the Trader Monthly magazine in > 2004. > > I also worked with a few other day traders who > make close to 7 figures trading exclusively > technical analysis. To each his own. Agreed- I used to think that using solely tech analysis was impossible/ 100% BS. But if you have a very analytical, detailed, “nerdy” mind, you can do great things with tech analysis. I personally don’t have the patience to master tech analysis- I’d rather use something more concrete/fundemantal. In the years ahead after I pass all CFA exams I plan on learning more about tech analysis. I want to have an understanding of regular fundamental analysis before I delve into tech. Many of you know Tim Sykes…he used to use solely tech analysis and you can see him on CNBC youtube clips doing interviews saying he has NO IDEA what a company does (no idea what it produces, their competitors, etc.) but he knows their charts and he only studies those.
I recently read “Way of the Turtle” about one of the Turtle Traders and the system he used. I highly recommend it.
i agree with TA is useful. I also would mention that there are a lot of scam TA tricks out there. My gf’s mom was talking to me about point and figure and how this advisor company was making a killing and wanted to teach her (and other stay at home women) how to use it. I questioned and said “If they were really making a load of money in the market, why would they tell you?” She already had been executing trades thru them and they were making nice commish off of her, so she took some offense b/c she was in denial she had been scammed.
robo_orlando Wrote: ------------------------------------------------------- > you mean this tim sykes? > > http://nymag.com/daily/intel/2007/10/has_every_tra > der_gone_insane_a.html Yep, that’s Timmaayyyy! Check out www.timothysykes.com, he’s attempting to do the same thing again…turn 12kish to 1.65 Mill in 4ish years except now you can witness it on his site trade-by-trade.I’ve been following, pretty entertaining…and you can applaud him or bash him w/ comments, he’ll respond to those as well. If not anything check out his post about BIDZ…then listen to the BIDZ conference call- the QA part at the end is HILARIOUS!
come back to my original question, where can I learn TA? is there any website or books for it?
Yes…PDXAnalytics referenced a good one earlier.
PDXAnalytics mentioned: “John Murphy’s book, Technical Analysis of the Financial Markets” I am reading Gerald Appel’s book “Technical Analysis: Power Tools for Active Investors” and find it eases you into the ideas nicely. I have also read part of “All About Technical Analysis : The Easy Way to Get Started” by Constance Brown. I found her stuff a little difficult to follow, but she does have occasional insights that are helpful… like: “Don’t try to predict where a pattern that’s forming is trying to go, try to understand what is likely to happen when the pattern finally breaks/shifts.” That one line completely changed the way I think about TA. “Way of the Turtle” is very good too. I want to read “Trading for a Living: Psychology, Trading Tactics, Money Management” by Alexander Elder. I read the beginning one sunday when I was in Borders’ Bookstore, and it looks very very good. These should help you get going…
You could also do the CMT program. The designation will not add a dime to your resume (like the CAIA, I guess), but it will give you sound knowledge and provide a structured study of TA.
First to BosyBillups: You consider ‘flaming’ to be skeptism?? Cause that is all I displayed. I find it hilarious that some of the posters seem to use the term “Academics” in a strictly pejorative manner, it be as if I were to dismiss everyone in this forum, becuase most people on this forum are “practitioners.” BTW BosyBilups: Since you hate skepticism, I’d recommend that you perhaps look into being a minister for a Church or perhaps a Catholic Priest, great area for people who can’t tolerate dissent and those who believe very easily 
lol. Anyways, JoeyDivre: I’ve been told that you like to “hear” yourself talk, and I can say I agree. Your post added nothing. Oh one more thing JoeyDivre, as sophisticated as you like to make yourself sound you made a rather silly and critical error in your “response.” The EMH does not state that there exist NO correlation between past stock prices and current ones, only that the cost of attaining such information and attaining such “analysis” is so minnimal that becaues we have a well diversified financial market, the information has been adjusted for. You obviouslly don’t have a good grasp on anything about general equalibirum theories or the fixed point theory that backs it up, so I would shut up and actually study what you mock before making stupid comments like the one above. Bchadwick, THanks for having a well thought out and sensible response. As I’ve stated, insofar that I don’t believe the Tech Analysis, it is cause I have not seen a compelling argument for it. As you’ve stated the foundations of Tech is weak. But is there any respectable publications you would point me towards that summarizes the model/theory and delivers all the salient isssues (both good and bad) ? Further, arn’t there many various axioms for effeciency, even the basic books mention 3 or 4. One dealing with publically known “information” or “relevent information.” I think there is a misundersatnding about the EMH, cause, it does not deny that arbitrage conditions don’t exist (at the very least evervescently), but that 1. Either “information” has been optimized by all firms and such oppurtunities are not large enough to exploit or 2. Insofar that such information is exploitable it is not cost-effecient to do so. For some reason, “Tech Analysis” sort of reminds me of naive Keynsian IS-LM-BD, the sticky-price version. Is there a historical reason for this?
synergyzhan Wrote: ------------------------------------------------------- > come back to my original question, where can I > learn TA? is there any website or books for it? Honestly, if you want to become a techncian, you probably have to work for/with one and gain the experience. I’m not convinced that it’s a no brainer and necessarily a good career move; however, there are quite a few technicians who are a hell of a lot richer than I am… Also, look into the CMT program if you really want to, but keep in mind, there’s no book or website you can read that will teach you how to make money trading…
SergeLang Wrote: ------------------------------------------------------- > First to BosyBillups: > > You consider ‘flaming’ to be skeptism?? Cause > that is all I displayed. I find it hilarious that > some of the posters seem to use the term > “Academics” in a strictly pejorative manner, it be > as if I were to dismiss everyone in this forum, > becuase most people on this forum are > “practitioners.” > > BTW BosyBilups: Since you hate skepticism, I’d > recommend that you perhaps look into being a > minister for a Church or perhaps a Catholic > Priest, great area for people who can’t tolerate > dissent and those who believe very easily lol. > > > Anyways, > > JoeyDivre: I’ve been told that you like to > “hear” yourself talk, and I can say I agree. Your > post added nothing. > Because you didn’t understand it? > Oh one more thing JoeyDivre, as sophisticated as > you like to make yourself sound you made a rather > silly and critical error in your “response.” The > EMH does not state that there exist NO correlation > between past stock prices and current ones, only > that the cost of attaining such information and > attaining such “analysis” is so minnimal that > becaues we have a well diversified financial > market, the information has been adjusted for. Did I say anything about that? EMH states nothing about correlations nor would I ever say it did. > > You obviouslly don’t have a good grasp on > anything about general equalibirum theories or the > fixed point theory that backs it up, so I would > shut up and actually study what you mock before > making stupid comments like the one above. Coming from a guy who doesn’t know what the word stochastic means, this is pretty funny. > > Bchadwick, > > THanks for having a well thought out and > sensible response. As I’ve stated, insofar that I > don’t believe the Tech Analysis, it is cause I > have not seen a compelling argument for it. As > you’ve stated the foundations of Tech is weak. But > is there any respectable publications you would > point me towards that summarizes the model/theory > and delivers all the salient isssues (both good > and bad) ? > > Further, arn’t there many various axioms for > effeciency, even the basic books mention 3 or 4. > One dealing with publically known “information” or > “relevent information.” I think there is a > misundersatnding about the EMH, cause, it does not > deny that arbitrage conditions don’t exist (at the > very least evervescently), but that 1. Either > “information” has been optimized by all firms and > such oppurtunities are not large enough to exploit > or 2. Insofar that such information is exploitable > it is not cost-effecient to do so. > > For some reason, “Tech Analysis” sort of reminds > me of naive Keynsian IS-LM-BD, the sticky-price > version. Is there a historical reason for this? Serge, you are a very pompous guy with not anything like the education to back it up. Get an education and come back in a few years…
SergeLang reminds me of that pretentious guy from good will hunting. funny stuff. good movie.