[nek]

Been researching technical analysis lately and there seems to be a sentiment amongst some in the trading/investing community that question the merit of technical analysis. So far I've been investing pretty much exclusively on fundamental/qualitative analysis and am trying to figure out if tech. analysis is worth my time to learn (and if so, to what extent?). Appreciate your input ahead of time.

[TheFinalEpic]

I'll bite. Technical analysis is extremely subjective in many regards. If you're drawing flag patterns, head and shoulders, and that kind of shit, I totally agree that it's BS. The reason being is one person can see a pattern, while others would be like "there's no pattern at all." The human brain is also extremely good at telling itself there are patterns when there aren't any as well. For this type of technical analysis, steer clear.

Support and resistance levels are real. Don't get me wrong about that however. And breakouts from those key levels are traded quite easily for the beginning trader. The big money is in trends though.

What I do believe works is charting and "studies" you can overlay with charts. They don't ALWAYS work, but nothing works 100% of the time; make sure you are managing risk. What they are excellent for are trend following and not "bucking the trend", making sure you enter positions according to the sentiment of the greater market. You will never win at trading if you are going against the trend in any form or another. You may be right, but you will be broke before you are right. I've said to myself millions of times "there's no way it can go higher/lower" only for the stock or future to rise another 40 ticks, blowing through my stops, and making me a loser. This is what technical studies are excellent for: for stopping you looking like an idiot when you think you're bigger than the market.

If you are investing, not trading, forget technical analysis. I truly believe Fundamental and quantitative methods will be what makes you your money. Sure you'll find charts that told you exactly when to get in NVDA at $30 and out at $120, but I think over the long term, value investing is where it's at. Warren Buffet knows what's up.

I'd consider myself a swing trader, and technicals allow me to find good entry and exit points, see momentum (many times I don't even look at the price, just what the trend is doing), and manage risk. I've been getting more into coding systems as I love the passivity and coding is pretty fun once you're into it, and technicals are a great way to start with that. You definitely can code fundamentally and quantitatively, but technical indicators are a great entry point for many.

[qwertyuiop]

Like this one?

https://twitter.com/DLin71/status/636397462190718976

or

https://www.reddit.com/r/wallstreetbets/...r_pattern/

?

[nek]

(03-21-2017 10:34 PM)TheFinalEpic Wrote:  

What I do believe works is charting and "studies" you can overlay with charts.

Can you elaborate on this?

[TheFinalEpic]

(03-21-2017 10:53 PM)nek Wrote:  

(03-21-2017 10:34 PM)TheFinalEpic Wrote:  

What I do believe works is charting and "studies" you can overlay with charts.

Can you elaborate on this?

Sure. There are dozens of studies that do indeed detect trends and when trends reverse. The simplest being RSI, SMA, and the like. Now, both are extremely simple, but if you actually code a system that utilizes either for entry and exits, you will beat the greater market. The things we have to take into account are number of occurrences, and how well we control risk when we are wrong. When we make bets that return 3:1 or greater, we have to be right only 30% of the time to be profitable.

[TheFinalEpic]

(03-21-2017 10:46 PM)qwertyuiop Wrote:  

Like this one?

https://twitter.com/DLin71/status/636397462190718976

or

https://www.reddit.com/r/wallstreetbets/...r_pattern/

?

Just subbed to the wall street bets subreddit, its fucking hilarious.

[qwertyuiop]

(03-21-2017 11:14 PM)TheFinalEpic Wrote:  

(03-21-2017 10:46 PM)qwertyuiop Wrote:  

Like this one?

https://twitter.com/DLin71/status/636397462190718976

or

https://www.reddit.com/r/wallstreetbets/...r_pattern/

?

Just subbed to the wall street bets subreddit, its fucking hilarious.

That's where I troll at work when I get bored. Wallstreetbets is the best sub in the world.

[Peregrine]

Quote:

You will never win at trading if you are going against the trend in any form or another. You may be right, but you will be broke before you are right.

Paid 40 grand to learn that lesson. Worth it.

[WeekendCasanova]

(03-21-2017 11:33 PM)Peregrine Wrote:  

Quote:

You will never win at trading if you are going against the trend in any form or another. You may be right, but you will be broke before you are right.

Paid 40 grand to learn that lesson. Worth it.

You'll only be broke if you sell.

Short-term, go with technical analysis, long-term good luck.

I always say this...If trading is your day job, or you want to be a day trader, you obviously need technical analysis. But if it's not your main source of income(i.e investing), fundamental investing is the way to go, and frankly, the best way to build sustainable and real wealth.

Anyone who says otherwise has no clue what they're talking about.

[rafal]

In my experience it's bullshit but it's also very useful.

Does triangles, head & shoulders, etc. have any predictive power? I tested them statistically and it's mostly 50-50. Coin toss.

The reason some people make money consistently (distribution of profits is usually lumpy, though) is because market timeseries contain trends.
Trends have interia. There is a higher probability of trend continuation than trend reversal.

Imagine a coin that has higher probability of tossing heads than tails right after heads.

It doesn't matter how you hop on a trend. People use "statistics", fundamentals, technicals, solar cycles, others go to fortune tellers. As long as there is a trend you will make money and rationalize it later.

Why there are trends? My bet is that people in groups tend to herd and have group thinking mode on, which subconciously affect their decisions. But honestly I don't know. Everything in the universe seems to move in trends.

To recap, when there is a clear trend everything "works" including technical analysis. If there is no trend nothing works (besides hft, market making, etc.).

So how is technical analysis useful?

It gives you a layer of abstraction. Instead of opening / closing positions randomly you do so when you notice triangle on a chart. It helps you systematize your trading and gives you something to rationalize your decisions on.

[Edmund Ironside]

Technical analysis is self-fulfilling if enough people buy into it. In short to medium term especially, the market is behavior driven (or algorithm driven) so if enough people or programs give credibility to a certain technical analysis it's going to play out.

On the other hand, if you do your own unique technical analysis in a vacuum, it's most likely useless, because you need a lot of other people believing in it to make it come true.

IMO one thing that might have some validity aside from groupthink would be the support and resistance levels, as mentioned by TheFinalEpic above. That would relate to willingness to sell at a profit or loss, and perception of reaching recent highs/lows.

The other argument you can make about some types of TA is the idea that someone out there always knows something that you (the general public) do not, and that you are trying to figure out what those informed people are doing and follow them.

A big problem with TA for the market in general is that it basically sets up a lot of people to be easily manipulated. Manipulating a fundamental analysis requires misleading people somehow regarding real business information, which carries risk to reputation or possibly legal risk. Manipulating technical analysis just requires making the chart move in certain ways, which certain big players can do pretty easily without risk of legal issues.

Among other things that means do not trust TA at all on small, thinly traded and volatile stocks, especially not in cases where the options market is large compared to the underlying security. In some cases there is a lot of money to be made on manipulating a stock short term in order to change the value of near term options. If there are a lot of people with big exposure to "in the money" options that will expire shortly, don't join them and if you are already there be among the first out the door, not the last.

Note that last isn't only about manipulation, because in a highly speculative situation a lot of people will have bought the stock and sold options, and if they close out those options positions near expiration, they often will also sell the underlying stock, which depresses the price.

[TheFinalEpic]

One thing I'll also mention is that technical analysis is great for the intermediate time span, don't even try trading anything less than 15 minute charts unless you want to be head faked 75% of the time. Best timeframes are 30min-daily depending on the asset class.

[Skank_Hunt]

I would cosign the 50-50 argument. I have studied TA including Elliot Wave in depth, followed the markets for nearly a decade. I am not rich.

I never liked the whole triangle/wedges/H&S etc. chart "shape" analysis, but preferred Elliot Wave, Fib Retracements, and common Support & Resistance.

In many ways I have been protected by the above methods I use. It helps me not to lose huge amounts rather than to help me make huge amounts of profit. The whole 50-50 thing really rings true on a macro and micro scale. Macro, everything evens out if it's 50-50 in the end, long-term. Micro, well, I trade like not such a retard anymore; each trade I am "protected" somewhat by my knowledge but a lot of the time that leads to me not making the trade and satisfyingly but ultimately unprofitably watching my warning signal come true.

The most profitable trades are made where there are huge moves in an asset and you got in there at the right time. Some of this is down to TA, but to counter those profitable trades I can think of countless similar trade setups where signals were similar, where things went the exact opposite direction. Elliot Wave and my other tools are lagging indicators which mean they may support the theory "after the fact" but they are of very, very limited use "in real time" where you don't KNOW what was going to happen, and that's the whole point!

Very simple example:

Stock A has completed a 5 wave pattern followed by a bounce off multi year support, and it has just made a double bottom. A bounce off support is supported by Elliot Wave pattern analysis, but an alternative Wave count suggests continuation rather than reversal. Looking at past similar situations, this kind of reversal is 50/50. You may as well toss a coin. The key is, then, to let your profits run as long as possible white cutting your losses short.

But as I said, the best trades have a massive element of luck. For example after the 2009 financial crisis mining stocks went into a particularly harsh decline. 90%+ losses, an absolute bloodbath. If you had bought at lows you could have realized 500% gains or more. At the same time, it's not always good advice to "buy when there is blood in the streets". This is because many stocks have good reasons for losing 90%+ of their value and will keep going down to lose 99%. Whether you're a contrarian or a trend follower, there are risks. Contrarian: that the trend continues. Trend follower: that the trend ends.

The guy in Wolf of Wall St said it best: "No one knows if a stock is going to go up, down, sideways, or round in circles."

If you have long time to wait, investing can pay off. Shorter term trading is much more difficult. To be honest, even though house has an edge, you may as well put some money on a few soccer games if you want quick returns, and hope for the best. The luck that separates a successful sports bettor from a successful short term trader is not so different.

[rudebwoy]

Only good for knowing when to come out of a trade, as in stop loss.

No matter what, the house wins and there is always a "correction" in the market.

[Australia Sucks]

Technical analysis is squiggly line voodoo. Its complete bunkum. "Value" investing is the way to go.

Tell me if you were buying a small private business (I.e. no share price chart), what would you look at?

[cawa:]

(03-24-2017 04:55 AM)Australia Sucks Wrote:  

Technical analysis is squiggly line voodoo. Its complete bunkum. "Value" investing is the way to go.

Tell me if you were buying a small private business (I.e. no share price chart), what would you look at?

i've never been in such a position, but i would look at the owner and his hand-shake.

[Troller]

Resistance and breaking point are the only things valid in technical analysis.

This text can sum up investing:

"In 1871 when the Commune in Paris was at its height and the streets were red with blood, a young man called on the great banking firm of Rothschild to ask advice about a large fortune to which he had become heir. The head of the house told him to buy French Government Securities. “What: buy securities when the streets of Paris are running with blood!” was the young man’s surprised exclamation. Baron Rothschild is re¬ported to have said: “My young friend, that is the very reason that today you can buy securities for 50% of their face value.”

[TheFinalEpic]

(03-24-2017 04:55 AM)Australia Sucks Wrote:  

Technical analysis is squiggly line voodoo. Its complete bunkum. "Value" investing is the way to go.

Tell me if you were buying a small private business (I.e. no share price chart), what would you look at?

We're speaking about trading here. Not investing. They are not the same. The value that technicals within the trading world to limit risk shouldn't be discredited, but they do just that. They don't provide the key to riches. They provide a reason to get in and get out, and a place to get out if all things go catastrophically wrong.

[Haly08]

OP, what type of trading are you interested in? Day trading, Swing or Long?
In my opinion technical analysis is important in the first two. Long term investing is mainly about fundamentals.

[Haly08]

(03-22-2017 12:19 PM)Skank_Hunt Wrote:  

I would cosign the 50-50 argument. I have studied TA including Elliot Wave in depth, followed the markets for nearly a decade. I am not rich.

I never liked the whole triangle/wedges/H&S etc. chart "shape" analysis, but preferred Elliot Wave, Fib Retracements, and common Support & Resistance.

In many ways I have been protected by the above methods I use. It helps me not to lose huge amounts rather than to help me make huge amounts of profit. The whole 50-50 thing really rings true on a macro and micro scale. Macro, everything evens out if it's 50-50 in the end, long-term. Micro, well, I trade like not such a retard anymore; each trade I am "protected" somewhat by my knowledge but a lot of the time that leads to me not making the trade and satisfyingly but ultimately unprofitably watching my warning signal come true.

The most profitable trades are made where there are huge moves in an asset and you got in there at the right time. Some of this is down to TA, but to counter those profitable trades I can think of countless similar trade setups where signals were similar, where things went the exact opposite direction. Elliot Wave and my other tools are lagging indicators which mean they may support the theory "after the fact" but they are of very, very limited use "in real time" where you don't KNOW what was going to happen, and that's the whole point!

Very simple example:

Stock A has completed a 5 wave pattern followed by a bounce off multi year support, and it has just made a double bottom. A bounce off support is supported by Elliot Wave pattern analysis, but an alternative Wave count suggests continuation rather than reversal. Looking at past similar situations, this kind of reversal is 50/50. You may as well toss a coin. The key is, then, to let your profits run as long as possible white cutting your losses short.

But as I said, the best trades have a massive element of luck. For example after the 2009 financial crisis mining stocks went into a particularly harsh decline. 90%+ losses, an absolute bloodbath. If you had bought at lows you could have realized 500% gains or more. At the same time, it's not always good advice to "buy when there is blood in the streets". This is because many stocks have good reasons for losing 90%+ of their value and will keep going down to lose 99%. Whether you're a contrarian or a trend follower, there are risks. Contrarian: that the trend continues. Trend follower: that the trend ends.

The guy in Wolf of Wall St said it best: "No one knows if a stock is going to go up, down, sideways, or round in circles."

If you have long time to wait, investing can pay off. Shorter term trading is much more difficult. To be honest, even though house has an edge, you may as well put some money on a few soccer games if you want quick returns, and hope for the best. The luck that separates a successful sports bettor from a successful short term trader is not so different.

Skank_Hunt if you witnessed the 2009 crash first hand, whats your take on the gold and silver junior minors right now?

[Australia Sucks]

deleted.

[SamuelBRoberts]

It's not BS. It works perfectly and I've made a ton of money off of it, as have many people on this board.

[[email protected]]

I'm not doubting TA but timing the market and buying & selling is the fastest way to make & lose money. I would strongly avoid unless you are a pro. I'm not, which is why I am an advocate of hold master race.

[Armogan]

It's only voodoo if the analysis is drawn by Australia Sucks. I'm not sure what you guys are talking about.

It's used as indicators, not gospel, but more likely than not indicators.

[Easy_C]

(03-21-2017 10:13 PM)nek Wrote:  

Been researching technical analysis lately and there seems to be a sentiment amongst some in the trading/investing community that question the merit of technical analysis. So far I've been investing pretty much exclusively on fundamental/qualitative analysis and am trying to figure out if tech. analysis is worth my time to learn (and if so, to what extent?). Appreciate your input ahead of time.

Nope.

Technical analysis is extremely useful and is to some extent necessary.

The problem is that most "technical" analysis isn't all that technical and relies on subjective assessments.

On the charts side, it involves looking at things like chart patterns, oscillators, etc. A lot of these provide technical data that can be useful. However their predictive nature is often a matter of experience and opinion.

If you're trying to do a technical valuation analysis (Corporate finance style) there are STILL an enormous amount of assumptions involved. You have to select a discount rate, growth rates, etc. all of which are either opinion and/or forecasts of the future.

What's MORE useful is technical analysis of market trends. Any DCF valuation is going to include a lot of subjective assumptions. What is not subjective is trends as to trading activity, who major buyers/sellers/holders are, volume, etc.