Is technical analysis still as "reliable" in times of high volatility?

[lular]

Just wondering if chart paterns should be given the same wheight, given the volatility of stocks at this time, or should they be viewed differently.

If so what criteria (if any) should be used to compensate.

[Trembling Hand]

Chart patterns are still the same!! They are just down trending. Its still as simple to see a trend. Its just not in the direction that the average Joe likes.

[white_goodman]

hmmm the only thing that bothers me is that the relative volume may be manipulated a bit without shorting

[lular]

So a ban on short selling for example won't bias the way the indicator appears?

[wayneL]

The whole short selling thing is a red herring, it will make no difference.

[Schmuckie]

Does it make sense to adjust analysis to incorporate any view of relative strength or weakness? For example, months from now when you're looking at a chart for the Widget Company Limited, it shows that WCL only fell 5% during the September sell-off whereas most stocks in its category fell, say, 20%?

[chops_a_must]

Does it make sense to adjust analysis to incorporate any view of relative strength or weakness? For example, months from now when you're looking at a chart for the Widget Company Limited, it shows that WCL only fell 5% during the September sell-off whereas most stocks in its category fell, say, 20%?

It is one of the best and easiest ways in assessing companies to get into fundamentally.

Look at the banks for instance. WBC and BOQ have done very well in comparison to others.

There are reasons why the market like them, that you or I may not know about yet. But someone does. And that goes for anything in the market I guess.

[sails]

Just wondering if chart paterns should be given the same wheight, given the volatility of stocks at this time, or should they be viewed differently.

If so what criteria (if any) should be used to compensate.

I've often found charts a bit easier to read during high volatility - the only difference I've found is that chart patterns seem trace out much faster. Eg what might have taken days/weeks in low volatility to trace out, may only take hours/days in a fast, highly volatile market to form a similar pattern or magnitude of move.

[blubrick]

I'd be more concerned not with the increased volatility, nor with the banning of shortselling, but with validity of TA (and FA, for that matter) in a manipulated market. We have absolutely ZERO idea of the local effect of a sudden injection of an extra trillion odd dollars to prop up the ailing US market.

The playing field has probably changed. We just don't yet know how it has changed or for how long, if indeed it has. I'm pretty happy to be sitting on the sidelines for this ****storm.

[Paladin]

I'd be more concerned not with the increased volatility, nor with the banning of shortselling, but with validity of TA (and FA, for that matter) in a manipulated market. We have absolutely ZERO idea of the local effect of a sudden injection of an extra trillion odd dollars to prop up the ailing US market.

The playing field has probably changed. We just don't yet know how it has changed or for how long, if indeed it has. I'm pretty happy to be sitting on the sidelines for this ****storm.

I'm mostly playing gold at the moment, and traditional TA is quite useful, but sentiment is eclipsing almost everything right now. So I'd have to say that both FA and TA are less than absolute predictors at the moment. Support and resistance levels, for example, are being moved through like they're tissue paper.

[Trembling Hand]

I'm mostly playing gold at the moment, and traditional TA is quite useful, but sentiment is eclipsing almost everything right now. So I'd have to say that both FA and TA are less than absolute predictors at the moment. Support and resistance levels, for example, are being moved through like they're tissue paper.


That is of course if TA was ever meant to be used as a Predictive tool.

Hands up if ya reckon that is what TA is. I certainly don't.

[Paladin]

That is of course if TA was ever meant to be used as a Predictive tool.

Hands up if ya reckon that is what TA is. I certainly don't.

Fair enough. 'Indicative' tool rest more comfortably with you??

It's an interesting point, though. If TA is purely about reading the past rather than establishing probabilities for future movements it's interesting how it might be used. What would be your definition of it's 'purpose' then, if such an answer can't be so broad as to be libelous?

[Trembling Hand]

Simply,


A set of guidelines to find and ride a trend (whatever time frame) until it bends.

I just don't think its main use is predictive. For example a stock bounces off an old trend line 3 times. But does that mean the next time it approaches that trend line you can give it anymore odds of bouncing again?? You can't.

BUT you can use that as a way to manage the trade to stay in while it is trending or get out if it breaks.

I think this is the big trap people that are skeptics and even people that use TA fall into. Its not predictive its a way to manage wrong/right.

[nomore4s]

Simply,


A set of guidelines to find and ride a trend (whatever time frame) until it bends.

I just don't think its main use is predictive. For example a stock bounces off an old trend line 3 times. But does that mean the next time it approaches that trend line you can give it anymore odds of bouncing again?? You can't.

BUT you can use that as a way to manage the trade to stay in while it is trending or get out if it breaks.

I think this is the big trap people that are skeptics and even people that use TA fall into. Its not predictive its a way to manage wrong/right.

Great post, I agree fully.

[howardbandy]

Greetings --

Assuming that you have a technical trading system that works profitably when volatility is in some range, and you can write that system in the code of some trading system platform --

Test it to see if high volatility, or low volatility, causes it to be less accurate. That is often the case. If so, add a line of code to your system that requires the volatility to be within the range you prefer before a buy signal can be given.

This technique is regularly used by professional trading organizations.

Thanks,
Howard

[MRC & Co]

I think high volatility markets (especially when accompanied by high volume), give TA more credence. Harder to manipulate and you see pure emotions come out.

[lular]

Thanks for all your views

[shulink]

Technical analysis works under any circumference. However, with this financial crisis, most stocks go down, so it becomes harder to make profit.

[It's Snake Pliskin]

Technical analysis works under any circumference. However, with this financial crisis, most stocks go down, so it becomes harder to make profit.

What do you mean by circumference?

[kennas]

Technical analysis works under any circumference. However, with this financial crisis, most stocks go down, so it becomes harder to make profit.You can use TA to short stocks too.

[shulink]

What do you mean by circumference?

I mean any market condition.

[shulink]

You can use TA to short stocks too.

Yah, but shorting is very risky for me. Who knows when is the bottom and the stocks rebounds.

[mazzatelli1000]

Yah, but shorting is very risky for me. Who knows when is the bottom and the stocks rebounds.

That is your own perception.

Stocks crash much faster than when they rally. It is risky either way

[Nick Radge]

Yah, but shorting is very risky for me. Who knows when is the bottom and the stocks rebounds.

Going long is very risky for me. Who knows when the market will top and crash. :eek7:

[shulink]

Going long is very risky for me. Who knows when the market will top and crash. :eek7:

I set stop loss for my stock, so I normally don't lose a lot on 1 stock.

[shulink]

That is your own perception.

Stocks crash much faster than when they rally. It is risky either way

yah that's true, it depends on the economic condition.

[Nick Radge]

I set stop loss for my stock, so I normally don't lose a lot on 1 stock.

As do I on my shorts...

[skc]

What do you mean by circumference?


I mean any market condition.

So you did not mean 3.14159 times the diameter of a circle ;)

[shulink]

So you did not mean 3.14159 times the diameter of a circle ;)

:) sorry about my english, we don't need "pie" for trading.