T/A Bagged

[wayneL]

Took missus into town shopping last night...she, looking at girly stuff...me, slip off to the bookshop to see if any worthwhile contributions in the trading/investment section.

Picked up "A Random Walk Down Wall Srteet" by Burton Mickymouse or someone.

Lo and behold he turns out to be some looney acedemic bagging the crap out of technical analysis....and fundamental analysis would you believe.

Trotted out the old chestnut "I've never met a successful chartist", along with a bunch of faulted logic to back up his assertions.

I often wonder why these clowns feel the need to do this. While a lot of t/a is crap, clearly there are lots of successful "chartists". Tech/A's Techtrader is ample evidence that even a purely a mechanical technical system can work very nicely, thanks very much!

As if to conclusively proof to me what an absolute wally this joker is, he goes on the say that the market can't be beaten and to go out and buy index funds. :shoot::bigun2:

Anyway, thats off my chest now!

Cheers

[crashy]

well you are both right

most t/a is crap.

simple things like support / resistance, trendlines etc work well and always have.

I have backtested every indicator under the sun and none of them did more than 5% above 50% (random) reliable.

Thats the trouble with lagging indicators.......they tell you where the market has been, not where it is going.

there are successful chartists around, but there are 99x more failed ones.....yet value investors are the opposite, 1% failed and 99% successful.

I lean more towards the random walk theory, though it has been proven stocks are leptokeurtotic, where for example if the move in price is up then there is an increased, albeit small chance of the next days price also being up.

As for index funds, you notice he didnt say managed funds? Thats because even the pros cant beat the market. FACT.

so does t/a deserve a bagging?

with a 1% success rate, what you think?

[tech/a]

Actually I agree with the idiot!tually, But would change the statement from "Never met a successful chartist" to "Never met a successful random discretionary trader"---which most are!

Wayne I dont know if you found out how he came to that conclusion.(Fundamental and Technical)
If he came to it because he couldnt succeed in the Market with either analysis tool then he has learnt bugger all about what makes a successful trader academic or not.Im not going into it as Ive written a whole thread on the topic(and you know).

BUT.
Both styles of analysis are necessary.They give you a Starting,Failure, and END point.Now wether they are better than random is a topic which will be debated for years.
My findings are the same as Crashy's.
I feel that eventually they (Any analysis) will revert to the mean.However at times it will (Any Analysis) be deviations from the mean in both directions.
By formulating methodologies we cut our losses(When it deviates negatively from the mean) and let our Profits run (When it deviates positively from the mean).
So all analysis has its place and the skillful will find ways of trading successfully with its use.

Now give the same guy a Cricketball and tell him to make $250,000 a year with it. In all probability he will tell you thats not possible.
Now give the ball to Shane Warne!! (Technical).
Or A Cricketball Manufacturer (Fundamental).

[Porper]

Now give the same guy a Cricketball and tell him to make $250,000 a year with it.In all probability he will tell you thats not possible.
Now give the ball to Shane Warne!! (Technical).
Or A Cricketball Manufacturer (Fundamental).


Like the analogy, very apt.

I agree that most chartists (pure chartists) do not make money, you have to make the effort and put some time into technical analysis.I am biased as I don't know too much about charting, however to me common sense says that you cannot trade purely using charts with no feeling or knowledge of a company, eventually you will run out of luck.

My image of a true chartist is a train spotter type character who looks like a mad professor, sat at a desk going over and over numbers and graphs, never finding the same answer twice ............... not for me, I would rather have a good time losing money buying stocks like MUL (sorry MUL holders) unfortunately I hold shares in this stock too. :iamwithst

[tech/a]

.

My image of a true chartist is a train spotter type character who looks like a mad professor

Hmm I was unaware we've :millhouse met!!

[doctorj]

The reason why pure chartists don't succeed, because as much as we hate it, we always work at the hard right hand edge of any chart. Personally, I believe that technical analysis forms a vital part of a entry selection process but not in isolation.

My procedure has always been shortlisting the 1600 odd stocks we have based upon technical analysis, simply because its much easier to do. Then I look for fundamental reasons to enter a stock. On the flip side of the coin, I have always believed that a technical approach to exit a stock is sufficient.

The reason why pure chartists often fail is because stocks go up and down without reason. A stock that changes direction without reason doesn't have the petrol in it to sustain its price movements - typically it will retrace just as suddenly, and for as much reason as it went up in the first place. This is particularly the case with strong bull or strong bear markets.

[wayneL]

The reason why pure chartists don't succeed,....

Hmmmm.....better go check my account. I never realised I wasn't succeeding.

My beef with this jerk is that he claims ALL tech analysis doesn't work.

A stupid thing to say.

[doctorj]

Hmmmm.....better go check my account. I never realised I wasn't succeeding.


I didn't say all chartists don't succeed, I was offering a reason why chartists don't succeed - meaning some, a portion, but by no means all.

[stockGURU]

Hmmmm.....better go check my account. I never realised I wasn't succeeding.

My beef with this jerk is that he claims ALL tech analysis doesn't work.

A stupid thing to say.

Wayne, surely fundamentals figure into the equation for you at some point?

[wayneL]

Wayne, surely fundamentals figure into the equation for you at some point?

Well I suppose some very basic f/a, but only to determine if a particular company is tradable...has enough volume etc.

But daytrades or 3-30 day trades are more about sentiment than fundamentals.

Cheers

[wayneL]

<<<<there are successful chartists around, but there are 99x more failed ones.....yet value investors are the opposite, 1% failed and 99% successful.

I lean more towards the random walk theory, though it has been proven stocks are leptokeurtotic, where for example if the move in price is up then there is an increased, albeit small chance of the next days price also being up.

As for index funds, you notice he didnt say managed funds? Thats because even the pros cant beat the market. FACT.

so does t/a deserve a bagging?

with a 1% success rate, what you think?>>>>

I think we have to differentiate between trading and investing...cause trading isn't investing.

Trading is a business and thats what people have to realise. Note the correlation with traditional business where 95% also ultimately fail for a variety of reasons...usually undercapitalization.

I see most technical traders failing because of undercapitalization and/or a gambling mentality.

So does t/a deserve a bagging?....Hmmmm....I think t/a educators, generally should not only be bagged, but also castrated etc. But t/a doen't deserve to be bagged, it's just various derivitives of price/volume etc.

Cheers

[still_in_school]

Hi Guys,

im not quite too sure, about T/A not working, but i do very much prefer using it over, other forms of analysis, there are many ways to analysis a stock or company, but, for specific entry points and exits, im finding T/A works great...

im not really into the speculative penny stocks, but stocks with the ability to be margin lend, (usually blue chips), is really all the fundamentals ill really rely on a company ever at all...

but what i like about technical analysis, if a trend is reoccuring, i dont want to buy within, the first 10% of the trend begining or reversing, but i rather just buy and ride that 80% chunk up or down... for this ill need T/A, but because majority of T/A are lagging indicators... this works out great.. for waiting to see, if a new trend is reoccuring.. but also it works well again for exiting...

personally i find T/A can be right about 70% of forecasting entry, but T/A is better used as confirming when an uptrend or downtrend has occured and is forming...

though... depending on the chartist it could be, specific indicators they are using, in which they specifically think can determine both entry and exit positions..

i believe stock market college, claims they have an indicator, in there software program that can indicator both entry and exit points... (lol, again another so called guru)

Cheers,
sis

[tech/a]

Wayne/Stockguru.

I use purely T/A no F/A what so ever Initially Ill have no idea what a company is into.All I know is its triggered a buy,I dont know why and I dont care.
BT however---- Care as they have done the F/A so the stock is included in their margin list.But I have no opinion.

Wayne I think your spot on with some of the reasons traders fail infact Id put undercapitalisation at the top the result is a gambling mentality.Here is a few more!

I also believe the vast majority dont understand the correct application of their technical knowledge.Ive often seen traders place RSI,Stochastic and WilliamsR on the same chart,Infact at times I cant even see the chart!!!.All measure the same thing and all use the same components of price (Arranged/calculated) slightly differently.Its like going to the shop on a Bike,Car or Bus.Same route different vehical.
Gann(heaven forbid)analysts so rapped up in forcasting a correct point in time that they have no idea how to apply the analysis to trading!!

People analysing patterns and "EXPECTING" a result everytime purely because some book says that the pattern "Could" result in X move.

If people understood what the analysis did and how it was calculated they would also know when it failed and then what to do about it!

(1)Analysis of ANY kind is useless if it stands alone,without knowledge of how to formulate a trading methodology from its use.
(2)Then that methodology is also useless/dangerous without the user knowing if it is profitable.

Now if you cant get to point (1) what hope have you of getting to point(2).

[tech/a]

While not conclusive and for a bit if fun.

Ran a search for stocks 12 mths ago over their 40 day EMA (Moving average)

189 came up.% above the average after X days were,Trading weeks are 5 days.

1 day 38
5 days 50
2weeks 53
1 Month 54
3Months 64
6 Months 62
1 Year 60

you could run tests on any indicator to finsd an average but think youd be supprised at how often the percieved edge is very small if any at all,over a very long test period.

But again there will be times when every indicator/or price action pattern will be well above or below its average.

tech

[tech/a]

While not conclusive and for a bit if fun.

Ran a search for stocks 12 mths ago over their 40 day EMA (Moving average)

189 came up.% above the average after X days were,Trading weeks are 5 days.

In My haste to go for a beach run I posted the results and they were misleading.Ill try again below.

1 day 38
5 days 50
2weeks 53
1 Month 54
3Months 64
6 Months62
1 Year 60

you could run tests on any indicator to finsd an average but think youd be supprised at how often the percieved edge is very small if any at all,over a very long test period.

But again there will be times when every indicator/or price action pattern will be well above or below its average.

tech

I think the following makes it clearer.

After 1 year 61% are higher than the close 1 yr ago.
After 6 mths 48% are higher than the close 12 mths ago.
After 3 mths 44%
After 1 mth 55%
After 1 week 49%
After 1 day 37%

My rounding will account for minor discrepencies.

So of the 60%,48% and 44% how man % increase in price 20% from the initial
buy price 12 mths ago.

After 1 yr 43% have increased by 20%
After 6 mths 22%
after 3 mths 17%

So I hope this illustrates 2 things.
(1)Technical analysis on its own doesnt guarentee profits or even a better than average entry (After the first day 67% would have been below the buy trigger, after a week its aound half and a month not much different)
(2)There are many other factors one bandied around is let your profits run well,after 12 mths 60% of trades taken would have been in profit.

One further thing about finding a gem and riding it.

Of the 189 stocks in the test case 8.5% rose 100% or more.

So the question is how do you find as many of these as you can and get on them?

Any suggestions?

[wayneL]

oh yeah! I forget to mention one other principle he ridiculed...cutting profits and letting profits run!?!?!?!?!?!?!?!?

Go figure!

[Fleeta]

Was there another statement in there that goes something like 'its not timing the market thats important but time in the market', which i'm sure would be another one that would annoy all the traders out there.

In response to Tech/a's question:
'So the question is how do you find as many of these as you can and get on them?'

I think the answer is that you need
a.) luck
b.) to do some fundamental analysis as well
c.) look at the world around you (for example, I remember reading an interview with Geoff Wilson of WAM that said he went to the supermarket one day and noticed that Greens Food products were suddenly in a more prominent position on the shelves, he bought in and 12 months later the share price had doubled)

I'm sure that most of the stocks that went up by over 100% were either subject to takeover offers, had some earnings upgrades / surprises or some unexpected annoucements. You really can't pick these things through technical analysis and need to understand the dynamics of the various sectors of the economy and predict the future by guessing what will happen to a company. For example, the electricity industry in Australia got privatised in the late 90's - a whole heap of American companies bought in - then they started to get out a couple of years ago - so you would have realised that companies like Alinta and AGL were going to benefit from this, and Alinta has of course doubled in the past 18months or so courtesy of the UE acquisition. Origin Energy has also doubled. Now what sector is next to rationalise - the wine sector? I know I bought into MGW in anticipation late last year...who knows what 2005 will hold on a M&A front, but quite often you can pick what companies are going to be subject to takeover offers by looking at whats happening in their industry.

[tech/a]

Wayne

Did you buy the book?---what exactly is his point other than believing that what we do is impossible.

Fleeta.
I cant agree that T/A alone cant get you on long term winners.
Techtrader took.
UTB,QBE,PMP,SFE,TOL without consideration of Fundamentals.
Either announcements or analysis of the company (other than inclusion in BT's Margin list).
On the other foot its also possible to get on board a winner with NO knowledge of Technicals.
I would and will argue that a knowledge of Technical Analysis will give you a better control and undrstanding of your trading.Plus the capability of testing and honing your trading method quickly and efficiently.I also will argue that your moneymanagement can also be more effective and most definately your Risk stratagies can be efficiently implemented.

While not impossible if trading purely fundamentally------ more unlikely!.

I think that sound fundamentals make a rise like ALL more likely.
Finding it when it does take off and signalling when to get off are likely to be easier and more profit effective using technicals

[Fleeta]

Finding it when it does take off and signalling when to get off are likely to be easier and more profit effective using technicals

Agree with you totally...I wish I knew more about technical analysis as it would have stopped me having some big losers such as HOM, MPI and ION and stopped me from getting our of some big winners too soon such as TAH and SMS. But I must say that you and several others here are helping explain t/a and I thank you for dedicating the effort in your posts.

[wayneL]

<<<<<Wayne
Did you buy the book?---what exactly is his point other than believing that what we do is impossible.>>>>>

LOL-NO!! But I had plenty of time to read it whilst missus was spending all my profit at Myers. [Tip: go out and buy CML, I suspect they will be reporting increases in sales next report. ;-)]

What is his point? I don't know why those of his ilk persist with this sort of arguement. Usually these guys are actuaries (like Richard Fitzherbert) or acedemics of some sort.

Perhaps it's how they are indoctrina.......er, I mean educated.

They like to crap on about acedemic studies that have discredited technical analysis. But as anyone who has had exposure to so called "scientific process" would realise, most "studies" are completely lacking in integrity. The desired result decided before the methodology, according to vested interests; the resulting methodology of the study reflecting this.

But what baffles me is that one does not have to look very far to find successful technitions, blowing these theories out of the water.

Once more, they don't seem to realize that, at the same time, modern portfolio hypothesis (or whatever it is) suffers from challeges of it's own.

Maybe these turkeys rely on the general populace to pay them consultancy fees, whereas the technition pushes his own barrow.

Technical analysis is bad for business.

Well thats my theory without having put too much thought into it. :)

Cheers

[RichKid]

LOL-NO!! But I had plenty of time to read it whilst missus was spending all my profit at Myers.

At least you took her while Myers was on sale (ended today)- smart trading there, made your money go further (for her)!!! ;)

[RichKid]

There are quite a few TA traders in Jack Schwager's Market Wizards books for example talking about how they've made huge gains consistently, they are well known as are their profits so it's hard to dismiss TA so lazily. Works for some doesn't for others.

[tech/a]

Kris,(Son) has just finished his BSC in Physics.

His specialty is Photonics as such he is working with the Uni of Adelaide in Research on his break before Masters.

Anyway a mate of his is doing a paper on Quant analysis studying market cycles and order.Ive asked if I can have a copy of his paper.
If and when I get it Ill let you know his findings.

By the way Ive had discussions with Kris whos maths skills arent all that tardy.Simply he insists-----maths can explain anything you like it can both prove your wrong in an arguement and right in the SAME arguement.

I didnt argue!!

Hey Rich--------Did you know that Shwagger failed dismally as a futures trader!!

[TjamesX]

I'm half way through my course at the securities institute, and Modern Portfolio Theory and the Efficient Market Hypothesis were almost enough to make me sick.

Coming from an Engineering background I like a bit of fundamental explanation for how things work and tie together - but Modern Portfolio Theory is a joke. I think acedemics in finance would like to assume their feild of expertise (?) is logical and can be derrived from a few simple concepts. I think they should head over to the psychology dept. because as soon as you'r talking about markets you're really talking about humans - who tend not to always be logical.

In a related matter I have almost finished reading about the rise and fall of Long Term Capital Management. The fund which proved that the very academics that came up with modern finance theory failed to properly estimate the madness of markets.

[ghotib]

Ummm... Wayne, the book you saw is probably the newly released 8th edition. The 1st one was published in 1973. I haven't seen it, let alone read it, but your acidic review sent me off for a look at it on Amazon.

From the reviews, the essential message seems to be that the average inconsistently interested punter is better off putting money into index funds than in managed funds or stocks. Not quite such an ulcerating message as you might have thought? Not that I'd dream of arguing with you when I have so little information... but no mice were involved in the writing of this book; the author's surname is Malkiel <gdr>

Cheers,

Ghoti

[ghotib]

<<<<<Wayne
Usually these guys are actuaries (like Richard Fitzherbert) or acedemics of some sort.

Perhaps it's how they are indoctrina.......er, I mean educated.

They like to crap on about acedemic studies that have discredited technical analysis. But as anyone who has had exposure to so called "scientific process" would realise, most "studies" are completely lacking in integrity. The desired result decided before the methodology, according to vested interests; the resulting methodology of the study reflecting this.

Definition of an actuary: a person (probably male) who uses highly technical and sophisticated methods to proceed from unwarranted assumptions to predetermined conclusions.

Ghoti (ex-insurance industry)

[tech/a]

Definition of an actuary: a person (probably male) who uses highly technical and sophisticated methods to proceed from unwarranted assumptions to predetermined conclusions.

Here are a couple of those.

(1) Latest research shows that 3 out of 4 people make up 75% of the worlds population.
(2) Reseach has shown that research causes cancer in rats!
(3) One For the technical and Fundamental analysts among us
The 50-50-90 rule.
When you have a 50-50 chance of getting something right there is a 90% chance youll get it wrong!!!!

Anyway I started out with nothing and still have most of it!

Cheers Tech

[RichKid]

Nice post Tech/Ghotib, very funny guys, keep em coming, no point in taking this stuff too seriously!!

[Jett_Star]

Like the analogy, very apt. :iamwithst

Me too, that is a great ananlogy :)

[Jett_Star]

The 50-50-90 rule.
When you have a 50-50 chance of getting something right there is a 90% chance youll get it wrong!!!!

Excellent! :iagree:

[Warren Buffet II]

I found this interesting definition about chartists.

Charting

Many people use charting, otherwise known as 'technical analysis', to help them make decisions about timing. The fundamental idea behind charting seems to be that whilst it is impossible to know all the fundamentals behind a stock, all relevant information is revealed in its price movement. Of course this is a very dangerous assumption, as share price manipulation is rife on the Australian stock market, especially in the speculative sectors. A stock could also be rising or falling due to sentiment, which is not always soundly based and can quickly change.

My own attempt at a humorous summary of the basic rule behind charting is that a trend will continue until it doesn't. So, you simply buy when the trend is up, ride the trend until it stops and then sell at a profit. Very simple in theory...not so simple in practice.

There are a number of problems with using just charting as a basis for timing decisions; here are a few.

By the time the chart unequivocally suggests a buy, most of the run may have already occurred.


By the time the chart unequivocally suggests a sell, it may be difficult to do so because of illiquidity.


Many charts are choppy and would entail frequent buying and selling, but this creates significant transaction costs.


Charts are open to interpretation and sometimes even experienced chartists cannot agree, except in hindsight.
Add this to the fact that charting has to be learned and this inevitably entails a cost, and you will realise that technical analysis is not the magic wand that some sellers of charting seminars, software programs and books would have you believe. If someone claims that it is easy to make money through charting then, as suggested earlier, politely ask to see their tax returns for the years they made their big killing from it. There is a famous quote that goes, 'I've never yet met a rich chartist'. A bit harsh, but like the mining company definition, possibly containing a hint of truth.

It is worth mentioning at this point that not all chartists are the same. There are followers of Elliot Wave theory, Fibbonaci sequences, and so forth. They all have one thing in common though, a belief that certain patterns occur and recur for some often hidden reason and that it doesn't matter why something happens in the market, as long as you know that it is happening or will happen.

As I have made clear, I am a little skeptical of the chances of survival in the sharemarket using only charting.

Having said that, charting can be a useful tool in your ****nal, and at least a rudimentary knowledge is worthwhile if only because there are many chartists and it's good to know what they're likely to do.

The futures markets too, may be a different kettle of Plankton, and appear to lend themselves much better to technical analysis. The whole argument about exactly what sort of chaotic system the sharemarket represents and whether any kind of mathematical or charting based predictive technique can ever be reliable is a very interesting one.

[Mofra]

WayneL,

Whilst I've read this thread with interest, there is one point I'd like clarified to put this thread into context.

Does this "Burton Mickymouse" define profitability as success OR outperforming the index as success?

As for the putting your money into index funds only, that sounds like he is suggesting that doing nothing in ignorance is a better strategy than learning, researching & applying those skills and knowledge in a systematic manner.

A little hard to swallow personally