Why don't hedge funds use 'exotic' analysis techniques?

[theasxgorilla]

Why don't I ever hear about successful hedge funds using Gann or Elliott Wave or VSA? Are such techniques only appropriate for the small-scale traders? What prevents hedge funds using them?

 

[It's Snake Pliskin]

Re: Why don't hedge funds use 'exotic' analysis tecniques?

Why don't I ever hear about successful hedge funds using Gann or Elliott Wave or VSA? Are such techniques only appropriate for the small-scale traders? What prevents hedge funds using them?

Mr Gorilla,

A good thread worthy of discussion.

The size of trading funds is an issue for any strategy.

 

[theasxgorilla]

Re: Why don't hedge funds use 'exotic' analysis tecniques?

The size of trading funds is an issue for any strategy.

That raises a more focused question...can these techniques only work around the edges of markets because if they got in among it to any great extent they'd lose their 'edge'?

 

[ducati916]

Re: Why don't hedge funds use 'exotic' analysis tecniques?

ASX-G

Imagine that you are the principal of the start-up hedge fund, presenting to a group of potential investors.

Scenario #1
You provide on a powerpoint presentation a number of highly complex calculus based equations that describe your investing strategy.

Scenario #2
You provide on a powerpoint presentation a chart, chock-full of squiggly lines based on planetary movements.

Understanding the equations is unimportant, in fact you'd probably get a better sign-up rate if no-one understood the equations.

Need I say more?

jog on
d998

 

[theasxgorilla]

Re: Why don't hedge funds use 'exotic' analysis tecniques?

Need I say more?

...I don't know. As the principal of the start-up hedge fund which uses planets to trade, do I have a track record?

 

[tech/a]

Re: Why don't hedge funds use 'exotic' analysis tecniques?

Ducster.

People invest in Tree farms,Ostrich Farms,Nigerian Money Laundering scams,English you've won the lottery scams.

Need I say more?

Radge is right up on this stuff Ive seen him quote a number of Fund Managers who use Technical analysis in funds.

Bottom line is How is it performing and for how long.
As you know duc its not as easy as it looks finding undervalued stock.

Funds have whole floors of Academics crunching numbers and technical trading techniques.
As Snake says though pure volume puts them at a disadvantage to the retail trader.

 

[ducati916]

Re: Why don't hedge funds use 'exotic' analysis tecniques?

ASX-G/Tech

I am not arguing the validity or lack thereof in regards to Gann/Elliott simply that it is easier to sell something that has a better accepted theoretical underpinning.

Track records are important and should someone who relies on said methodologies possess such a track record, I'm sure that will be of great importance.

It would seem however that there is currently only a small number of accountable, auditable, successes utilizing said methodologies that wish to move into the Hedge Fund game.

jog on
d998

 

[tech/a]

Re: Why don't hedge funds use 'exotic' analysis tecniques?

ASX

How'd you edit my post (See bottomline).

 

[theasxgorilla]

Re: Why don't hedge funds use 'exotic' analysis tecniques?

ASX

How'd you edit my post (See bottomline).

Moderator privelages...part of the package.

 

[Nick Radge]

Re: Why don't hedge funds use 'exotic' analysis tecniques?

One of the main reasons is that technical analysis in its "discretionary" form such as classic charts or more exotic strings such as EW or Gann is deemed to be a risk on several planes. Firstly its a "skill based" risk. If the trader who has the skill leaves the firm, gets hit by a bus, whatever, then the investor is left out in the cold. An investor will want to ensure that the fund can make returns regardless of who is at the helm.

Secondly a "discretionary" method opens the way for "strategy excursions" (the exact technical term has escaped me). If a track record is built on a certain chart pattern, say EW for example, then there is a chance that "variants" of that chart pattern can creep into the process. This usually happens during drawdown when doubt creeps into the traders mind. If an investor invests based on a track record using "XYZ" strategy, they don't want to be involved if somehow that strategy turns into a "WXY" instead.

As a result most demand for money management is via "systematic" approaches that can be replicated into the future by anyone within the business. There is no key man risk or "skill based" risk and a fully systematic approach will tend not to be toyed with.

 

[CFD]

Re: Why don't hedge funds use 'exotic' analysis tecniques?

Moderator privelages...part of the package.

Um shouldn't this status be declared ?

 

[Joe Blow]

Re: Why don't hedge funds use 'exotic' analysis tecniques?

Um shouldn't this status be declared ?

On the forum index page: https://www.aussiestockforums.com/forums/ you will see a link called 'View Forum Leaders', at the bottom of the list of forums. This takes you to a list of forum administrators and moderators. It is always up to date and always accessible by all ASF members.

 

[wabbit]

Re: Why don't hedge funds use 'exotic' analysis tecniques?

Why don't I ever hear about successful hedge funds using Gann or Elliott Wave or VSA? Are such techniques only appropriate for the small-scale traders? What prevents hedge funds using them?

For a VERY interesting read, have a look at "Technical Analysis and the Active Trader" by Gary Norden.

You'd be surprised about how many professional traders DON'T use TA techniques, exotic or traditional. (Paraphrasing) Gary traded on some of the biggest markets of the world without knowing what a moving average was!

Technical Analysis and the Active Trader’ offers a unique perspective as to the origins and use of technical analysis based on significant research. Bedrock technical analysis assumptions are exposed as little more than poorly performing rules of thumb.

This book is worth every cent and has paid for itself time after time, each time I don't do something stupid I thank Gary and his book.


wabbit

 

[It's Snake Pliskin]

Re: Why don't hedge funds use 'exotic' analysis tecniques?

One of the main reasons is that technical analysis in its "discretionary" form such as classic charts or more exotic strings such as EW or Gann is deemed to be a risk on several planes. Firstly its a "skill based" risk. If the trader who has the skill leaves the firm, gets hit by a bus, whatever, then the investor is left out in the cold. An investor will want to ensure that the fund can make returns regardless of who is at the helm.

Secondly a "discretionary" method opens the way for "strategy excursions" (the exact technical term has escaped me). If a track record is built on a certain chart pattern, say EW for example, then there is a chance that "variants" of that chart pattern can creep into the process. This usually happens during drawdown when doubt creeps into the traders mind. If an investor invests based on a track record using "XYZ" strategy, they don't want to be involved if somehow that strategy turns into a "WXY" instead.

As a result most demand for money management is via "systematic" approaches that can be replicated into the future by anyone within the business. There is no key man risk or "skill based" risk and a fully systematic approach will tend not to be toyed with.

Nick,

Would you agree that the successful technical based trader using a disrectionary approach could deemed an "artist"?

This is purely my belief. It is why the majority don't do well. It can be self-taught too.

 

[It's Snake Pliskin]

Re: Why don't hedge funds use 'exotic' analysis tecniques?

For a VERY interesting read, have a look at "Technical Analysis and the Active Trader" by Gary Norden.

You'd be surprised about how many professional traders DON'T use TA techniques, exotic or traditional. (Paraphrasing) Gary traded on some of the biggest markets of the world without knowing what a moving average was!



This book is worth every cent and has paid for itself time after time, each time I don't do something stupid I thank Gary and his book.


wabbit

It is quite ok to not use TA for trading.

I may read his book, thanks for the info.

It is also ok to not have any philosophy at all and do well.

 

[Nick Radge]

Re: Why don't hedge funds use 'exotic' analysis tecniques?

Bedrock technical analysis assumptions are exposed as little more than poorly performing rules of thumb.

This is a classic example of ignorance. The use of TA is simply a tool to participate in the market. TA on its own does not make money. TA is no better than a coin toss. TA makes people feel comfortable with what, why and when they participate. So long as they can create a positive expectancy whilst participating in the market, then who the heck cares. The goal of participating is to make money.

It cannot be argued that patterns, even simplistic patterns, do not repeat. If a pattern repeats and it can be traded to effect a positive expectancy, then why not?

I agree that you do not even need to use TA as a tool. Indeed my closest friend is possibly one of the most profitable traders in Australia and he uses a hand held ticker. He's a truly unique and intuitive trader. Does that make him any better than anyone else turning a profit? No. We all drive different cars because we all have different personalities. Trading style is no different.

Snake,
It TA or discretionary trading an art? I'd say so, yes. I know I see and pick up patterns well before many others do. That comes from experience knowing what predicates a pattern. I've said before that there are two types of traders; skill based on non-skill based. I place myself in the latter category. I do not have a unique ability to see market action before it happens but I do have the ability to create a positive expectancy and the wherewithal to see the process through.

Nick

 

[bingk6]

Re: Why don't hedge funds use 'exotic' analysis tecniques?

You'd be surprised about how many professional traders DON'T use TA techniques, exotic or traditional. (Paraphrasing) Gary traded on some of the biggest markets of the world without knowing what a moving average was!

wabbit

ASX,

Perhaps he was trading your random entry/exit system

 

[julius]

Another point to consider, which I think others eluded to, is the ability of any market to support institution sized positions given the rife use of leveraging in the hedge fund industry.

Fundamentally any trader seeks to buy low and sell higher, in other words, ride market shifts between points of equilibrium, but when dealing with large positions there is the problem of market impact & loss of liquidity but also others willing to take profits before it is possible for the fund to exit a position.

This is a substantial risk for trades with big balances and perhaps a reason why hedge funds and others might look avoid situations where other traders might be looking for the same entries and exits.

This is a major purpose of quants and computer based entries and exits by the institutions & funds - not to pick the movements but to get in and out without too much slippage. So to speak :

Another point is what T/A indicates - I would say it is the underlying market state, and T/A can provide a means to gauge this state across different markets. Of course there are many ways to skin a cat; as Nick Radge said some who are familiar enough with the market have a feel for likely movements without the need to use other tools.

 

[rich4495]

I think many funds use complex multi-point models along with "gut feel" approaches to corporations, industries and sectors. There are so many sector waits and beta-based volatility requirements for each investment that without some quantitative aspect to the process they would be left behind in today's competitive markets for long-term low vol solid performance.

 

[theasxgorilla]

I think many funds use complex multi-point models along with "gut feel" approaches to corporations, industries and sectors. There are so many sector waits and beta-based volatility requirements for each investment that without some quantitative aspect to the process they would be left behind in today's competitive markets for long-term low vol solid performance.

I actually have no idea what you just said .