Analysis Techniques Discussion Thread - How it's used, why it works or why it doesn't

[tech/a]

I suggest this thread is used for examples of all types of Fundamental and Technical Analysis with supporting evidence of how it works and why and when it works.

There are a lot of blanket statements without supporting evidence.
This is a thread where that can be presented without de railing a thread
where a point about a form of analysis is being placed up as a view and disagreements form.
Hear they can be discussed and each view presented.

 

[tech/a]

Re: Analysis Techniques Discussion Thread - How it's used, why it works or why it doe

Are there ANY analysis techniques that people use and work consistently?

 

[luutzu]

Re: Analysis Techniques Discussion Thread - How it's used, why it works or why it doe

Are there ANY analysis techniques that people use and work consistently?

While not an analysis, I think an important point to note when debating the merit of fundamental vs TA is that with TA the investor/trader will always have to work to make a buck whereas with fundamental, you'd only need to work hard before you invest and thereafter only look at your investment once or twice a year.

So with fundamental, if the investor still want to work and want to look for better opportunities.. .then they keep at it. But if they decide to spend time with the kids, take a holiday or just retire... their holdings will work for them. I think TA people will probably have to sell all their holdings if they want to get away.

In other words, fundamentalists can have their money (and the enterprises it's put into) working for them where the TA will have to always hang around working with their money. Assuming either approach have their merits and can be as equally profitable... owing and thus having a business work for you is preferable to me because I want to go to Disneyland some day and somebody got to still earn a living for me

 

[skyQuake]

Re: Analysis Techniques Discussion Thread - How it's used, why it works or why it doe

Are there ANY analysis techniques that people use and work consistently?

Nice try!

 

[tech/a]

Re: Analysis Techniques Discussion Thread - How it's used, why it works or why it doe

Nice try!

Trying to get the topic up and running.
I'm not looking for an F/A v T/A debate.
What I will be presenting is exactly what the topic
Is asking.
But I'd like to see others involved before I am.

Thanks Luutzu
Both forms of analysis can operate in varios timeframes.
Both can be managed from a laptop. So in respect to your
Comments I think either are on an even footing with regard
To manageability.

 

[AlterEgo]

Re: Analysis Techniques Discussion Thread - How it's used, why it works or why it doe

Are there ANY analysis techniques that people use and work consistently?

Not sure if you'd call it an "analysis", but system trading has been working consistently for me.

 

[AlterEgo]

Re: Analysis Techniques Discussion Thread - How it's used, why it works or why it doe

with TA the investor/trader will always have to work to make a buck

I don't think that necessarily true. If you are trading a system for example, there is very little work involved (after developing the system in the first place). I don't need to to be glued to a screen all day or anything.

 

[tech/a]

Re: Analysis Techniques Discussion Thread - How it's used, why it works or why it doe

Not sure if you'd call it an "analysis", but system trading has been working consistently for me.

Yes it certainly is.

Can you briefly explain why this works for you
How you apply it and why it works?

 

[luutzu]

Re: Analysis Techniques Discussion Thread - How it's used, why it works or why it doe

I don't think that necessarily true. If you are trading a system for example, there is very little work involved (after developing the system in the first place). I don't need to to be glued to a screen all day or anything.

An automated system working for you is not the same as what I mean by having the business you buy through stock ownership working for you. But I know what you mean.

Take Bill Gates... he doesn't really work to earn the millions per hour that his income worked out to be. He earn it through the Windows and Office software and whatever it is Microsoft also do.

So he can take times off and save the world and still is the richest man in the world with constant income stream - from Microsoft working for him.

Some may call this compound interest, and it's true but it's also about owning an asset that could potentially go on earning for generations, often without you needing to do much to it (as an investor).

That's a real advantage to treating stocks as a share in a great business rather than as a commodity to be traded.

But that's off topic...

As to technique and its consistent application... There is that Way in fundamental... but like the true way, it cannot be defined, haha (i'm serious - can't define it by, say, high ROE and high profit margin and no debt... can't define it that concretely)

 

[AlterEgo]

Re: Analysis Techniques Discussion Thread - How it's used, why it works or why it doe

Yes it certainly is.

Can you briefly explain why this works for you
How you apply it and why it works?

Well in a practical sense it works for me because:
1. Having tested it and seeing that it has had a fairly consistent edge over time, it gives me the confidence to stick to it when in drawdown.
2. With a system the rules are not subjective.
3. Requires little time to apply.
4. No need to watch the market during the day, so fits in with having a full-time job.

I apply it by running an exploration in Amibroker after market hours and place the trades it says for the next day.

Why it works I could only speculate at. It’s a mean reversion strategy. On a short term basis, say a few days duration, the market is mean reverting in nature. Why the market mean reverts though I’m not so sure – perhaps it’s that the market tends to overreact to any bad news, people panic and sell, however the next day or few days later the market has usually recovered most of the drop. So I’m buying when the majority are selling, and vice versa. As we know, the majority of market participants lose money, so taking the opposite position makes some sense. So I guess it’s really a contrarian type of approach.

Another benefit of this approach is that you don’t get any slippage. You either get the price you want, or better, or don’t get filled at all. Gaps work in your favour and get you a better entry price or better exit price.

 

[CanOz]

Re: Analysis Techniques Discussion Thread - How it's used, why it works or why it doe

Well in a practical sense it works for me because:
1. Having tested it and seeing that it has had a fairly consistent edge over time, it gives me the confidence to stick to it when in drawdown.
2. With a system the rules are not subjective.
3. Requires little time to apply.
4. No need to watch the market during the day, so fits in with having a full-time job.

I apply it by running an exploration in Amibroker after market hours and place the trades it says for the next day.

Why it works I could only speculate at. It’s a mean reversion strategy. On a short term basis, say a few days duration, the market is mean reverting in nature. Why the market mean reverts though I’m not so sure – perhaps it’s that the market tends to overreact to any bad news, people panic and sell, however the next day or few days later the market has usually recovered most of the drop. So I’m buying when the majority are selling, and vice versa. As we know, the majority of market participants lose money, so taking the opposite position makes some sense. So I guess it’s really a contrarian type of approach.

Another benefit of this approach is that you don’t get any slippage. You either get the price you want, or better, or don’t get filled at all. Gaps work in your favour and get you a better entry price or better exit price.

Nice, great work. Would love to see some stats....do you notice regime changes and how does it affect the system performance?

 

[CanOz]

Re: Analysis Techniques Discussion Thread - How it's used, why it works or why it doe

Nice try!

I think Sky was saying "who would want to give up their edge"...

 

[tech/a]

Re: Analysis Techniques Discussion Thread - How it's used, why it works or why it doe

I think Sky was saying "who would want to give up their edge"...

You don't have to give up the implementation or application of what you do but a general description.

The basic premise of analysis why and how it works is way off practical application.

That's what many "Educators" live off!

 

[darkhorse70]

Re: Analysis Techniques Discussion Thread - How it's used, why it works or why it doe

Would love to contribute but atm its still a working progess.

will follow with interest though.

 

[AlterEgo]

Re: Analysis Techniques Discussion Thread - How it's used, why it works or why it doe

Nice, great work. Would love to see some stats....do you notice regime changes and how does it affect the system performance?

Well there have been some periods where it seems to have stopped working for several months – basically the equity curve pauses for a while before resuming upwards again. See system test for the last 5 years attached, and the associated equity curve.

This test is without using leverage. And it’s also using a fixed value for one of the parameters that I use. In practice though, I vary this parameter to suit the market conditions at the time. Eg. In a more dull market, with less volatility, I tend to get very few trades with the default value, so I loosen the value to get more trades. And in a more volatile period where I’m getting far too many trade signals to take, I tighten up this value to make the system more selective.

 

[AlterEgo]

Re: Analysis Techniques Discussion Thread - How it's used, why it works or why it doe

Theoretical back tests are one thing, reality is often another, so here are the actual results that I have achieved with real money.

Attached is my actual equity curve since the beginning of 2013 to present. I have changed the vertical axis to show as % profit from the beginning value, to avoid showing dollar values, as I am not keen on showing my financial details on the forum. This is using leverage of up to 2x, although it’s usually no more than 1.5x.

 

[Value Collector]

Re: Analysis Techniques Discussion Thread - How it's used, why it works or why it doe

The Basic concept behind security analysis ( Value Investing / Fundamental Analysis ), Is that you are not looking at market price action to decide entry and exit points into the market, rather you are looking to the assets owned by the underlying companies, their liabilities and conservative estimates of earning power over time and the valuations you place on them to give you an idea of what each share is worth to you and it's likely value in the future.

You go through a similar process to what you would be doing if you were planning to buy a piece of real estate or business out right.

I mentioned this in another thread.

your looking at the asset itself to generate a return, if you own a farm, a house or any business, your looking at the return the asset is likely to produce over the coming years to justify the price you pay for it, If you have a farm and it produces X amount of corn per acre each year on average then you will be happy, your not going to look at the price of the farm every day, your going to keep an eye on the farms production and make sure everything is running smoothly and returns are as expected,

So for me I try to find good businesses which I can understand the basic economics of, then I determine a conservative value, which I believe the entire business is worth, bring this number back to a per share figure, and if the shares are selling for less than what I calculate the fair value to be based on my required return, I will add them to my portfolio. Then it is just a matter of watching my portfolio and making sure the companies are performing as expected.

 

[CanOz]

Re: Analysis Techniques Discussion Thread - How it's used, why it works or why it doe

I don't think there are too many directional index traders at Prop shops, I could be wrong but I think those like TH are few and far between. My guess, based on who and what I know is that the successful ones do not use the charts for patterns, trend lines etc...what I think they do is they develop the context around the time and the market they're trading. Then they develop a few scenarios on how the day could play out. When the market opens they're watching orders flow, bids and asks. They wait to see who is winning and then they find an opportunity to jump in with a small core position and take some points. If the market stalls they may get out and try again later. If the market starts to trend then my bet is they get real aggressive and work to get up to full size before scaling out into the end of a move....or at least a good part, scaling out back to their core position....

Any prop guys care to let me know if I'm close to the mark here...?

 

[tech/a]

Re: Analysis Techniques Discussion Thread - How it's used, why it works or why it doe

Thanks V/C
Couple of questions from a techie

(1) For a stock to qualify what sort of difference in price are you looking for.10/30/50+ %??
(2) Time is of no concern---I believe---- this being the case
(3) Do you have any concern or plan if after say 6 mth price is below your buy price
(4) How often do you re value each stock in your portfolio
I presume you trade without stops
(5) Do you ever sell a stock other than to take profit
(6) Do you have a universe you trade from?
(7) How many stocks form your portfolio?


In your experience why do valuations differ from person to person.
Everyone has the same information?

Do you ever cull your portfolio and under what conditions.
IE under performers or losers.

 

[tech/a]

Re: Analysis Techniques Discussion Thread - How it's used, why it works or why it doe

Can
Isn't that directional--once decided---for the session.
Or
Your saying they let the market dictate dierection and if right hit it