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Which one do you use? Technical or fundamental analysis?

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Re: Which one do you use? Technical or fundamental analysis

Hi Realist,
You said yourself that you would sell a company if the fundaments went bad and its the same in the housing market.
There needn't be anything wrong with the initial valuation but suddenly you get a freeway realignment or a flightpath change, things that are impossible to see a few years in advance because they are rarely mooted for this very reason.
Whats happened - the fundamentals have changed so you take the loss and move on.
I've never seen a jockey win on a dead horse.
John
 
Re: Which one do you use? Technical or fundamental analysis

tech/a


Not at all.
It is simply calculating the percentage return on open equity does not even remotely start to provide a relevant comparison, because you assume that every trade taken is a winning trade. This while it may be true, may also not be true. Therefore you must detail the total number of trades taken required to be left with the *winning* trades. The trades you used were currently your open trades, they have been open for variable time periods.
How many trades were required to be taken to be left with the current portfolio....................let's find out!

This thread is discussing the merits & demerits of predominantly two schools of thought, or philosophy, Fundamentals & Technicals.

Therefore, if you wish to utilize returns as an argument for the strength, or weakness within a methodology, you must present them accurately, or else they become misleading. Thus the only accurate way to gauge the *accurate* returns is to take all the results.

Ok, I have gone back to the results page [from "DL"] and calculated from these results the following;

http://home.iprimus.com.au/trono/Tech_Margin_System.xls

Total # of closed trades = 28
Losses = 14
Wins = 14
Current open trades = 8
Total trades taken = 36
Total time period 33mths

Now for the purposes of these results, I shall take all positions, open and closed, and annualise them for ease of comparison.

The ASX from Sept 2002 to the close on Friday returned 76% in total, or 27.6% annualised to date.

TechTrader from Sept 2002 to the close on Friday has a total return of 13.35%, or 4.85% annualised to date.

This is why Leverage is so important.
With returns unleveraged, the dollar return is not as exciting.
If it is leveraged, then suddenly the dollar returns start to become worthwhile

The exact same principal works in property with a mortgage.
Pay 10% deposit, borrow 90%
At an aggregate 4% long term return, it makes sense.

TechTrader started with $30K
Margin loaned $70K or utilised 2.3 leverage
Therefore the dollar returns are as follows;

Starting capital $30K + $70K = $100K
Finishing capital = $305K - $70K = $235K = 683% total return on $30K
Annualised return = 248% on capital

Leverage will supercharge moves to the upside, or downside.
The rather boring returns based on trading returns, become astronomical when leveraged.

My point however is this; the leverage can work if correctly applied to a number of trading methodologies. The question therefore reverts back to, what is the best trading methodology?

Is it a Technical system?
Is it a Fundamental system?
Is it a combination?
Or something else?


Realist

I bought more BHP about 9 days ago!!

We agree! WooHoooOOOO!
Click to expand...

I am interested in your *valuation*
Would you be prepared to provide an analysis of BHP and your valuation?

I will also provide an analysis, and a valuation.
The two can then be compared to 2 other valuation methods, providing a total of 4 valuations..............Interested?
Of course if any other fundies would want to do the same, the more the merrier.


jog on
d998
 
Re: Which one do you use? Technical or fundamental analysis

Honestly all too hard.

Doesnt help anyone.
The master of complex confuses the simple beyond normal understanding of those who have a genuine interest---the thread becomes impossible to understand.
On the other hand young in experienced people are chest beating --look at me look at me I'm clever.
Experience---zippo it shows in the posting.
Again of no value.

Trading/investing is simple,there are simple winning formulas.
These pointless arguements are time consuming and frankly tedious.

If everytime I or anyone else posts---and the master of the complex wants to turn the discussion into endless dribble---I'm afraid Ill be desisting.
As I will with kids who are simply wanna be's.
 
Re: Which one do you use? Technical or fundamental analysis

So what happens if the share price goes down by 10%? 20%? 50%? 90%? It can and will happen. Unless you have considered what to do in advance you are going to suffer a lot of pain when this happens.

I am not going to bag investing vs trading or fundamental vs technical here since the arguments are perpetual and circular, but am going to thump my chest about having a PLAN which covers every contingency. A written down and fully considered plan, not just a vague idea in the back of your head.

The sharemarket is an intriguing beast - in bull markets bad planning is usually rewarded with profits; not so in a bear market. It is a great humbler.
 
Re: Which one do you use? Technical or fundamental analysis

The sharemarket is an intriguing beast - in bull markets bad planning is usually rewarded with profits; not so in a bear market. It is a great humbler.
Click to expand...

Many if not most traders fail in Bullmarkets.They equate the odd win to consistant profit.
Bear markets bring stupidity from traders who design methods for bullish conditions and expect them to perform in bear markets.
Corrections arent bear markets.
 
Re: Which one do you use? Technical or fundamental analysis

tech/a said:
Many if not most traders fail in Bullmarkets.
Click to expand...
Is there any solid evidence for this? (genuinely interested)
 
Re: Which one do you use? Technical or fundamental analysis



Please name names.
 
Re: Which one do you use? Technical or fundamental analysis

It's always interesting to observe the reactions you get when you outline a trading strategy that you know from personal experience can produce excellent returns. Some people , particularly those who have difficulty thinking outside the square, react with scorn and tell you it couldn't possibly work, even though you and many others (including some of the most respected people in the industry) have been using it for years to consistently outperform the market.
What these critics are telling you in effect is that you and the others who claim success with this method are fools and pretenders.
They challenge you to prove your method works. Personally I can't see any good reason to rise to that challenge. I've already proved it to the one person who matters most....myself. Others who have adopted the strategy after I showed it to them have also had excellent results. Some of them have told me it completely turned their trading results around. If you want something to be proven then the best suggestion I can make is that you put in the hard yards and prove it to yourself, just like I did.
I'm not interested in giving stock recommendations....I've never done it in my life and I certainly won't be doing it now just to comply with a request from someone I don't know from a bar of soap. Apart from that, the market is falling.....hardly the time to be making buy recommendations. I like to trade with the trend, not against it.
Making a couple of stock recommendations, regardless of whether they turn out to be good or bad, does not prove or disprove the validity of a trading or investment strategy.

Realist tells us that tax worries him? Why? Having to pay tax at least proves you're profitable. Long term investors still have to pay tax sooner or later anyway, they're just deferring it for a while. Only way I can think of to avoid tax is never to sell. I doubt very much if many of you will hold any stock for your entire lives. If you do, there'll be times when they perform terribly...no company performs strongly each and every year. The lost opportunity cost of tying up your capital for years in a non performing or plunging stock may well be a far larger expense than any tax you might pay by selling the stock and redeploying that capital in a strong performer.
Tax can be handled to some extent anyway.....if you're making great profits then some of those profits can be sunk into tax effective investments. Talk to your accountant.

Trading involves too much time? Rubbish......about an hour each weekend if you trade from weekly charts, or about 15 to 30 minutes a day if you trade from daily charts.

Brokerage bites into your profits too much? Not at all.....that might be the case with a day trader who is constantly jumping in and out of the market like a grasshopper, but a longer term trader who keeps riding strong trends as long as they continue will sometimes be in a trades for a year of even a couple of years. Such a trader might own only half a dozen or so stocks at any given time and his overall trading activity will be surprisingly light. Brokerage is not a major consideration in this style of trading.

Impossible to get out of an outperformer before it becomes an underperformer? Absolutely true, but I made no claims about getting out before it starts underperforming. The thing to do is set a performance benchmark and then sell the stock if its performance drops below the benchmark. This is the strategy employed by Alan Hull in his 'Active Investing' approach. It's very successful.
Another way to manage a trade is to trail a stop below the stock price so that if the trend runs out of steam, your stop hauls you out of the trade automatically.

MichaelD asked me to outline my entry and exit rules so that he can do further backtesting. Michael, while you're one of the doubters, I at least give you credit for not resorting to scorn and sarcasm to make your point.
As I told you in an earlier post, I don't think computer testing is of much benefit. So far your computer testing has brought you to the completely wrong conclusion that buying outperforming stocks is a poor strategy. This of course is utterly ridiculous. Computer testing will always come up with different results to real trading. There are just too many variables that a real trader will take into account, but a computer will not. Most systems have an element of discretion in them that make them impossible for a computer to backtest in a meaningful way.
Even a simple moving average crossover system can't be backtested meaningfully. The computer would test every single crossover of two moving averages, whereas a trader would reject some trades for any number of reasons, eg. he considers the market to be too choppy (like now for example), or he considers the price history of a stock to have been too erratic to be worth trading. Or maybe he gets a moving average crossover signal but he rejects the trade because there's strong overhead resistance that could put a ceiling on prices in the short term, and he'd prefer to wait for the stock to trade decisively above this resistance level before he starts watching it for entry signals from his crossover system.
There are just so many variables that an experienced trader takes into account. Computer backtesting just can't make allowances for these variables, and will therefore tend to come up with misleading results.
Another consideration is that a computer will test an entry strategy on say all 200 stocks in the ASX 200, whereas a trader who analyses the same block of stocks will select just two or three that he considers standouts.
Michael, I won't give you the finer details of my system that you've asked for....this thread is not about specific trading rules, it's about discussing whether we use fundamental or technical analysis, and our reasons for doing so.
What I'll do is summarise the strategy I've used for years to trade stocks.

1. Identify the weekly and daily trends of the overall market.
2. If both trends are bullish, identify which of the main sectors are bullish.
3. Run a computer scan on the stocks in those sectors to find those that are outperforming their sector, but are currently putting in a retracement.
4. Buy them once they finish their retracement and resume their uptrend.
5. Set a stop loss below the most recent swing low.
6. Trail the stop under the swing lows on whatever time frame chart you choose to trade from.

During a bear market, you can use the mirror image of this system to find good shorting candidates. You don't have to get mauled in a bear market. On the contrary, bear markets offer some amazing opportunities to a competent trader.

The system I've outlined is called the 'top down' trading approach. It's a robust and profitable strategy that has the ability to consistently outperform the market......providing it's implemented properly and with absolute consistency.
I didn't invent it, my strategy was formulated by borrowing ideas from people such as Weinstein, Hull, Guppy, Darvas, Bedford, Elder, Watkins, Landry. All of these people are highly respected in the industry and all use some form of a trend riding approach that identifies outperforming stocks and buys them on retracements.

I'm intrigued by the claims of those who dismiss this approach as unworkable.
Do you really believe I'll underperform the market by only buying stocks that are outperforming the market?
Are you really suggesting that the pople I've mentioned above are fools and pretenders who don't know what they're talking about and can't trade successfully?

Bunyip
 
Re: Which one do you use? Technical or fundamental analysis

So what happens if the share price goes down by 10%? 20%? 50%? 90%? It can and will happen. Unless you have considered what to do in advance you are going to suffer a lot of pain when this happens.
Click to expand...

Okay so I have shares in Fosters - I think they are fairly valued now.

If the share price drops by 10% I ignore it.

If the companies fundamentals are the same (it makes a profit and has a future) and the price drops by more than 10% I'd probably buy more shares.

Simple as that.

I had BHP shares they went up to $32 I did nothing - they then dropped to $25 2 weeks ago, so I bought more. The company is the same just the share price was on sale for a short time only.



Shares in Fosters, Westfiled, CBA, and BHP can not go down 90% - basically impossible!!!

Maybe the company will go belly up ala HIH, Enron - it is a remote and ridiculous possibility. In which case I may lose all my money. But I diversify so well I'd lose maybe 7% of my money at most and calim that loss against a gain so really I'd lose 3.5% - woop de do. And the chances of it happening are so remote it is not worth thinking about. I do not need an exit strategy - hence I do not really have one. I do monitor fundamentals though, of course.

Share prices going down in a good company is a good thing for me, means I can buy more!!
 
Re: Which one do you use? Technical or fundamental analysis


Hi John,

Correct.

If the fundamentals change then yes maybe you need to sell. You don't want to be riding a dead horse.

If just the valuation changes, and the fundamentals are sound - keep it!!

So if the price goes up or down who cares really, you are in for the longterm. But if the local bikie gang set up a headquarters next door it may be time to sell and quickly.
 
Re: Which one do you use? Technical or fundamental analysis

tech/a

Honestly all too hard.

Doesnt help anyone.
The master of complex confuses the simple beyond normal understanding of those who have a genuine interest---the thread becomes impossible to understand.
Click to expand...

Not really, in fact it's quite simple really;

ASX returned on an annualised basis 27.6% since Sept 2002
TT returned on an annualised basis 4.85% since Sept 2002

If you had simply bought the index in Sept 2002, and done nothing, your returns would have been outstanding, far in excess of TT.


Do any techies have the *vaguest* idea about the market?

Realist


I take that as a not interested then?

jog on
d998
 
Re: Which one do you use? Technical or fundamental analysis


That is nearly identical to my system.

I agree regarding backtesting, in that it doesn't take in a huge number of factors such as market sentiment and news that a trader will take into account. Backtesting is only useful as a guide. For such a system like ours, it's probably best to paper trade and note down any outside factors that may have affected the trade.

As George Pruitt said who has tested thousands of mechanical systems... in real trading the profit is half as much and the drawdown double of what backtesting showed.
 
Re: Which one do you use? Technical or fundamental analysis

bunyip said:
So far your computer testing has brought you to the completely wrong conclusion that buying outperforming stocks is a poor strategy.
Click to expand...
No, that's not precisely what I found nor what I asserted. In more detail;


1. Take a given universe of stocks.

2a. Filter them such that the CLOSE compared with the CLOSE 12 months ago has increased by a given x% i.e. essentially find stocks uptrending at a given % per annum.

2b. An alternate filter which is even better at finding outperforming stocks selects those that would not have breached a given trailing stop loss in the last 12 months.

Looking at the charts produced by entry filter 2b shows stocks in sustained uptrend - exactly those that look juciest to select for trading; a straight line from bottom left to top right.

3. Use these as the entry for a trading system.

4. Use a trailing stop to exit.


What I found;
1. Such a system is profitable (and yes, index beating in bull conditions).
2. Increasing the % increase required from the entry filter DECREASED profitability. eg it was more profitable to select stocks rising at 20% PA than to select stocks rising at 35% PA.
3. However, to my unexpected surprise, random entry performed even better again.

So, I'm NOT saying your methodology is unprofitable - it most definitely is. My explanation for the observations I have made so far is;

1. Picking a stock in a long term uptrend and expecting the trend to continue is prediction, which is not possible. It may continue, or it may not. The end of the trend may be tomorrow or it may be 2 years from now. Either way, a significant period of the trend has already passed.

2. The EXIT of a system selects for the outperformers because it weeds out the underperformers, not because they are preselected by the entry strategy.

3. It is the EXIT which confers the profitability, not the ENTRY.


It is entirely possible that changing some of the testing parameters will completely change my results around and I acknowledge that.

It is entirely possible that an experienced trader using discretion could improve the methodology.

I do not claim to know everything about the market. I know almost nothing. The market is teaching me and I am learning its lessons. I am open to considering new and different concepts, even ones which initially seem like madness. However, I will only incorporate them into my trading system if I can prove that they are likely to improve my trading results. For me, that means provable over a range of stock universes and time periods via backtesting and then monitoring the results via system performance going forwards.

So far, the major two things I have found to improve my trading results are; 1. a trailing stop, and 2. an entry above a long term moving average. The great majority of other strategies I have tried have impaired system results.

Your beliefs and results may be different.
 
Re: Which one do you use? Technical or fundamental analysis


How much to attend your seminar Bunyip?


You are peddling simple answers to extremely complex systems that NOBODY has an answer to. I am not attacking you, just the apparent simplicity and passiveness in which you frame your strategy to meet the holy grail of beating the market.


You say the methods works undeniably "providing it's implemented properly and with absolute consistency". But how does this match up to the claims it can't be backtested because it requires trader's intuition?

You are picking 'outperformers' bull markets, I assume you need to seek 'underperformers' in bear markets. Do you have a formula to work out what type of market we are in?

How much do your bull market strategies have to lose before you switch to a bear strategy? Or does the same strategy work in bull and bear markets?

As I discussed earlier, quant models typically prove that in a bear market factors like mean reversion, value and yield will be more than likely to be predictive than momentum. Thus, the high flyers all fall and the boring yielders (who may only go sideways) beat the market.

Quant models use maths to actually quantify the things you are looking for in charts (outperformance, momentum etc)


By definition, if you are in stocks that ARE outperforming, you beat the market. But simply choosing stocks that HAVE been outperforming and buying them because they have dropped a bit is not going to outperform consistently.


ZFX over the last fortnight is a great example. A large manager (a Quant I understand) places a bucket of stock through Citigroup at $10.80 and the broker can't get it away.

A stock that HAS been outperforming and has a RETRACEMENT. Your strategy ignores the FUNDAMENTAL factors (zinc price and placement overhang) and buys $50,000 worth in the mid $10s

Subsequently, the overhang of stock, the falling zinc price and momentum traders selling pushes the ZFX price down.

One day it opens down over 10% on the OPEN as stop losses are triggered. A massive gap is created because everyone wants to get out at the same time. The stops set at 5% under the previous close get matched well below the plan and the punters lose 20% of their invested capital.

If Geared 2-1 the $50,000 of equity is turned into $150,000 and loss of 20% in two days loses $30,000 of initial capital.

The punter now has to get a trade that does 150% to get his $20,000 back to $50,000.


Another reason I don't think you will beat the market consistently is the fact you must hardly ever be fully invested. With all the pre-requisites for a buy in your strategy,


Have you got some numbers that analyse the level of risk in your portfolio?

You mention that you and your subjects beat the market, but how much is due to gearing or taking more risk than the benchmark. What is the volatility like compared to ASX200 or similar benchmark?

Would gearing-up an index fund beat your strategy? On an after tax basis?

Finally,

I dont agree 100% with the way realist works, but the tax point is far from mute. Regularly paying full rate CGT has enormous effects on long term compounding, making the break-even level of outperformance from a trading strategy to meet a buy and hold a lot higher.

Simplistically:
If Realist makes an average of 8% per annum and never pays tax for 15 years. His $100,000 turns into $317,000

If a trader paying 40% gets 12% per annum and turns over his portfolio once per annum he only accumulates $284,000. At 30% the trader accumulates $335,000

You need to have pretty incredible outperformance (50%) to beat the buy-hold guy.

And while the buy-hold investor has simply delayed tax, he has delayed it to the extent where:

a. he is now potentially on a lower tax rate, he gets full 50% discounting
b. is probably living off the dividends anyway.

The buy and hold guy takes 50% less risk along the way too.

If you are an expert on managing money, you would not make such offhanded comments regarding tax.


I have no real view on the folk you refer to. Some of them are highly successful managers of large amounts. Other make their money selling books and courses training people to use charts and such.

As I said before though:

If it is so easy, why don't investment banks have rows of guys trading like you do and sack the floors of fundamental research analysts who guide the investment decisions of trillions of dollars globally?
 
Re: Which one do you use? Technical or fundamental analysis

BSD - agree 100% with what your saying

The best post on this thread by far
 
Re: Which one do you use? Technical or fundamental analysis


Realist

If you are going to respond to a post it's probably best to read it properly so that your response makes sense.

Here is what I said:

Depends whether I am buying the house to live in myself or if it is an investment.

If I buy a house to live in, I am not in the least concerned with its subsequent market valuation.
This would only become of interest if I decided to sell it. I have bought the house for the pleasure of living in it, not as necessarily a means of making money.
If I buy an investment property, however, and it has appreciated in price over, say, a couple of years, but then market assessments indicate it has achieved its maximum likely capital gain in the foreseeable future, and I can see another property in an area which is beginning to show good appreciation, then, yes, I will sell my initial investment property and buy where I can expect further appreciation.

It's nothing more than maximising opportunities.

Julia

We are talking about the investment property, yes? I suggested the said property had appreciated in price over, say, a couple of years.
You have "translated" this to it having decreased in value. No such thing.
I have made money on this property.
My own assessments of recent selling prices of similar properties in the area indicate that the appreciation my property has enjoyed has peaked.
I have nowhere mentioned using the views or advice of real estate agents.
My own research on prices in another area, plus my own assessment of all the factors affecting that area, indicates that a purchase of an investment property in that area will be likely to provide me with a capital gain I will not experience by staying with the existing property.
Therefore, imo it makes sense to move the funds from the one into the other.

Whilst I am grateful for your generosity in offering me advice about how to make decisions, I think I'll stick with my present criteria.

Julia
 
Re: Which one do you use? Technical or fundamental analysis

You have "translated" this to it having decreased in value. No such thing.
Click to expand...

Hi Julia, my original question was would you sell a property if it decreased in value soon after you bought it?
 
Re: Which one do you use? Technical or fundamental analysis

Technical analysis works, but for what timeframe, you can't work out for how long. For the simplest example, find a stock with an upward trend, buy in, and it will continue on it's upward trend. But for how long. No one can predict this and this one of the biggest flaws of technical analysis that I can see. Fundamental analysts look to see which stocks are over/under valued. Problem with that is that lots of people have already done this and so the current SP is likely a good indication of a shares actual value. If you find that a share is undervalued, providing that it is a share that more than a few people have looked at, you have likely missed some piece of information or done a calculation wrong. In the end the only way to perform consistently is to diversify across many industries and hope the economy does well, which is usually does in the end.

However this does not mean that you cannot outperm the average investor. If you wait for the right time, such as when the market rebounds as it did last friday you can make money. However it is still a question of timing and it is still impossible to predict. However I have found one share that still seems to be below the price before the downturn and I will be buying it on monday. Opportunities like this will occasionally present themselves and it is possible to make substantial returns. However this is far from the norm.

If you meet someone who claims to be making squillions by following a particular strategy, and tells everyone what this strategy is, then even if the strategy works everyone will be applying it and so the original investor must be able to get in and out before everyone else. This is another reason why neither technical or funamental analyis's work, everyone uses them and so the only real way to succeed in using them (if it works at all) is to be able to get in and out before everone else which is pretty much impossible. The claim that you can beat the market by using a particular strategy is ridiculous since if other people also use the strategy then you must be able to beat them first. Only one person win can do this and it is likely he is able to able to do this consistently.

So, my recommendation is to diversify and do research into companies that are likely to succeed. It is likely that over a long time period you will only earn a return that is the average of the market return for that period, but since this is usually a decent return relative to interest rates etc, trading does have its appeal.
 
Re: Which one do you use? Technical or fundamental analysis

The problem with fundamental analysts is that they fundamentally misunderstand the fundamentals of technical analysis. (pun intended)

The problem with most technical analysts is precisely the same. That why most fail. Those that understand what they are doing outperform the market standing on their ear.

Now extrapolating that out to investors and traders (as most investers us FA and most traders TA) and we have a similar problem. Investors don't understand the fundamentals of trading.

I won't go through it again, I've said it (as have others) many times.

The two should not be compared. If you wanna be a pretend Buffet, fine, go do it. If you wanna be a pretend Soros, thats fine too. But I doubt Buffet would continuously denigrate George Soros because he is a trader.

Sheesh these threads are so tiresome!!!!!
 
Re: Which one do you use? Technical or fundamental analysis


Pure dribble :sleeping:

No exit strategy?
 
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