# Technical analysis: if it doesn't work how do people make money?



## clovis8 (Dec 7, 2010)

I have been reading a lot on trading and investing and it seems like the academic world is in agreement that technical analysis does not work. You cant predict the short term changes in the market. 

If this is so, how do people make money doing it? Do they? 

I am also an academic so I tend to believe the research which shows no correlation between an upswing and continued upswings and vice versa. 

I am also a poker player so I spend a lot of time with gamblers who think they can beat the house. I always tell them that if they can show me one person who has beaten the house over the long term I will believe in their theory. Of course, they cannot. 

It seems to me that technical analysts do make money. Does this not, _de facto_, mean it works?


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## davext (Apr 11, 2010)

It works, but I believe it shouldn't be the only way to trade, it should complement your analysis. 

There will obviously be some stocks that work better for technical analysis than others.


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## brad (May 22, 2009)

This is one of those topics for which Wikipedia has a pretty informative and balanced entry:

http://en.wikipedia.org/wiki/Technical_analysis

I think the relevant difference between technical analysis and poker is that technical analysis is more than a game of chance. A meta-analysis of modern studies on the profitability of technical analysis (http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1006275) showed that a little more than half the studies found positive results from technical analysis.

I think the analysts are right when they say that market participants aren't completely rational, and thus the "psych" component of techical analysis may help provide some predictive power.


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## Lephturn (Aug 31, 2009)

Technical Analysis is simply a tool. Would you be a money making trader if you picked one indicator and that's ALL you used? Maybe - maybe not - depends on the time frame.

A think I've seen enough evidence that technical analysis can provide a good tool to help - not the only one, but I am glad it's in my toolbox.

The "academics" believed for a long time - and some still do - that the markets are efficient as well.  That theory is predicated on market participants being completely rational - and not the emotionally driven human beings that we are. The markets are just big collections of people - even the machines are programmed and have rules set by people - so it's more of a game of crowd psychology than anything else. Most technical analysis is really just a way to help illustrate that mood of the crowd that is the market.

Do you think the pros use technical analysis? Do you think the big investment houses like Goldman have TA departments? Of course they do. Would they really spend money on salaries if they were not getting any results?

The problem with academics is that they don't have any money on the line - and with no skin in the game academics miss the emotional component that is the key challenge in trading. It's the same reason why you don't get as much value as you would think from learning by paper trading - it's easy because you are not emotionally invested like you are when there is real money - your money - on the line.


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## Jungle (Feb 17, 2010)

I saw this guy on BNN. He took a graph of the TSX comp. He drew a line starting from the crash in 08, on top of the high points. Then he drew a line from the starting of the crash across all the low points. He measured the difference between the highs and low points since the crash. It was about 10%. The he said we could see a correction of 10%. 

This sounds so stupid.


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## brad (May 22, 2009)

Jungle said:


> He measured the difference between the highs and low points since the crash. It was about 10%. The he said we could see a correction of 10%. This sounds so stupid.


If that were all there was to technical analysis, it would indeed be stupid. I think there's more to it than that. 

The element of technical analysis that focuses on identifying and predicting cycles seems less fruitful to me than the "psych" element that focuses on the irrationality of investors. Proponents of the efficient market hypothesis argue that irrationality balances out, but that seems a little hopeful to me.


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## Broke (May 11, 2010)

brad said:


> If that were all there was to technical analysis, it would indeed be stupid. I think there's more to it than that.
> 
> The element of technical analysis that focuses on identifying and predicting cycles seems less fruitful to me than the "psych" element that focuses on the irrationality of investors. Proponents of the efficient market hypothesis argue that irrationality balances out, but that seems a little hopeful to me.


Right or wrong, this is in a nutshell what I am doing at present:

1) Go with the market trend.

2) Use FA to select which stocks to buy.

3) Use TA to select when to buy (or sell) the above stocks.


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## clovis8 (Dec 7, 2010)

Not to be rude but what people think is pretty meaningless. Lots of people think they can beat the casino yet the math proves they cannot. It looks like the math also proves no correlation between past and future shifts in the market. Therefore technical analysis can't work. 

As for academics not having skin in the game I doubt this is true. I am sure all invest however even if it was true it is meaningless. The math does not change based on how much the mathematician has in the market.


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## dogcom (May 23, 2009)

I agree with what lephturn says about TA.

To be truly successful though at TA you have to know how to lose and what to do with your gains. So no matter what TA you come up with you have to know when to sell if you are wrong and how to let your winners run. 

In other words TA users will lose on many of their trades yet make money because they cut their losing trades very quickly even if they are sure they are right about a trade. The market tells you what it wants you don't tell the market. So this is why people can't see the use of TA because they look at it as a buy and hold strategy when they see a buy according to their analysis.


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## zylon (Oct 27, 2010)

*Quint Tatro*

Anyone interested in trading or technical analysis might find this interview with hedge fund manager Quint Tatro interesting.

December 29 "Trade the Trader" Financial Sense


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## Mockingbird (Apr 29, 2009)

You are missing the point. The technical analysis is just a tool for the traders. Nothing more. Ask any successful traders - you will get the same answer. If you don't know any, then search around for the trading firms in the metropolitan areas (Toronto, Montreal, Vancouver) and have a visit. You will get better insight into the trading world then what you get from the academic books. Because I have all the auto mechanic's tools, it doesn't make me a successful mechanic. 



Lephturn said:


> The markets are just big collections of people - even the machines are programmed and have rules set by people - so it's more of a game of crowd psychology than anything else. Most technical analysis is really just a way to help illustrate that mood of the crowd that is the market.


+1. At least someone gets it. 
That's why the traders commonly use the phrase - "we trade people (on people's psychology), not stocks".

MB


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## dogcom (May 23, 2009)

I also agreed with lephturn if you read my post mockingbird so I got it as well.


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## Mockingbird (Apr 29, 2009)

dogcom said:


> I also agreed with lephturn if you read my post mockingbird so I got it as well.


Sorry dogcom, my post was in response to the OP's comments. 

MB


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## clovis8 (Dec 7, 2010)

My point is that the long term statistical analysis appears to show that there is no connection between past rise/falls in the market and future ones therefore no matter how you phrase it "trading one people's psychology" "trading people" "buying the upswing and selling the down" it makes no difference. If the math shows no connection then there is nothing to track. You cant predict a random event. 

No?


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## dogcom (May 23, 2009)

No problem mockingbird I just want to get my + as well ha ha.

Technical Analysis does not give you a look into the future but it does increase the odds of you betting in the right direction. The stock market is all about putting the odds in your favour if you want to make money and that is what you want to pay attention to.

Example would be using seasonality to find the favourable time to buy. Then use TA to see if it is overbought or oversold and if it has double bottomed or whatever. Then you can look to see if certain factors like India buying gold in the summer for jewelry looks good this year. Then you can look at supply and demand and so on. Then you put everything together and then you see if the odds are in your favour


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## Mockingbird (Apr 29, 2009)

clovis8 said:


> My point is that the long term statistical analysis appears to show that there is no connection between past rise/falls in the market and future ones therefore no matter how you phrase it "trading one people's psychology" "trading people" "buying the upswing and selling the down" it makes no difference. If the math shows no connection then there is nothing to track. You cant predict a random event.
> 
> No?


Your question was "if it doesn't work how do people make money?". And my response is that the technical analysis is just a tool. Just having it doesn't make you money. I'm not contesting your stat, but sorry to say that it's nothing to do with one's ability to make money off the market. Your stat is based on the premise that you only need the technical analysis to be a successful trader. And regarding the random events? Traders don't predict - they exploit them.

MB

@Dogcom: Heck it is a new year. You can have my +1 as well. All the best!


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## Four Pillars (Apr 5, 2009)

One way that technical traders can make money is to start up an "investing newsletter" or "trading tips" course or give courses in how to make money in trading stocks.


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## Argonaut (Dec 7, 2010)

Here's an image I saw a few weeks ago that made me laugh.










I tend to fall into the camp that believes technical analysis is at best a self-fulfilling prophecy. I don't have a problem with people using it as a tool, but sometimes they have those guys on BNN that are 100% technical like Ron Meisels. Seems like all that happens is they get stopped out of a trade whether the long-term result ends up being good or bad. The downside is minimized, but the upside is as well. If you factor in all of the commissions from frequent trading you're probably better off using index strategies in the long run.

I also love it when the technicians are waiting for a stock to rise 2 or 3 points before they buy it. If that doesn't work they'll call it a "false breakout" or something. Buy high, sell low?

Even with those digs that I have, I do admit that the most useful piece of technical analysis is when a chart has higher-highs and higher-lows it's a positive, and vice-versa for lower-highs and lower-lows. Good for finding an entry or exit point, but only if it makes sense based on the fundamentals.


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## osc (Oct 17, 2009)

A few years back, I spent a lot of time back-testing TA strategies published in different books, some of them quite complicated. They didn't work, or they worked for a few years then they would stop working. I even developed new strategies that worked great on the back data that I had. They didn't really work well in practice. The problem was that they had too many parameters and what I was doing was curve fitting. 

So I am skeptical that TA really works. Some people make money because trading is a zero sum game, and some traders are bound to make money. I think it's mostly luck.

I think the most important thing in trading is risk management. Also knowing how the markets work, what can be traded and how. 

These days most of my trading is statistical (one could argue that statistical analysis it still TA) and I am trying to make my trading independent of market direction or timing.


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## avrex (Nov 14, 2010)

osc said:


> These days most of my trading is statistical (one could argue that statistical analysis it still TA) and I am trying to make my trading independent of market direction or timing.


osc, when you say statistical, do you mean that you are statistically analyzing fundamental type attributes? (example, P/E, growth %, etc.)


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## osc (Oct 17, 2009)

avrex said:


> osc, when you say statistical, do you mean that you are statistically analyzing fundamental type attributes? (example, P/E, growth %, etc.)


No.
I evaluate the risk/reward ratio of the trade strategies when tested with random data having a probability distribution of the returns similar to that of the instruments I trade. Then it's a selection of a risk/reward ratio that I want.


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## Bupp (Nov 13, 2009)

I spent quite a bit of time gathering up relevant studies from ssrn and cxoadvisory, and they seem to agree that technical analysis works. Where they tend to disagree is whether or not the advantage is enough to offset the cost of trading.

The consensus of academics is that in the short term markets display mean reversion (time period less than 1 month), in the medium term markets tend to trend (1 month to 12 months), in the long term they tend to show mean reversion again (1-5 years).

One of the most documented effects is the momentum effect (take the moving average of the last 12 months ignoring the most recent month). Buying only stocks that are above their 12-1 moving average has been shown to have a higher sharp ratio than buy and hold.

If anyone is interested I can post some links to relevant journal articles, most are pretty dry to read but you can always just skim the abstracts


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## Spidey (May 11, 2009)

It seems to me that, at best, TA is a very rough and dirty analysis tool. Someone posted once about a mutual fund that employed some of the top technical analysts to select investments. Apparently, it failed miserably.


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## HaroldCrump (Jun 10, 2009)

four pillars said:


> one way that technical traders can make money is to start up an "investing newsletter" or "trading tips" course or give courses in how to make money in trading stocks.


rotflol


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## fatcat (Nov 11, 2009)

> One way that technical traders can make money is to start up an "investing newsletter" or "trading tips" course or give courses in how to make money in trading stocks.


 this is it in a nutshell..... the way to make money on technical trading is the same way smart people make money on all kinds of trading strategies, they sell newsletters and courses to fools ... there are more than a few people who make full-time substantial and sometimes market beating newsletters based entirely on astrology

investors (especially men, who often treat their investing success as a mark of their manliness just like any other competitive male activity) always have blind spots for their losses and they always selectively remember their wins

when people like jim rogers and warren buffet and just about every academic study out there tell you to just put your money in the broad market and do as well or as badly as the market, that is the truth

nobody beats the market over time .... *nobody*


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## clovis8 (Dec 7, 2010)

fatcat said:


> nobody beats the market over time .... *nobody*


well this is not really true. Any random sequence will have outliers. If you plotted the lifetime returns of every person who plays the market you would find some far above expectation. It would be mostly luck, but they would be there.


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## andrewf (Mar 1, 2010)

Agreed. That statement might hold if we had infinite investing horizons. Since we don't, some will get lucky and beat the market, although on average they should not.


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## dogcom (May 23, 2009)

One good thing about being a newsletter writer or selling a strategy is you can go back and back test something until it works and then there you go. I am sure with enough analysis you can come out with the best strategy on earth except that it probably won't continue into the future. 

Overall I believe simple TA is a useful tool to use but all this super technical stuff will cost you a lot of time and do no better then the simple TA. To be truly successful you need to be like Wayne Gretzky and be able to see where the puck will be long before it gets there and how many players are there like this in the NHL. So these people that make big money on just TA are lucky but mostly they have a gift that very few people have.


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## Larry6417 (Jan 27, 2010)

clovis8 said:


> I have been reading a lot on trading and investing and it seems like the academic world is in agreement that technical analysis does not work. You cant predict the short term changes in the market.
> 
> If this is so, how do people make money doing it? Do they?
> 
> ...


When you say "technical analysts make money," do you mean *all *technical analysts or do you mean *some* technical analysts? The difference should be obvious. If we had a contest with a large number of people predicting the results of a flipped coin, a small minority of those contestants would have superior results. That doesn't mean that those contestants have a valid method of predicting the results of coin tosses. How many technical analysts have horrible results and are never heard from again? Also, have you read technical analysts? Many "predictions" are hedged to cover the analyst's backside.

I am very skeptical of technical analysis. I believe that much (all?) of technical analysis is from "data mining" i.e. finding post hoc patterns that may not be predictive of future results. In _A Random Walk Down Wall Street_, Burton Malkiel dicusses a demonstration he does every year with his students. Each student starts with an imaginary stock worth $20. The stock price moves up or down depending on the results of a coin toss and is charted by the student. Students bring the charts to class. Every "classic" technical pattern indicating buy or sell is replicated by coin tossing.

Malkiel makes another argument against technical analysis that may be even more cogent: if a pattern becomes predictable, the market will react to it and, thus, reduce the investor's ability to profit from it. We may have seen this already with interest rates. Jason Zweig (I think but I'm not sure) back tested interest rates according to the old saying "Don't fight the Fed." Basically, this was a market timing strategy that sold 6 months after the Fed started raising interest rates and bought 6 months after the Fed started lowering rates. This strategy appeared to beat buy-and-hold - until 1990. After that it didn't appear to work. I suspect the reason for that is the change in behavior by market participants. Markets often move on just the expectation of interest rate changes. Also, central bankers may have changed their behavior as well by being more aggressive in lowering interest rates with even the prospect of economic downturns. 

O' Shaugnessy analyzed, for fun, a bogus strategy of picking stocks (I think it was 1996). He created a fund of stocks whose symbols were composed of vowels only. Guess what? It "outperformed" the index for 1996. Does anyone here want to invest based on vowels?


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## clovis8 (Dec 7, 2010)

I agree with your post Larry I dont think it works and there appears to be a lot of data showing it is nonsense yet many people think it works. My question was do they all just lose money and convince themselves they win (like so many casino gamblers) or do they make money other ways (natural variance of the market) and wrongly credit TA for the success?


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## olivaw (Nov 21, 2010)

Interesting topic and I agree with Larry and Clovis. In any random series of numbers, statistical anomalies will arise that can be _interpreted_ as trends and patterns. 

I'm not impressed with the argument that the existence of TA departments in large investment houses proves that TA is a valid money maker. Most of these are the same firms that paid a lot of people a lot of money to buy and sell CDOs and derivatives that they didn't understand. Moreover, why would anyone who really knew how to beat the market with TA actually work for anybody else?

My view is that Clovis is probably correct in asking if traders are like gamblers who convince themselves that they beat the market. Until someone can step forward and demonstrate 20+ years of market beating returns through trading (less commissions) then there is no evidence that TA is valid.

(To argue the other side of my own point - anybody who really did have a method to beat the market would keep it secret because it would stop working as soon as it became common knowledge. It's unlikely that anyone who knows how to make money with TA will ever step forward).


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## Lephturn (Aug 31, 2009)

This discussion has spent a lot of time on if "technical analysts" make money. Analysts using any method can never make or lose money - traders make or lose money. I think the valid question is "Do good traders find TA tools helpful in what they do?" I think many do. If you don't find TA tools useful then don't use them. For 90%+ of traders (or investors if you prefer) you could give them a fantastic indicator that was right 60% of the time and still lose money. They wouldn't have the money management, method, or strength of will to actually trade the indicator. Give a skilled trader an indicator that is right 40% of the time and that trader will make great profits with it.

Remember these are mostly tools to illustrate crowd psychology as reflected by price and volume. That means that sometimes they stop working because too many people follow them and you need to change - or sometimes the work *because* people follow them. These are self fulfilling prophecies in many cases. Take something like Fibonacci numbers - do I actually believe there is some mystical ratio that drives these things? Not really - and I don't care! I pay a bit of attention to things like Fibonacci numbers because there are enough traders out there that DO use them that sometimes what they predict comes true. If enough market participants think that because of a technical indicator AAPL will hit 350 and then drop, there may well be enough selling pressure around 350 to make that happen.

It's a funny thing - it doesn't matter if TA "actually" works - all that matters is that enough people THINK it works - then it works. 

Something else to think about - sometimes the good parts of technical analysis encourage traders to do the right thing - cut losses short and let winners run. A trader with no tools - technical or otherwise - is trading on emotion and will find it extremely difficult to trade well.

Personally I find chart patterns the least useful part of technical analysis. I much prefer a few simple indicators as tools. Patterns rely far too heavily on time frame, scale, and judgment for my tastes. That is not to say they are useless - patterns are illustrations of crowd psychology in the markets - and those sorts of group behaviors do tend to repeat themselves. They tend to evolve slowly over time certainly, but we humans are what we are - and the "human condition" doesn't change very quickly. How much different was the tech bubble from the tulip bubble?

Larry gave some interesting examples of research - not trading. You know what is easier than finding indicators or systems that would have worked in the past? Finding systems that didn't - or only worked for a short time. I want to specifically comment on Malkiel's observation that if a chart pattern worked the market would quickly adjust - this assumes the market participants are rational and acting in their best interests - classic efficient market assumption and I think a false one. The markets are far from rational because the markets are people - and people make decisions largely based on emotion.

If any of you really want to examine the topic in some useful detail I suggest this: The Encyclopedia of Technical Market Indicators

This volume includes a solid method for proper blind walk-forward testing, as well as the results of that testing for each indicator in the book. I found it at my local library as well, although it took a while to get from the high demand.

For anyone in the markets you should also read Schwager's Market Wizards and New Market Wizards. Fabulous reads and interesting even if you believe this is all bunk and that you can't beat the market.


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## Lephturn (Aug 31, 2009)

olivaw said:


> Interesting topic and I agree with Larry and Clovis. In any random series of numbers, statistical anomalies will arise that can be _interpreted_ as trends and patterns.
> 
> I'm not impressed with the argument that the existence of TA departments in large investment houses proves that TA is a valid money maker. Most of these are the same firms that paid a lot of people a lot of money to buy and sell CDOs and derivatives that they didn't understand. Moreover, why would anyone who really knew how to beat the market with TA actually work for anybody else?
> 
> ...


Heh - all the banks made hundreds of billions trading CDOs - who cares what they were made of? Looks to me like the banks did pretty well in this whole deal - well except for Lehman Bros.

You also make the assumption that market participants are rational when I don't believe that is valid. You could give 100 people an excellent indicator and I'd bet only 1 or 2 could actually trade it successfully. That is not a reflection on the indicator, it is a reflection on how difficult it is to be a successful trader. I spoke to much of the rest on my recent reply (that I'm sure you did not see given the timing.) Have a read of New Market Wizards - lots of great traders in there with long term fabulous track records.


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## osc (Oct 17, 2009)

olivaw said:


> My view is that Clovis is probably correct in asking if traders are like gamblers who convince themselves that they beat the market. Until someone can step forward and demonstrate 20+ years of market beating returns through trading (less commissions) then there is no evidence that TA is valid.


Not even that would be valid evidence that TA works. If 1 million people use TA to pick trades for 20 years, it's quite possible at least one trader would beat the market each year. The probability may be the same as randomly picking stocks.


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## Broke (May 11, 2010)

This thread reminds me of the many conventional doctors (MDs) who laugh at you when you mention to them words like naturopathy, acupuncture, chiropractics, etc. And yet, you will find every now and then a very successful MD who also has training or a degree in some of these alternative disciplines.

Stating that one system does not work but the other one does is, in my opinion, nothing but narrowmindness. In the case of FA versus TA, chances are that if one combines both when making a decision for buying or selling will obtain better results than just by using one of them.

Just my two cents.


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## clovis8 (Dec 7, 2010)

Broke said:


> This thread reminds me of the many conventional doctors (MDs) who laugh at you when you mention to them words like naturopathy, acupuncture, chiropractics, etc. And yet, you will find every now and then a very successful MD who also has training or a degree in some of these alternative disciplines.
> 
> Stating that one system does not work but the other one does is, in my opinion, nothing but narrowmindness. In the case of FA versus TA, chances are that if one combines both when making a decision for buying or selling will obtain better results than just by using one of them.
> 
> Just my two cents.


Science and math work, magic and wishful thinking do not. It has nothing to do with being narrow minded. It has to do with the centuries of success for the former and the failure of the latter to work even one time.


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## Ottawa John (Jan 4, 2011)

Technical analysis works the same way that monkeys picking stocks or throwing darts at a list of stocks works. Markets tend to go up so most people make money no matter what crazy scheme they employ. I have found that if I pull my ear before making a trade I tend to make money.


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## dogcom (May 23, 2009)

I agree with broke because science and math has not always worked when it comes to the stock market because the stock market is made up on value but also emotions like greed and fear as well. Wasn't it math models that led in part the destruction we saw in 2008. 


Don't get me wrong math and science is very important but you have to keep an open mind like broke says.


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## andrewf (Mar 1, 2010)

Technical analysis, to the extent that it takes advantage of predictable irrationality of some investors, could very well work. It seems likely that a relatively simple trend-following strategy could work reasonably well, since it requires checking your emotion at the door. I saw a statistic that the average retail mutual fund investor saw returns in the range of 1% p.a. when the index returned 7% over a ten year period. This is a result of most retail investors using the strategy of 'buy high, sell low'. That alpha has to go somewhere--alpha is a zero sum game.


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## MoneyGal (Apr 24, 2009)

andrewf said:


> That alpha has to go somewhere--alpha is a zero sum game.


Stop wrecking this forum with logic. Seriously, I see you do this all over the forum and I'm just about at my limit.


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## clovis8 (Dec 7, 2010)

andrewf said:


> Technical analysis, to the extent that it takes advantage of predictable irrationality of some investors, could very well work. It seems likely that a relatively simple trend-following strategy could work reasonably well, since it requires checking your emotion at the door. I saw a statistic that the average retail mutual fund investor saw returns in the range of 1% p.a. when the index returned 7% over a ten year period. This is a result of most retail investors using the strategy of 'buy high, sell low'. That alpha has to go somewhere--alpha is a zero sum game.


Of course the alpha has to go somewhere but my point is that the research clearly indicates you cannot predict where with TA.


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## Larry6417 (Jan 27, 2010)

Lephturn said:


> This discussion has spent a lot of time on if "technical analysts" make money. Analysts using any method can never make or lose money - traders make or lose money.


Semantics devoid of argumentation



Lephturn said:


> I think the valid question is "Do good traders find TA tools helpful in what they do?" I think many do.


Actually, the more apropos question is “Does technical analysis work beyond random chance?”Just by chance, indicators may appear to “work.” You ascribe the difference to the skill of the trader. I need more proof before doing so. I feel about technical investing the way I feel about unicorns. I've never seen a unicorn, but my never having seen one doesn't prove that they don't exist. To believe in unicorns, I need to meet one up close and personal. For you, the sound of hoof beats is enough.



Lephturn said:


> Remember these are mostly tools to illustrate crowd psychology as reflected by price and volume. That means that sometimes they stop working because too many people follow them and you need to change


You contradict yourself later on within the same post with this statement:



Lephturn said:


> I want to specifically comment on Malkiel's observation that if a chart pattern worked the market would quickly adjust - this assumes the market participants are rational and acting in their best interests - classic efficient market assumption and I think a false one.


In one case, you claim people are rational enough to follow indicators that “work,” thus, limiting their usefulness. In another instance you claim that people aren't rational enough to adjust; therefore, indicators that “work” will continue to do so. You also make the assumption that those who disagree with you believe in efficient markets. I don't believe that the market is completely efficient, but I do believe it is mostly efficient.




Lephturn said:


> Something else to think about - sometimes the good parts of technical analysis encourage traders to do the right thing - cut losses short and let winners run. A trader with no tools - technical or otherwise - is trading on emotion and will find it extremely difficult to trade well.


You don't need technical analysis to cut losers and let winners run. Anyone who trades strictly on emotion is going to lose money.





Lephturn said:


> Larry gave some interesting examples of research - not trading.


I find this argument interesting for a number of reasons. First, I don't disdain research as you seem to. I don't accept research without question, but I don't reject it summarily either. I try to evaluate it objectively. Second, I did not cite a single example of research. What I did cite was a powerful demonstration that classical technical analysis patterns can be replicated by chance – coin flipping. Third, you contradict yourself again. After disdaining “research” you bolster your argument for technical analysis by citing...research: 



Lephturn said:


> If any of you really want to examine the topic in some useful detail I suggest this: The Encyclopedia of Technical Market Indicators
> 
> This volume includes a solid method for proper blind walk-forward testing, as well as the results of that testing for each indicator in the book. I found it at my local library as well, although it took a while to get from the high demand.
> rational and acting in their best interests - classic efficient market assumption and I think a false one. The markets are far from rational because the markets are people - and people make decisions largely based on emotion.






Lephturn said:


> For anyone in the markets you should also read Schwager's Market Wizards and New Market Wizards. Fabulous reads and interesting even if you believe this is all bunk and that you can't beat the market.


I believe most of this is "bunk." I cannot logically say that all technical analysis is bunk because lack of proof of efficacy is not the same as proof of lack of efficacy. In fact, I suspect that technical analysis *might* work in high-frequency trading i.e. trading done in microseconds. Obviously, this is too fast for humans and is done through pre-programmed algorithms. However, this is far beyond even the most sophisticated retail investor. The computing power required is enormous, the algorithms are proprietary i.e. not available in your local library, and the trading gains are likely minute on a percentage basis i.e. trade millions to make thousands or billions to make millions. That may be profitable for a large firm but not for a retail investor. 

You make unwarranted assumptions. I do believe there's an investing method that takes advantage of human psychology: value investing. Even Malkiel, who called himself a “random walker with a crutch,” could not explain the phenomenon of investors overreacting to news, both good and bad. This cannot happen under a strict interpretation of efficient markets; however, Malkiel couldn't deny that it did happen. A good example would be BP, which has rebounded drastically after the oil spill.


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## Larry6417 (Jan 27, 2010)

Ottawa John said:


> Technical analysis works the same way that monkeys picking stocks or throwing darts at a list of stocks works. Markets tend to go up so most people make money no matter what crazy scheme they employ. I have found that if I pull my ear before making a trade I tend to make money.


Does it matter which ear? I want to chart it.


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## andrewf (Mar 1, 2010)

clovis8 said:


> Of course the alpha has to go somewhere but my point is that the research clearly indicates you cannot predict where with TA.


What research are you aware of that trend-following doesn't work? Seems to me it can, at least to reduce volatility if not enhance returns.


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## Bupp (Nov 13, 2009)

I am suprised that no one has mentioned mebane faber yet. His stuff provides pretty strong evidence of the efficacy of a trend following strategy.


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## andrewf (Mar 1, 2010)

Bupp said:


> I am suprised that no one has mentioned mebane faber yet. His stuff provides pretty strong evidence of the efficacy of a trend following strategy.


I didn't mention his name, but I was thinking of him.


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## el oro (Jun 16, 2009)

Larry6417 said:


> You make unwarranted assumptions. I do believe there's an investing method that takes advantage of human psychology: value investing. Even Malkiel, who called himself a “random walker with a crutch,” could not explain the phenomenon of investors overreacting to news, both good and bad. This cannot happen under a strict interpretation of efficient markets; however, Malkiel couldn't deny that it did happen. A good example would be BP, which has rebounded drastically after the oil spill.


That's easy. News is a competitive business so what you see in the media is the most sensationalized version of the story out there. The ol' oil fires in Kuwait were supposed to take a decade to burn out were put out in less than a year. For the BP example, Goldman and other "experts" show up and tell the world it will take close to $200 billion for cleanup, legal fees, damages when in reality it will end up closer to 25% of that.

andrewf is right about reducing volatility if not enhancing returns.

Like lephturn said, TA is a tool. Unfortunately, much of TA is subjective so you'll get different interpretations of a chart depending on who you ask. Like a paintbrush or a hammer and nails, your result will be different depending on the user.

For the non-subjective area of technical analysis, why not learn it? At worst you will see what other traders are thinking. You'll be able to see where people are looking to buy, sell or place stop losses. 

I've done a stint on Bay St. in some equity research dept's and if I were forced to choose, I'd take pure TA over pure FA tyvm.


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## Broke (May 11, 2010)

clovis8 said:


> Science and math work, magic and wishful thinking do not. It has nothing to do with being narrow minded. It has to do with the centuries of success for the former and the failure of the latter to work even one time.


Yah, I guess that Martin Zweig, William O'Neil, Jesse Livemore and others like them were all failures in your eyes, right? 

Now please tell me in confidence: how much would you give for becoming the same kind of "failure" as they were?


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## Belguy (May 24, 2010)

"An old investor saying has it that you never meet a rich technical analyst. Still, many investors find it helpful (or, at least, comforting) to employ stock-price charts and other tricks of the technical analyst. A little technical analysis can help you see if a stock's chart pattern makes sense in light of what you know about the company's operations and finances. Unfortunately, it's all too easy to let technical analysis come to dominate your investment decisions."

"When that happens, you'll have some success. You'll sell some stocks just as they begin to drop. You'll buy others just as they begin to rise. But, over long periods, your results are more apt to suffer and lag behind the market. That's because you'll trade more, and you'll sell your best choices way too early. If you use technical analysis at all, you need to recognize it as just one of many investment tools."

"One thing I've noticed is that charts always seem to provide their most misleading answers just when they can do the most damage to chart readers. This may be because there is bad news brewing at a company, but few investors are aware of it, so it hasn't had an impact on the stock's price. This alone is a good reason to avoid basing investment decisions exclusively on charts or technical analysis of any kind."

Pat McKeough, Successful Investing, Toronto Star, January 6, 2011

For my money, I just prefer to invest in broad-based, low fee index products and then to hold them forever.


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## Broke (May 11, 2010)

Belguy said:


> "For my money, I just prefer to invest in broad-based, low fee index products and then to hold them forever.


That's fine, Belguy. Then you will match the index at best and when the markets go up you will make money, but when they go down you are royally $crewed. Just think for a moment what would have happened had you used a bit of TA when the markets were plummeting in 2008. Just something simple like a normal chart with a 50 day MA. Select a 5 year range and a 10 week MA. Just backtest it for fun. I hope you won't get mad when you realize you could have exited in July 2008 and re-enter in March 2009 PS. I didn't , but reat assured that many TAs did and they must be laughing their a$$e$ off when reading the comments on this page. 

http://www.theglobeandmail.com/globe-investor/markets/indexes/chart/?q=TSX-I

And if you did not just exit the market in July, but sold short in the interim, you would have probably doubled your investment by now (or more).

My point: FA and TA are like salt and pepper: using them together works better than using just one.


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## Belguy (May 24, 2010)

Index investors understand one fundamental fact. The markets go up and the markets go down but, if you stay the course, the long term trend is generally up.

Also, trying to time the markets by whatever means is a mug's game in the long run.

That is not to say that, once in a while at least, a market timer can get lucky.

However, just as there are different personalities and philosophies, so there is more than one way to invest.

To each his own.

By the way, an excellent book on this topic is 'The Tortoise and the Hare' which you can find at your local library or download it to your ebook.


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## osc (Oct 17, 2009)

Broke said:


> That's fine, Belguy. Then you will match the index at best and when the markets go up you will make money, but when they go down you are royally $crewed. Just think for a moment what would have happened had you used a bit of TA when the markets were plummeting in 2008. Just something simple like a normal chart with a 50 day MA. Select a 5 year range and a 10 week MA. Just backtest it for fun. I hope you won't get mad when you realize you could have exited in July 2008 and re-enter in March 2009 PS. I didn't , but reat assured that many TAs did and they must be laughing their a$$e$ off when reading the comments on this page.


Actually, I backtested lots of MA-based strategies and all of them are doing substantially worst than buy-and-hold. Of course if you fit some particular parameters to a particular curve you'll get a good result for that particular curve. That doesn't mean it will work in the future: it will not. 
To see why it's not working, try to optimize the parameters of your system (the length of the MAs) for the period before the crash, let's say from 2003 to 2007. Then apply those parameters to the period after 2007. What do you get?


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## dogcom (May 23, 2009)

I used simple TA to buy BMO a little over a week ago and also used it to not buy any gold shares and that seems to have been a good idea. I have tried in the past to use it to try to go short but it is much harder to use this way because the topping process is a long process and is very hard to do. I actually find it to be a great tool to use to find a entry point. 

The risk of a huge market correction over the next year is huge regardless of fundamentals so you may combine seasonality with some simple TA to possibly hit the sidelines. Like I said I wouldn't go short because of the great difficulty in trying this. In the course of a normal bull market like the 90's you might use it for a entry point to buy and hold long term but the macro risks are far to large for that today.


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## Belguy (May 24, 2010)

The risk of a huge market correction is ALWAYS there. You knew that when you invested in equities and others know it and it is why they stay out of the stock market.

Black Swan events can come out of the blue at any time and bite investors pretty bad.

How do you defend against that? You keep money that you are going to need in the next five to ten years OUT of the stock market. Then, you invest with a long term perspective and first have an asset allocation that will allow you to sleep well and then you buy, hold, and periodically rebalance your DIVERSIFIED portfolio. There is no better way to diversify than with broad-based, LOW FEE index products such as ETF's.


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## Larry6417 (Jan 27, 2010)

dogcom said:


> I used simple TA to buy BMO a little over a week ago and also used it to not buy any gold shares and that seems to have been a good idea. I have tried in the past to use it to try to go short but it is much harder to use this way because the topping process is a long process and is very hard to do. I actually find it to be a great tool to use to find a entry point.
> 
> The risk of a huge market correction over the next year is huge regardless of fundamentals so you may combine seasonality with some simple TA to possibly hit the sidelines. Like I said I wouldn't go short because of the great difficulty in trying this. In the course of a normal bull market like the 90's you might use it for a entry point to buy and hold long term but the macro risks are far to large for that today.


You're calling your trading strategy a success after evaluating one week's results? I bought more BMO at the start of the year as well (I already owned it). I based my decision on valuation only.


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## Larry6417 (Jan 27, 2010)

$1600 Gold by 2011 said:


> That's easy. News is a competitive business so what you see in the media is the most sensationalized version of the story out there. The ol' oil fires in Kuwait were supposed to take a decade to burn out were put out in less than a year. For the BP example, Goldman and other "experts" show up and tell the world it will take close to $200 billion for cleanup, legal fees, damages when in reality it will end up closer to 25% of that.


I wasn't saying it's hard to explain why investors overreact. I was saying that Malkiel could not reconcile that fact with the efficient market hypothesis




$1600 Gold by 2011 said:


> I've done a stint on Bay St. in some equity research dept's and if I were forced to choose, I'd take pure TA over pure FA tyvm.


If you've worked in different Bay Street equity research depts., you've basically worked for their publicity depts.  So I'm not surprised you would choose TA over that. I saw a well-known, successful trader (Kevin Kerr) speak about technical and fundamental analysis in commodity markets. He used both, but if he were forced to choose only one, he would use fundamental analysis only. So one person's opinion on the relative value of TA vs. FA is just that: one person's opinion.


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## Oldroe (Sep 18, 2009)

Just think I owned TD, RBC,CIBC, Power Corp Power Finacail, Suncor, Petro Canada, Trans Canada Pipe, Fortis in 2008. And Rio Can.

The charts looked like h..ll the news was boom everybody on the street was scared.

Me I've been threw several corrections knew that all these company's would survive to prosper again so I bought, bought bought, went on vacation to Vegas in March and missed the blip.ARAAAAAAA came home rolled all my change bought my last 100 shares of CIBC and stopped buying in April 2009.

So what I would like is for everybody to bid up Suncor so it hit's my exit $42. I don't really care because it's a great company not likely to go broke.

What I'm saying is you need to separate day to day technical analysis from a cross the board correction.

I occasionally jump into good stories and see a technical buy I'm in and out.


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## clovis8 (Dec 7, 2010)

Larry6417 said:


> So one person's opinion on the relative value of TA vs. FA is just that: one person's opinion.


You are missing the whole point of this thread. A persons opinion on TA is 100% totally and completely meaningless. The only thing that matters is the math and proof of long term success. Lots of people think carrying a rabbits foot helps them in life but the fact remains there is no physical process through which a severed animals appedage increases ones success. Similarly there does not appear to be any research showing the ability of TA to predict the market.


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## Bupp (Nov 13, 2009)

Clovis,

You must not have looked into the last 20 years of research around the efficient market hypothesis.

One of the strongest anomalies (factors that predict outperformance not accounted for with EMH) is momentum of stock prices. 

If Technical Analysis is one of the strongest predictors in academic research for future outperformance (usually used by taking the increase in price over the last 12 months less the increase in price in the most recent month) how can you say there is no research supporting technical analysis.

If you are talking about TA in terms of drawing shapes on charts and elliot wave theory then fine I agree its bullcrap. But momentum/relative strength is well documented in the academic research with plenty of out of sample studies done to confirm the original findings.


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## Larry6417 (Jan 27, 2010)

clovis8 said:


> You are missing the whole point of this thread. A persons opinion on TA is 100% totally and completely meaningless. The only thing that matters is the math and proof of long term success. Lots of people think carrying a rabbits foot helps them in life but the fact remains there is no physical process through which a severed animals appedage increases ones success. Similarly there does not appear to be any research showing the ability of TA to predict the market.


Actually, Clovis, you're missing the point - several of them. Apparently, you haven't been reading your own thread. First, I didn't say that one person's opinion was proof enough for me - quite the opposite. Second, there are more branches of technical analysis than you can shake a lucky rabbit's foot at. Until they've all been extensively tested, I'll refrain from saying it's ALL bunk. Third, you mistake absence of evidence for technical analysis as proof against technical analysis - not the same. As I said previously (in a post you obviously haven't read), I think of successful TA the way I think of unicorns.


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## dogcom (May 23, 2009)

Larry6417 said, "You're calling your trading strategy a success after evaluating one week's results? I bought more BMO at the start of the year as well (I already owned it). I based my decision on valuation only."

Sorry larry6417, I should have said I was using it to purchase for the very short term. Longer term it will give me an entry point like buying on a dip but I would still have to buy and hold and use a different style of TA to exit the position. I have been experimenting with TA on my own analysis mostly for short term use but I would like to use it more for longer periods. This is done outside of my core positions in a trading account. 

In my experiments so far I really haven't used moving averages at all and instead have been more successful using a combination of RSI, MACD and seasonality. I also find the length of the cycle helpful as well. Overall I have been just under 90% successful using a combination of the things above going long on stocks or ETF's over the past year in the very short term. I have found as I said before trying to pick a top and going short as very hard to do and have been about 20% successful at that.


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## clovis8 (Dec 7, 2010)

Bupp said:


> Clovis,
> 
> You must not have looked into the last 20 years of research around the efficient market hypothesis.
> 
> ...



Perhaps I was not clear enough in my original post but yes I am referring to charting and shape studies when I speak about TA. That is the stuff that, as far as I can tell, has no scientific support.


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## Lephturn (Aug 31, 2009)

Larry6417 said:


> Semantics devoid of argumentation
> 
> Actually, the more apropos question is “Does technical analysis work beyond random chance?”Just by chance, indicators may appear to “work.” You ascribe the difference to the skill of the trader. I need more proof before doing so. I feel about technical investing the way I feel about unicorns. I've never seen a unicorn, but my never having seen one doesn't prove that they don't exist. To believe in unicorns, I need to meet one up close and personal. For you, the sound of hoof beats is enough.


Not the skill of the trader necessarily - but what I'm saying is does using something like a couple of technical indicators help traders be successful? I think it's true - it seems to be in my case. That is a very different question than the one you pose which seems to be looking for some proof that any technical tool will work. I have seen enough evidence in my own work that some very simple indicators do indeed work in that they help me make good decisions. Most of the indicators I use are prophylactic - the prevent me from doing something I shouldn't. I use other forms of analysis in combination of course. I find these tools useful in my trading. Many of these tools if you pull them out and look at them alone and say "could you make money only following this indicator" the answer would of course be no. That doesn't mean it isn't of value.





Larry6417 said:


> In one case, you claim people are rational enough to follow indicators that “work,” thus, limiting their usefulness. In another instance you claim that people aren't rational enough to adjust; therefore, indicators that “work” will continue to do so. You also make the assumption that those who disagree with you believe in efficient markets. I don't believe that the market is completely efficient, but I do believe it is mostly efficient.


First, a very tiny percentage of traders will actually follow a plan and a set of indicators. Overall it would be a contradiction if I applied it to a single technical tool - but it's not that simple. There are legions of indicators, patterns, etc. in TA - and in some cases I think if it's something not grounded in mass psychology deeply enough the market may adjust, while with other tools and patterns they market does not seem to really change it's stripes. The bottom line is that I don't think it's black and white for every TA tool there is.



Larry6417 said:


> You don't need technical analysis to cut losers and let winners run. Anyone who trades strictly on emotion is going to lose money.


That is very much easier to say than to do. While it's true you don't need TA tools to accomplish this behavior, some simple TA tools can assist when used properly. I think they increase the odds when used properly that a trader will do just that. Overcoming emotions is the biggest hurdle to trading successfully in my view - and one that the vast majority cannot accomplish on a consistent basis. Good tools - some of them technical in nature - help me to avoid reacting emotionally and I think in that sense they are of value and "work".



Larry6417 said:


> I find this argument interesting for a number of reasons. First, I don't disdain research as you seem to. I don't accept research without question, but I don't reject it summarily either. I try to evaluate it objectively. Second, I did not cite a single example of research. What I did cite was a powerful demonstration that classical technical analysis patterns can be replicated by chance – coin flipping. Third, you contradict yourself again. After disdaining “research” you bolster your argument for technical analysis by citing...research:


I don't disdain research - but I don't put a lot of value behind research that seems so far divorced from the reality of trading and designed purely to try and make the point that the markets are random. It's simple to set up a situation where a particular TA tool will fail. TA is a huge subject, and I agree that there are some TA tools that are of little or no value. That doesn't mean that they all are worthless.



Larry6417 said:


> I believe most of this is "bunk." I cannot logically say that all technical analysis is bunk because lack of proof of efficacy is not the same as proof of lack of efficacy. In fact, I suspect that technical analysis *might* work in high-frequency trading i.e. trading done in microseconds. Obviously, this is too fast for humans and is done through pre-programmed algorithms. However, this is far beyond even the most sophisticated retail investor. The computing power required is enormous, the algorithms are proprietary i.e. not available in your local library, and the trading gains are likely minute on a percentage basis i.e. trade millions to make thousands or billions to make millions. That may be profitable for a large firm but not for a retail investor.
> 
> You make unwarranted assumptions. I do believe there's an investing method that takes advantage of human psychology: value investing. Even Malkiel, who called himself a “random walker with a crutch,” could not explain the phenomenon of investors overreacting to news, both good and bad. This cannot happen under a strict interpretation of efficient markets; however, Malkiel couldn't deny that it did happen. A good example would be BP, which has rebounded drastically after the oil spill.


I think the efficient market theory makes the biggest unwarranted assumption of all - that most market participants act rationally. That's the big weakness of fundamental analysis in my view - that the markets can remain irrational longer than most of us can remain solvent. In my estimation the more trading capital you have the more you can rely on fundamental analysis because you can weather larger draw downs.

I find it interesting that you draw the opposite conclusions to mine - where you would suspect technical analysis works best in very short time frames my experience tells me the opposite - I find the indicators I use work best in longer time frames. Specifically using daily information is of much more value to me than any shorter time frames - I suspect due to the fact that daily opens and closes have more psychological importance and mechanical importance to market participants than say hourly or 5 minute tools do.

Although we have differing opinions I am appreciating this discussion - I am always open to being wrong and I am definitely open to learning something new. It is always healthy in my experience to view any trading tools with skepticism and review them periodically - and that goes for all of them be they fundamental, quantitative, or technical. So thank you for the great discussion.


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## clovis8 (Dec 7, 2010)

People seem to confuse a disbelief in TA with a total belief in efficient market theory. 

Of course all players in the market are not rational that is not the point. One needs only to look at the tech bubble to see that. 

My complaint with TA is that while there are clearly market irregularities all the time caused by poor decision making on the part of investors, there is no way to predict the timing of those shift. 

Show me a TA'er who can actually predict those shifts over time and I will concede TA works.


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## dogcom (May 23, 2009)

Doesn't the argument go all ways and you can say show me where any method, FA included that works. Past performance is no guarantee of future performance. Just because a company increases dividends every year doesn't mean it has to happen in the future.

You can of course give examples why they have worked in all cases and why they have failed as well so no one can say that anything predicts with certainty.


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## Larry6417 (Jan 27, 2010)

Lephturn said:


> I think the efficient market theory makes the biggest unwarranted assumption of all - that most market participants act rationally. That's the big weakness of fundamental analysis in my view - that the markets can remain irrational longer than most of us can remain solvent. In my estimation the more trading capital you have the more you can rely on fundamental analysis because you can weather larger draw downs.
> 
> I find it interesting that you draw the opposite conclusions to mine - where you would suspect technical analysis works best in very short time frames my experience tells me the opposite - I find the indicators I use work best in longer time frames. Specifically using daily information is of much more value to me than any shorter time frames - I suspect due to the fact that daily opens and closes have more psychological importance and mechanical importance to market participants than say hourly or 5 minute tools do.
> 
> Although we have differing opinions I am appreciating this discussion - I am always open to being wrong and I am definitely open to learning something new. It is always healthy in my experience to view any trading tools with skepticism and review them periodically - and that goes for all of them be they fundamental, quantitative, or technical. So thank you for the great discussion.


I agree with you completely about EMH. Anyone with a lick of common sense (which disqualifies most economists) would realize that people aren't always rational, especially about money. I disagree with you about fundamental analysis; it does not assume that investors always act rationally. In fact, FA counts on investors to act irrationally. Graham said that the stock market, in the short term, was a voting machine, but, in the long term, it was a weighing machine. Graham also likened stock market investing to being in business with a manic depressive. Sometimes Mr. Market would be irrationally optimistic and offer to buy your shares at outrageous valuations. Other times, Mr. Market would be exceptionally pessimistic and offer you his shares at a discount. "Random walkers" (proponents of EMH) dispute both fundamental and technical analysis.

There may be some evidence that moving averages (esp. the 200 day MA) might predict market downturns, but I haven't seen enough evidence to convince me that this is more than a statistical mirage - yet. I'm also glad that we can have this open discussion. I'm always open to new ideas - especially if they make me money!


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## humble_pie (Jun 7, 2009)

i listen to shamans myself ...


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## Broke (May 11, 2010)

*Are we talking about the same thing?*



osc said:


> Actually, I backtested lots of MA-based strategies and all of them are doing substantially worst than buy-and-hold. Of course if you fit some particular parameters to a particular curve you'll get a good result for that particular curve. That doesn't mean it will work in the future: it will not.
> To see why it's not working, try to optimize the parameters of your system (the length of the MAs) for the period before the crash, let's say from 2003 to 2007. Then apply those parameters to the period after 2007. What do you get?


Not sure what you mean by that. By using an indicator as simple as the 50 day MA I would have entered the market in April_May 2003 and exited it in June/July 2008, then re-entered again around April 2009. To me the evidence is clear so I won't be using buy and hope for the foreseeable future. Right or worng, I'd rather use fundamentals to select stocks and technicals to determine entries and exits.


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## mrpresident (Dec 9, 2010)

I am a swing/daytrader and technical analysis is what I mostly use.
The extent of the fundamental aspect of my trades is that I do not touch any companies that are below 300 million in capitalization and have low volume of shares ( slow movers)
I make about 2000 trades per year and I must say that I am quite satisfied with my level of success. 
With all due respects, anyone that says that technical analysis does not work should do a bit of reading about it. Charts,volume, support and resistance etc, tell you everything about a stock. 
Trading is a game of probabilities and TA gives you the edge, if you know how to use it.


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## dogcom (May 23, 2009)

Interesting mrpresident, that is a lot of trades. Can you give us some examples of how TA can work without giving away the farm of course.

On resistance one can look at 1000 on the Dow. The 1000 level was toyed with for a long time before the breakout and confirmation staying above that level for a number of trading days. When that happened you could almost be sure that you would not see 1000 again and would go much higher. Many stocks commodities or whatever that breakout after a number of tries over a period of time can give you some good returns after that breakout is confirmed. 

I am not an expert on this so I will put my thoughts out here. Looking at gold for example every year you would get a decent correction at some point and looking back I would say gold has a good chance of falling farther here before it resumes its uptrend. So the bounce we see now will not hold and we will see another down leg before this correction is over.


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## dogcom (May 23, 2009)

Dubmac put up CPG or Crescent Point Energy as a stock he would like to find an entry point in which to buy. So if you would look at the chart using just TA what advice could you give.

On the negative side the 200 day is starting to bend if you can call that a negative. RSI is low but I think it needs to cross 30 on the downside before this one is done correcting. MACD is still not showing any sign of turning up and looks like it needs to go lower still. By the looks of it I would say it needs to go down to the $40.50 or lower and bend up before I would buy it.

Again these are just thoughts and could be way off so what do others think.


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## dagman1 (Mar 3, 2010)

dogcom said:


> Dubmac put up CPG or Crescent Point Energy as a stock he would like to find an entry point in which to buy. So if you would look at the chart using just TA what advice could you give.
> 
> On the negative side the 200 day is starting to bend if you can call that a negative. RSI is low but I think it needs to cross 30 on the downside before this one is done correcting. MACD is still not showing any sign of turning up and looks like it needs to go lower still. By the looks of it I would say it needs to go down to the $40.50 or lower and bend up before I would buy it.
> 
> Again these are just thoughts and could be way off so what do others think.


I'm sorry, but technical analysis is hilarious. All it involves is stating conclusions. Nothing is backed up with an ounce of reason. I don't blame you dogcom specifically, this reads exactly like an analysis at Zacks (or whatever). It's like you are pulling numbers out of a hat.

If it snows over 1 cm tomorrow, watch for 5 cms on Saturday, then 10 cms on Sunday.


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## fatcat (Nov 11, 2009)

> I'm sorry, but technical analysis is hilarious.


 agreed ....

pluto has just entered the sign of capricorn and capricorn stands for the material and the solid and the established whereas pluto is the planet of tranformation and rebirth, therefore avoid any large well established companies and look to invest in smaller up and coming firms with revolutionary ideas, far fewer of these will fail in the next decade as pluto builds it's transformational influence

this makes as much sense as "head and shoulders top" to me ...

it may work some of the time but it falls flat the rest of the time and in the end turns out to be useless ....

if it was so good, why are so many stock touts and newsletters based on ta ?

if you're that good you can make far more just investing your and other people's money, why waste your time with a newsletter which doesn't offer 1/100th the upside profit as just investing directly ?


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## Bupp (Nov 13, 2009)

It is an established fact that in the short term equity prices mean-revert, in the medium term they show momentum/autocorrelation of prices, and in the long term they mean-revert.

Any one disputing this has their head in the sand.

The fact that technical analysis works is supported by the academic/university research. What is not supported is if it works well enough to make a profit once you account for transaction costs.


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## dogcom (May 23, 2009)

All investing is hilarious and based on past information that may not pan out. You really need to be on the inside to be comfortable with anything. All you people who think you have it figured out should remember the man will,can and may want to screw you over. You trust to much and that could destroy you. I have no trust in any method, but I will keep an open mind and try to learn what I can.


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## Broke (May 11, 2010)

dogcom said:


> All investing is hilarious and based on past information that may not pan out. You really need to be on the inside to be comfortable with anything. All you people who think you have it figured out should remember the man will,can and may want to screw you over. You trust to much and that could destroy you. I have no trust in any method, but I will keep an open mind and try to learn what I can.


"Each time history repeats itself, the price goes up" (author anonymous)


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## mrpresident (Dec 9, 2010)

dogcom, what I do is pretty much to look at the 1 year chart and see if a stock is in an uptrend, then go to shorter period of times to look for retracements, using trendlines,channels, resistance and support, once a retracement has been detected, then I move in only if a series of indicators confirm an entry. Once the entry has been executed I put a mental stop and let it ride. Exits for me are not a problem. I have conquered all my inner demons ( fear and greed), so I trade like a machine. If the trade goes against me I exit, a the same time If a trade goes my way I let it run but once I reach a certain percentage i bailout happy to be a bit wealthier than yesterday and not looking back.


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## Broke (May 11, 2010)

mrpresident said:


> dogcom, what I do is pretty much to look at the 1 year chart and see if a stock is in an uptrend, then go to shorter period of times to look for retracements, using trendlines,channels, resistance and support, once a retracement has been detected, then I move in only if a series of indicators confirm an entry. Once the entry has been executed I put a mental stop and let it ride. Exits for me are not a problem. I have conquered all my inner demons ( fear and greed), so I trade like a machine. If the trade goes against me I exit, a the same time If a trade goes my way I let it run but once I reach a certain percentage i bailout happy to be a bit wealthier than yesterday and not looking back.


Smart.


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## dogcom (May 23, 2009)

Mrpresident the biggest benefit I see and get from trading is the ability to shut off your inner demons and the ability to sell when the need arises. So even if a you are not sure if TA works you can get these other benefits that you can bring into your more serious investing side.

Also by practicing with a small trading account of real money because I think it takes real money to learn to get a feel for the market. It is like being able to read people in real life by the way the move, look and act. Again this may not make you money on your small trading account using TA but it can help you understand the people who play the market better. This can then also be brought over to your more serious investment side. 

So in the end someone laughs and says it didn't work but in reality it did work by paying some of your tuition in your investing life.


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## Lephturn (Aug 31, 2009)

dogcom said:


> Mrpresident the biggest benefit I see and get from trading is the ability to shut off your inner demons and the ability to sell when the need arises. So even if a you are not sure if TA works you can get these other benefits that you can bring into your more serious investing side.


Bingo. Hence why I use TA tools in my trading. Sure, you can trade without it, but it is much more difficult to keep emotion out of it with some indicators and other TA tools to help set up rules you can follow.

The only thing I do differently is how I run my stops. Instead of stops that show up in the market - or "mental stops" that get blown through or that I have to think about - I use trailing stop or triggered orders at my broker. I can set up trades that become a stop limit or market order when a certain bid, ask, or last traded price hits. I find it better for my state of mind when I know those conditional orders are set so that I can essentially "set it and forget it", at least intra-day.


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## fatcat (Nov 11, 2009)

if ta helps keep emotion out of trading then that makes it worthwhile since the buying and selling of equities is fraught with emotion and irrationality ..

however, there is not shred of evidence that people who use ta to guide or even help their trading do any better than the market itself over time

at the end of the day it doesn't matter what tools you use ... you are trying to predict the future

and that is very hard to do; after a certain amount of time, nobody does it with any degree of skill


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## dogcom (May 23, 2009)

Interesting discussion here fatcat.

Other then a few people there is no evidence that anyone who uses anything FA included that has done better then the market over time.

All investing hopes for future returns and none can claim to know the future.

On the tools and trying to predict the future, this is not accurate. What one is trying to do is be the house or put the odds in their favor so they can come out ahead over time. 
I would bet you are not a gambler fatcat but a study of the odds in gambling and so on may give you an appreciation for the importance of having the odds in your favor.

While you are correct that most do not gain the skills to be successful at TA, I do not believe you can ever say the word nobody because anything is possible. Lastly a big problem in sports and investing is overconfidence. You sound like you might be overconfident in your abilities to invest which can destroy you like any TA investor you claim that might be destroyed.


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## Lephturn (Aug 31, 2009)

The key is, if you can use TA tools to help you trade without emotion - or at least with far less - and you can use it to help you be disciplined in cutting losses quickly and letting winners run - then you don't need to beat random in terms of predicting the future. Sounds weird, but it's true. Novices focus on the % of correct trades - skilled traders know that you don't need to get close to being right 50% of the time if you are disciplined, have a system to do the above, and rock solid money management.

I agree that those who use any kind of analysis believe it helps them predict the future in a way - not exactly of course, but at least identify opportunities where the probability of one outcome vs. another is tilted the trader's way. But even if I'm wrong in TA's ability to help in this area, the above means it still "works" for me and helps me be successful. I find it worthwhile - and more importantly I can't see how I could succeed without some sort of system.


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## zylon (Oct 27, 2010)

*Chartist's opinion wanted*

For those who do TA; what's your take on CNR?


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## KaeJS (Sep 28, 2010)

By the looks of that graph (and i don't have much experience), but it looks like you would be extremely hard pressed for it to fall that much.

$68-$60? 

I doubt it.

The last time it fell in November, it only hit what? $63ish? Gotta be some type of support around there. $62.5-63.5

I dont see why it would hit $60 from a $68.

Just my opinion, though.


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## zylon (Oct 27, 2010)

Thanks KaeJS

I have an abundance of patience. Would only expect to see $60 if the entire market has a decent correction.

This longer term chart shows a 35% drop from Sep 2008 to Mar 2009, so a 12% correction from $68 to $60 doesn't seem far out of line.


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## KaeJS (Sep 28, 2010)

zylon said:


> Thanks KaeJS
> 
> I have an abundance of patience. Would only expect to see $60 if the entire market has a decent correction.
> 
> This longer term chart shows a 35% drop from Sep 2008 to Mar 2009, so a 12% correction from $68 to $60 doesn't seem far out of line.


Almost every chart in the world will have a huge price drop from September 08 to March 09 due to the financial crisis. I would not use that information in my strategy when buying a stock unless I was looking at how quickly/how stable the stock price rebounded.


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## dogcom (May 23, 2009)

It has topped out for sure by the looks of it and I don't use any of that line stuff to come to my conclusion. I would look at just above $64 for a correction and $60 if the market itself has a large correction.


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## zylon (Oct 27, 2010)

Thanks dogcom

I'll wait patiently like a cat by the mouse hole,
waiting for a healthy correction.

When the correction comes, I expect CNR's dividend to provide some sort of cushion.


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