Archive through 19 December, 2003

Chart Forum » Does Technical Analysis Really Work? » Proof that Charts Don't Work ??? » Archive through 19 December, 2003

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i_claudius

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Post Number: 1065
Registered: 11-2002

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Votes: 0


Saturday, December 13, 2003 - 07:11 am:

Good Morning Forum

An interesting link ...

http://www.santafe.edu/sfi/publications/wpabstract/200312066

Claudius (increasingly a TA sceptic)

stevo

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Post Number: 75
Registered: 01-2003

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Monday, December 15, 2003 - 05:51 am:

Claudius
Why is it that proof of the usefulness of technical analysis is required, whilst all such requirements for any other approach to the markets appear to be waived?

Would one prefer to rely on gut feel and emotions or objective analysis, TA or FA?

Technical analysis works, I assure you. To be successful with any tool you have to know how to use it. Back-testing of any approach to the market is the best way I know of finding a method that works.

Does anyone know of a fundamental back-tester?

Steve

i_claudius

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Post Number: 1085
Registered: 11-2002

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Monday, December 15, 2003 - 10:16 am:

Stevo

I certainly do not wave the need for proof of non-TA methods

As I've said many times the 3rd option is TA and FA, not merely one or the other

Fundamental back testers are available in the form of Super Fund unit prices, and the market prices of Investment Companies, Property Trusts, and earning power of effective analysts.

Have you not seen the accounts of how much you would have now if you had invested $1000 in BHP or Westfield 20 years ago?

Let us not deride any method that works ... I simply am seeking proof that charts work, since they have rarely worked for me (when used alone) ...

Obviously my education is sadly lacking ...

With Best Wishes

Claudius

stevo

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Post Number: 76
Registered: 01-2003

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Monday, December 15, 2003 - 05:25 pm:

Claudius
What we all want is the next Westfield or Cochlear!

It is not so much a matter of whether technical analysis of charts "works" but whether we have a method to make consistent money out of the market.

Steve

i_claudius

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Post Number: 1087
Registered: 11-2002

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Monday, December 15, 2003 - 06:38 pm:

Stevo

Agreed ...

What is your view of QBE and TNE ?

Claudius

book_ii

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Post Number: 111
Registered: 12-2002

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Monday, December 15, 2003 - 10:35 pm:

Technical Analysis is the decision making framework for opening and closing a position, trading is the method for executing the decision made. If these 2 variables are not in sync then over the long term your profit MA will be negative.

That is total stop loss must be less than total stop profit. Which is more a function of trading (cash management) than TA.

Cheers

"The richest one percent of the country own half our country's wealth: five trillion dollars."--Gordon Gekko

stevo

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Post Number: 77
Registered: 01-2003

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Tuesday, December 16, 2003 - 08:40 pm:

Claudius
I hold TNE so would rather not comment. I think that I am superstitious. My knowledge of this company is so poor that I thought it was a telco!

QBE has a great trend running at the moment - one a 5 year old could recognise - although the rate of increase is slower than my system likes, but such a nice trend. I made a few dollars out of QBE when I was still in my fundamentals stage - I bought in 90's. Fortunately TA got me out in July 2001!

I consider position sizing as a critical part of any technical analysis system - it's not just about buy and sell arrows on a chart.

Steve

i_claudius

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Post Number: 1090
Registered: 11-2002

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Tuesday, December 16, 2003 - 09:08 pm:

Hello Stevo

I am wondering exactly how you see position sizing as part of technical analysis ... I would have thought it would be a component in cash management?

TA = analysis leading to buy/sell/avoid decisions
CM = capital protection/management of risk with position sizes, stops etc?

Not sure how position size affect TA?

Cash Management including position size selection surely applies whether one uses TA, FA or a combination of both?

With Best Wishes

Claudius

book_ii

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Post Number: 113
Registered: 12-2002

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Tuesday, December 16, 2003 - 10:00 pm:

Steve would be talking about the TA System rather than just TA? The 2 components
of the system being

– studying supply and demand (charting)
– trade execution (cash management)

FA has one fundamental flaw. That is, apart from discounted cash flow analysis, FA does not indicate a price level, but rather a price direction. So you might be influenced by a favourable company announcement and assume the price will rise, but it does not tell you what is a good entry and exit price or how the current price compares to its historical level or average (MA).

"The richest one percent of the country own half our country's wealth: five trillion dollars."--Gordon Gekko

stevo

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Post Number: 78
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Wednesday, December 17, 2003 - 05:53 am:

I, rightly or wrongly, associate position sizing with technical analysis because, in my case, how many I buy is related to where my exit point would be. I use a % risk position size approach. This approach needs an exit point and this is determined by TA.

As book ii points out I guess I am talking about a TA system - but how else would one trade? Without a strategy, or system, I would be lost!

With FA I always used to associate this with the Buffett style approach, not short lived news. Discounted cash flows sounds like a great approach to valuing companies but is very difficult to apply - too many assumptions need to be made.

News can often be not much better than hot tips - and who knows how the market will react! Saddam captured - US markets drop?

Steve

i_claudius

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Post Number: 1091
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Wednesday, December 17, 2003 - 03:30 pm:

Gentlemen

I am sure that professional users of FA regard cash management and measurement against historical price levels as tools which they own also ...

One can maintain a record of VWAP and many other average price monitoring tools including sophisticated databases that include the use of averages ... without ever having recourse to a chart ...

I am also sure that many (and probably most) highly professional and successful institutional analysts use a combination of FA and TA ...

But neither cash management nor price averages are the sole preserve of the technical analyst

I would add that I prefer pictorial representation of trends (charts) ... but there are people who are perfectly willing to act off tables, and databases, and non-pictorial projections ...

With Best Wishes

Claudius

cjb

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Post Number: 21
Registered: 02-2003

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Votes: 1


Wednesday, December 17, 2003 - 10:32 pm:

Hi All,

There are quite a number of interesting threads on this topic in aus.invest. If anyone is interested have a look at http://www.travismorien.com/FAQ/main.htm. He has a pretty good summary though he is somewhat biased towards FA.

Stevo, I am interested in your statement that TA works. What does 'work' mean. Does that mean you can beat buy and hold on anz over the last 8 years without using derivatives?

stevo

Member

Post Number: 79
Registered: 01-2003

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Votes: 2


Thursday, December 18, 2003 - 08:01 am:

cjb
"Does that mean you can beat buy and hold on anz over the last 8 years without using derivatives? "

Yes.

ANZ has is up around 170% over the last 8 years. Only trading ANZ I wouldn't beat buy and hold. But we have the entire market to play with and many stocks made gains much greater than 170% in the 8 years. Ideally the faster movers are identified and traded to maximize gains. No need to try and milk dollars out of ANZ alone.

The chart below shows actual percentage gains and losses I have made over the last 18 months using a trading system I developed. The system uses technical analysis to trigger buy and sell signals, as well as set position size.

There are still open trades in this chart, a couple are over a year old. The largest closed trade % gain was SRX at around 110%. Percentage gain does not always relate to most dollar profit due to position sizing.

Steve

i_claudius

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Post Number: 1095
Registered: 11-2002

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Thursday, December 18, 2003 - 08:15 am:

Congratulations Steve

Does Weinstein Stage 2 predominate?

Or do you trade the downside as well?

Claudius

i_claudius

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Post Number: 1096
Registered: 11-2002

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Thursday, December 18, 2003 - 08:16 am: