Archive through 21 December, 2003

Chart Forum » Does Technical Analysis Really Work? » Proof that Charts Don't Work ??? » Archive through 21 December, 2003

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cjb

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Post Number: 22
Registered: 02-2003

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Votes: 0


Friday, December 19, 2003 - 09:11 pm:

Steve,

Interesting chart. Is your system based around breakout's of previous highs?? Do you have any stats for % win/loss and avg win/avg loss ratio?? I have played around with such systems before with varying degrees of success. Frequency of trade is always the killer. It makes your broker rich and you poor. I now spend my time looking at how to measure Weinstein stages and mapping that to the performance of the company. I have had some interesting results but more work needs to be done.

Scarrie,
Really depends on what your time frame is and the objective. Warren Buffet is testament to an FA/Value Investing approach. He has quite a unique talent in being to understand companies and transforming them into real winners. It would be interesting to know if he is a freak of nature or what he does can be duplicated.

scarrie

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Post Number: 15
Registered: 08-2003

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Votes: 0


Friday, December 19, 2003 - 10:23 pm:

Hi all,
Claudius,
My point exactly. Why bother trying to work out a rational value for a stock when it will probably spend very little time trading anywhere near that level.
cjb, I don't know too much about Warren Buffet and his approach, except by reputation. However did he ever make any money from a stock that wasn't obviously in an uptrend if he'd looked at a chart. I'm obviously not a big fan of FA. I think good FA is commonly confused with a bull market, where even the worst FA or TA will result in a profit. Fund managers seem to delight in beating their chests when they produce a good result, but if it was in a bull market, then they haven't really achieved much. Their performance during the bear market of the last couple of years is testimony to how good, or bad , their FA is.
Good Trading
Dave

i_claudius

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Post Number: 1111
Registered: 11-2002

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Votes: 0


Friday, December 19, 2003 - 10:53 pm:

Scarrie

FA has kept me out of a lot of falling stocks

Do you actually know what FA is?

Claudius

stevo

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Post Number: 84
Registered: 01-2003

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Votes: 0


Saturday, December 20, 2003 - 06:38 am:

Is your system based around breakout's of previous highs??

No. The strength of a trend is of more importance.

Do you have any stats for % win/loss and avg win/avg loss ratio??

Yes - Back-tested and actual, although the actuals are not based on enough data at this stage - it takes time! Average trade length is pushing 150 days, with winning trades being much longer. I am looking at 55% plus winners, with average win/average loss above 4. Closed trade drawdown of less than 10%.

I have played around with such systems before with varying degrees of success. Frequency of trade is always the killer. It makes your broker rich and you poor.

Frequency of trade is not an issue with this system. The "killer" is the trader not spending the time and energy required to find a method that meets their requirements. Many traders probably haven't really thought through what their objectives are. Brokers and brokerage need to be considered in any trading system. I use Commsec without a problem, but them I don't ask much of them.

May I suggest that, as a general rule;
- many traders trade far too often,
- lack consistency in approach,
- take profits too quickly,
- keep their losses too long,
- have unrealistic expectations,
- and don't take responsibility for their actions.

Mind you I know some very good short term traders - there are always exceptions to the rules.

I find that trading a system based on technical indicators "allows us to make clear-cut decisions without uncertainty, guesswork, confusion, anxiety, and stress because they can be precisely defined and tested." Robert Colby - The Encyclopedia of Technical Market Indicators.

Do you actually know what FA is?
Claudius - A definition would be nice.

enough of my preaching - probably to the converted!
Steve

i_claudius

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Post Number: 1113
Registered: 11-2002

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Votes: 0


Saturday, December 20, 2003 - 06:52 am:

Hi Steve

A couple of definitions :-

Formal Definition

Fundamental analysis asserts that a stock's price is determined by the future course of its earnings and dividends. The fundamental analyst tries to determine what the intrinsic value of a stock's underlying business is by looking at its financial statements and its competitive position within its industry. If this intrinsic value is greater than the market price of the stock, the stock is said to be undervalued. In other words, the company has greater earning potential than its stock price would indicate. Fundamental analysis is the antithesis of technical analysis, which focuses on stock-price movements instead of underlying earnings potential.

Informal Definition

A truck loses its brakes and swerves violently off the main road ... first on one side and then on the other ... behaving unpredictably as the driver fights to regain control (TA) ... in this case it is good to know where the road actually is (FA) ... and where the road is heading (FA) ... and whether it is heading north or south (FA) ...

With Best Wishes

Claudius

i_claudius

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Post Number: 1114
Registered: 11-2002

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Votes: 0


Saturday, December 20, 2003 - 07:07 am:

Steve

My only quarrel with the formal definition is its use of the word antithesis

Firstly it implies that the two methods are opposed to each other ... which I do not believe is the case ... I believe they complement each other

Secondly I accept that in some cases ... but most certainly not all cases ... the price action will give an indication of an important change that is taking place in the fundamentals ... so enabling new focus to be applied to fundamental analysis

Thirdly I accept that fundamental analysis by its nature is more attuned to long term trading ... though it can still sometimes help to get the truck back on the road in short term trades

With Best Wishes

Claudius

stevo

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Post Number: 85
Registered: 01-2003

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Votes: 0


Saturday, December 20, 2003 - 10:24 am:

Claudius
Thanks for the definitions. Many people consider news and announcements to be important fundamental information, and appear to trade quite short term using this info.

Sometimes I get system signals either just before or at the same time as some announcement on a stock. Sometime several weeks before! The announcement could be yearly results, or a gold discovery.

The 2 methods are certainly complementary.

Steve

i_claudius

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Post Number: 1115
Registered: 11-2002

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Votes: 0


Saturday, December 20, 2003 - 11:04 am:

Hi Steve

With regard to announcements one can take many views.

For example (and there will be other responses as well) :-

(1) The price before the announcement is thought to reflect everything that insiders know, so nothing in the announcement is seen to be of further added value, and even if it is bullish profit takers may now push the price down

(2) The announcement if bullish is insufficiently analysed by potential new buyers and they may enter only as the new information is fully digested, so buyers may enter progressively and push the price up

Sometimes both can be true ... there is a retracement down followed by new buying

Equally there can be an over-enthusiastic responses eg to an oil or nickel strike and the real but lower value emerges over time

So there can be a variety of responses to announcements ... some "true" and some "false" in terms of the real underlying value ...

Short term traders may claim not to care or be concerned about the real effects of new developments, but the long term trader is vitally interested.

A market is a place where psychological and analytical factors interact with each other ... and in my view it is a mistake to dismiss either one or the other.

To illustrate my point WPL may be all over the place at the hands of short term speculators (long or short) but an announcement such as the recently announced future trade with China MAY affect the longer term slope of earnings and price ... and there can be under or over reaction to such an announcement.

In the longer run, however, the economics of such a contract, depending on whether those economics are good or bad for shareholders, will affect the direction of the price as surely as night follows day.

I make no prediction either way on WPL and am happy to rely on chart indications in the shorter term, but you can be sure that the professionals are doing their sums and pricing the stock accordingly, for better or for worse.

Sometimes the diligent amateur can do the sums and anticipate the larger scale buying or selling ... and that is as valid as charting. Of course it may also be more difficult, and so not to the taste of many, but there are plenty of willing analysts giving their view of the facts in web sites, magazines, and circulars. The diligent amateur is well advised to try to sort the fact from the hype, if he or she is so inclined.

With Best Wishes

Claudius

i_claudius

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Post Number: 1116
Registered: 11-2002

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Votes: 0


Saturday, December 20, 2003 - 11:09 am:

Since we are on the subject of fundamentals I find annual and interim reports hard to beat ... but does anyone know any good sites where independent analysis of fundamentals and also historical performance figures are provided, preferably updated regularly for the effect of periodic corporate results and forecasts?

Claudius

dydavo

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Post Number: 94
Registered: 12-2002

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Votes: 0


Saturday, December 20, 2003 - 10:14 pm:

iclaudius,
Charts work, but you need the new technology. Forget all the double tops, head and shoulders stuff that gives TA a bad name!
It can be very very simple.
eg;
In the last 31 days there have been 40 stocks in the ASX100 that have started a trend, defined for the purposes of this exercise as a 26 12 9 MACD signal line crossing to above zero.
The average increase in price of those 40 stocks has been 5% over the last 31 days.
ASX 100 has gone up 1.5 % in the same period.
There is no reason to believe that such a simple system (which ignores all FA and Weinstein stage considerations!) could not continue to make 50% per year every year.
That is certainly what I am aiming at, and with either fund $ or individual stocks. I use charts to achieve this target with stock and fund investments.
Is there an approach that uses only FA that has a similar performance?
It seems that all those stock analysts in all those broking houses dont get anywhere near this with their FA.

You have cited WPL as evidence that charts don't work.
WPL started its MACD trend 23 days ago, and it has gone up 6% in those 3 weeks.

However, even for "long term" portfolios, if you do not get out when the 26 12 9 crosses below zero, the risks are too high IMO. You can always jump back in again, eg, buy back into WPL in late October.

All we need is a simple system for being in the right stock at the right time, and for not being in the wrong stocks, taking your personal time frame into consideration. Add some money management, psychology, and away you go.
I also ignored charts when I went on holidays last year, to my peril. Couple that with a reluctance (ignorance of the importance of...??) to stop the losses in 5 "fundamentally good comanies with good dividends (banks, PPT)", and I find myself in a $100k hole 4 months later.
Charts have got me out of that hole, and keep me now building the little hill at about 1% per week.
Pretty important for me - I dont own a house; it is all in the market!

Folks on this forum have been incredibly helpful in helping me to understand how to use TA. I wish everyone a great xmas and 2004.

dydavo

i_claudius

Member

Post Number: 1119
Registered: 11-2002

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Votes: 0


Saturday, December 20, 2003 - 10:26 pm:

DyDavo

Thanks for that ...

Believe it or not I have a completely open mind and if I can make your system work I would like to do so

Would you run it past me just one more time with a chart illustrating one of your entries and exits

I will try and run with it from there ...

What software do you use?

With Best Wishes
for Christmas and 2004

Claudius

i_claudius

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Post Number: 1120
Registered: 11-2002

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Saturday, December 20, 2003 - 10:53 pm:

DyDavo

My software has just produced a MACD sell signal for QBE

Are you saying I should be prepared to sell my beloved QBE CFDs and even short some?

Claudius (fearfully freaking out at the thought of flying in the face of fundamentals)

QBE

i_claudius

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Post Number: 1121
Registered: 11-2002

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Saturday, December 20, 2003 - 11:07 pm:

Dydavo

The above chart is weekly.

Below is the daily chart which has me utterly confused.

It seems to me I would have done better to buy rather than sell on the two previous sell signals produced by the software ...

Short term gains followed both signals ... ???

So what is to say the same will not happen with the last sell signal triggered on Friday?

With Best Wishes

Claudius

qbe daily

cjb

Member

Post Number: 23
Registered: 02-2003

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Votes: 0


Saturday, December 20, 2003 - 11:29 pm:

DyDavo,

I_Claudius gave a good definition of FA in this thread. FA or value investing is searching for companies that are trading below their intrinsic value and have a good potential in ge