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Trade Trends with Bollonger Bands and Twiggs Money Flow

Does TA really work ?

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hershy
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Saturday, December 23, 2006 - 01:59 pm:Copy highlighted text to 'New Message' boxEdit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



Here is a chart of the Lear Corporation traded on the NYSE.
It has it's own thread in the US part of the forum but have decided to bring it over here to spark more discussion that it does where it is now.



I stated 3 days ago that I intended to short this stock for a ride to the bottom of the gap which incidentally is also around where the inverted H & S is pointing. This elicited a response from a guy in the US advising care because as he put it, the LEAR corporation is on "jet fuel". He posted the following chart:



As I am looking for only a short trade I don't feel this is an issue. I have a contingency order in place just below the last low. The issue I wish to raise here is the effect of time on my plans. The Bulls & Bears report (of which I have received a few issues) always abandon any planned trades if they don't "fire" in 3 days.

The 20 and 34 day SMAs are pushing the price down but the 2oo day SMA is moving upwards quite strongly. One should always trade with the trend and as I plan a short term trade the trend is down.

So now the question:
A consolidation movement became apparent after the 12th bar following the latest high. Consolidations usually break in the direction of the preceding direction and that is down. That gap is a strong magnet pulling down but I am no longer convinced that this play would pan out as i had first though it would even though the risk ratio of 1/5 is still valid.
I will cancel my contingency order and will not trade this setup but wonder if others would come to the same conclusion.
As a further point, a failure to break through support and a new high would see me go long.


I don't have a plan so nothing can go wrong !!!

http://members.optusnet.com.au/~hershy/

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hershy
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Sunday, December 24, 2006 - 12:40 pm:Copy highlighted text to 'New Message' boxEdit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



Re-reading "Foundations for successful Trading" by Bill McLaren I found the following statement:
"Sideways movements(consolidations) that price moves down into, that become narrow and dull are indicative of a base or bottom"
This is certainly the case with Lear so it seems unlikely that the SP will move down to my short trigger.

(Message edited by Hershy on December 24, 2006)







I don't have a plan so nothing can go wrong !!!

http://members.optusnet.com.au/~hershy/

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mosaic1996
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Thursday, December 28, 2006 - 09:27 pm:Copy highlighted text to 'New Message' boxEdit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



hershey,

It doesn't look like an obvious short to me as it looks like it is simply consolidating. Well above 200 DMA and probably hovering around the 50 DMA (I prefer a slightly longer short-term MA, but I haven't charted to look), and it is basically respecting your consolidation support line.

You stated that
A consolidation movement became apparent after the 12th bar following the latest high. Consolidations usually break in the direction of the preceding direction and that is down.

I would have said that the previous direction was up (from $20 odd). What downtrend are you talking about - very short-term (i.e., consolidation) of longer-term?

I can't even see an obvious price component to a H&S, nor is the volume consistent for a H&S pattern for those that believe volume pattern is equally important in H&S patterns.

Personally I believe that "the gap will be filled" theory is overrated.

In summary, I would have given the LEA setup as a low probability short = better value elsewhere.

Based on past long-term moves, LEA could move strongly to the upside if it breaks out, so a trade on the long side could be a reasonable trade.

Having said that, the market has been performing very strongly at the moment, and I figure that long has been the place to be rather than short, and that there has been money to be made elsewhere.

On the fundamental front (which can usefully supplement TA IMHO):
a) LEA price recovery may be related to the oil price retracement which looks weaker rather than stronger in the short term
b) the DOW taking off lately will result in bigger Wall Street bonuses and the toys that these bonuses can buy. Whilst it ain't the good old dotcom days, it is rumoured that a couple of Lear Jets may be ordered by the exceptional performers.

Cheers,
Mosaic


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lafee
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Friday, December 29, 2006 - 10:07 am:Copy highlighted text to 'New Message' boxEdit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



I believe that the directional break from narrow consolidations cannot be predicted. Short term opportunities come about due to a large number of misguided actions all taking place at the same time. There is not a lot of action taking place in a narrow range - most people are not doing anything. Volatility on the other hand traps participants collectively providing opportunities to fade their actions.

Nevertheless, It is usually advantageous to remain on the long side in stocks - even in the short term. The stockmarket, globally, has had an approx 10% upward drift for over a hundred years. Going against that drift just reduces your change of success.

Cheers

Lafee


If nobody can be certain of anything, how can I be certain of that?

Ayn Rand

When I was young people called me a gambler. As the scale of my operations increased, I became known as a speculator. Now I am called a banker. But I have been doing the same thing all the time.

Ernest Cassel

"My major hobby is teasing people who take themselves & the quality of their knowledge too seriously & those who donít have the guts to sometimes say: I donít know...." (You may not be able to change the world but can at least get some entertainment & make a living out of the epistemic arrogance of the human race).

Nassim Nicholas Taleb

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msparks
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Friday, December 29, 2006 - 05:08 pm:Copy highlighted text to 'New Message' boxEdit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



Lafee
""Volatility on the other hand traps participants collectively providing opportunities to fade their actions.""

How do you "fade" Lafee ?






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hershy
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Friday, December 29, 2006 - 05:37 pm:Copy highlighted text to 'New Message' boxEdit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



Your chart Sparks is too distant from the action. As stated above momentum was to the downside. This has dissipated and it is most unlikely that the move down will re-ignite. In fact every day that passes makes a bullish move more likely.
Happy new Year to all !.


I don't have a plan so nothing can go wrong !!!

http://members.optusnet.com.au/~hershy/

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lafee
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Friday, December 29, 2006 - 06:29 pm:Copy highlighted text to 'New Message' boxEdit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



Msparks,

Fade means to trade in the opposite direction. ie. if price goes down with increased volatility you buy, if price goes up with increased volatility you sell.

Cheers

Lafee


If nobody can be certain of anything, how can I be certain of that?

Ayn Rand

When I was young people called me a gambler. As the scale of my operations increased, I became known as a speculator. Now I am called a banker. But I have been doing the same thing all the time.

Ernest Cassel

"My major hobby is teasing people who take themselves & the quality of their knowledge too seriously & those who donít have the guts to sometimes say: I donít know...." (You may not be able to change the world but can at least get some entertainment & make a living out of the epistemic arrogance of the human race).

Nassim Nicholas Taleb

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redrover
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Saturday, March 24, 2007 - 10:41 am:Copy highlighted text to 'New Message' boxEdit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



Will be interested to hear your opinions on this article

http://www.theage.com.au/news/business/so-much-money-so-little-courage-so-much-r egret/2007/03/23/1174597889155.html


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hilarius
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Saturday, March 24, 2007 - 12:16 pm:Copy highlighted text to 'New Message' boxEdit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



Good Afternoon

The stock market abounds in myths

Myth No 1
Fundamental analysis plays no part in the valuation of stocks like Fortescue and Paladin

The opposite is the case. Those with access to the inside information are most certainly valuing the stocks on the basis of future projected earnings. The problem is the process is far from transparent and the information is not being shared. Internal company financial people and external analysts will have a clear concept of the true worth of the stocks ... they just don't like to share their expertise. Discounted cash flow determines todays value along with the added blue sky hype of the speculators.

Reality and perception combine to set the price

In the case of One Tel the perception far exceeded the reality ... and in the case of One Tel the internal information systems plainly failed so that one could ask in that case whether anyone knew the truth

With the passage of the dot com boom mining analysts are almost certainly far ahead of the tech whiz kids and probably have a shrewd idea of true underlying value

Even now they will be keeping it in mind for the time when they need to approach the institutions for more capital

In the mean-time the tea leaf chart readers try to capture trends based on true value + hype

We can be sure that in the end, whatever the price growth or retracements ... true fundamental value will prevail and we should not kid ourselves that no one knows true value

That true value will also change along with the underlying commodity price is undeniable but true value is always knowable .... it is just not shared

Myth No 2

Tea leaf reading of charts helps measure the hype issue

Well that is largely nonsense ... sentiment can change overnight and unless the fundamentals are right stops will be hit with monotonous regularity ... long term support for a rising share price depends on fundamentals, not hype

Myth No 3

Money management is the sole preserve of technical analysts

This is simply a falsehood. Fundamental investors can make just as good use of money management.

Myth No 4

Technical analysis has no value

It can be highly valuable for selection of entry points, but the combination of great fundamentals and smarter entries will always beat either FA or TA on their own

Blessings and Peace

Hilarius


I come in peace to share my thoughts and to shine my candle light on possible long term opportunities

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lafee
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Saturday, March 24, 2007 - 05:34 pm:Copy highlighted text to 'New Message' boxEdit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



A few points:

-Considering the population of the world it is indeed probable that someone will amass a fortune such as Buffets, through sheer luck alone. It is foolish to believe that the richest person in the world must be the best business man or women.

-There have been many hedge funds created using Mr Graham's value analysis (Buffet's mentor) and they have mostly failed.

-Hype shown on the charts as momentum influences the 'fundamentals' ie a rising share price whether justified or not increases the companies power and therefore opportunity.

-Fundamental analysis is based on revision to correct value. Correct Value is created by the human mind and is not real ie there is nothing fundamental about fundamentals.

Cheers Lafee


IF it can be tested, it must be tested

VICTOR NIEDERHOFFER

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hilarius
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Good Afternoon

I suppose when you trade all night daylight is darkness :-)

Hype is incapable of accurate measurement

Fundamentals can be measured precisely

With Best Wishes

Hilarius


I come in peace to share my thoughts and to shine my candle light on possible long term opportunities

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lafee
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But so is everything else. Thats my point.
TA becomes valid if enough people use it. The same for FA. Big market shocks tend to make people redesign what they believe. This is why all mechanical system (TA or FA based) eventually fail.

Cheers Lafee


IF it can be tested, it must be tested

VICTOR NIEDERHOFFER

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hilarius
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Good Evening

Twilight is falling in the tropical north

So I may be able to see more clearly now :-)

Soviet style "communism" eventually failed, but it lasted long enough to affect many people, and the success/failure of that system was measurable in the miserable quality of life for those who suffered under it, quantified if data could be obtained (often true data hidden)

Systems which measure accurately the true state of affairs are preferable to ones which distort them ... for however long they are in operation

That is why all have an interest in transparency and honesty which abound in Australia, despite cynical views to the contrary

That the facts being measured change in no way alters the process of fact measurement which ought always to be mathematically and/or scientifically verifiable

Such is the world of Mammon ... if it can't be measured it doesn't exist :-)

With Best Wishes

Hilarius


I come in peace to share my thoughts and to shine my candle light on possible long term opportunities

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lafee
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Yes, the scientific method of measurement stays the same. The cycles change but you have the measurement to figure out when they do.

Cheers Lafee


IF it can be tested, it must be tested

VICTOR NIEDERHOFFER

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msparks
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TA seems more appropriate to US stocks ?

If you search by percent move for the month and do a search for "all ordinaries" or asx 300, (limit 100) and do the same but for the s&p500 (limit 100) , the quality of the charts seems much better in US as far as trends etc and some great consolidations with breakouts .

Has anyone else noticed the difference in charts between US and Oz or is it just my imagination.
Even further down the lists below there are some ripper charts in US.







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hilarius
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Australian markets are thin and fickle

Judging by the worship of American culture by the young, and the needs of share daytrippers, the sooner we become a state of the Union the better

After all our foreign policy is indistinguishable

Hilarius


I come in peace to share my thoughts and to shine my candle light on possible long term opportunities

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hilarius
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The only other thing needed is to combine all Australian stocks into one and list the combined company on Wall Street, after adjusting daylight saving by approximately 14 hours

Hilarius


I come in peace to share my thoughts and to shine my candle light on possible long term opportunities

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lafee
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Msparks

There is always something charging upwards(almost anyway)in the US. They have such an array of business compared to us. Even in the 2000-2002 bear market the homebuilders were making ZFX/PDN style gains. Now where it gets interesting is that if you can rank momentum across the entire market and play only the fastest % gainers with a trend following mindset you should be able to participate in many of these incredible events. Of Course you will need a bank large enough to take and hold many many (maybe 30-50 positions)shares at one time. The beauty is that one ZFX/PDN style gain from an initial base of 1-2k is more than huge.

Cheers Lafee


IF it can be tested, it must be tested

VICTOR NIEDERHOFFER

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mosaic1996
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Hi RedRover,

Your article highlights that journalists don't know much, and are too lazy or incompetent to do even basic research/fundamental analysis.

Had the journalist accessed past PDN annual reports (2001 to 2006) he would have been able to ascertain that there are top 20 shareholders that have kept and in fact added to their position, and that several others had either sold down or exited completely (bet they reflect on there poor decision from time to time).

There are many instances where people have become multi-millionaires by taking a large position in a company because they understand the potential future value of the company when the company is dirt cheap - that is they understand the fundamentals (not only financial data) of the company. Of course there is an element of luck involved: e.g., a skyrocketing uranium price in the case of PDN.

Both TA and FA work for me, so I'm always amused when someone that can't work out how to make FA work, states categorically that FA doesn't work purely based on the fact that they can't make it work. Their simply logic is that "I can't get it to work, therefore it doesn't work". What can I say!

Cheers,
Mosaic


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redrover
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Hi Mosaic, Sorry it's taken me 22 months to reply

Interesting to see that the article in question is still available from that link. With the benefit of hindsight we can judge it differently. Marcus Padley is not a journalist. He's a stockbroker who writes a weekly column in the Age.

The other significant thing is that I just looked at the whole "Does Technical Analysis Really Work?" forum and noted that the last three posts made were 25 June 2007, 17 Jan 2008 and 06 July 2008. That is, my post(s) today are the first since July last year and that there have been only two posts since the downturn began in Nov 07. (One of those being from a guy wanting to sell all his trading books!)

Would it be correct to assume that Technical Analysis doesn't work anymore because there is no precedent to the way the market has behaved over the last 14 months?

I have also lost a certain amount of faith in Fundamental analysis after seeing the share prices of companies with strong balance sheets falling just as badly as others. Something about a receding tide lowering all boats?

Shall we ask Yogi to guide us by the stars?


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ohkoolnutz
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http://www.financialsense.com/fsu/editorials/degraaf/2009/0122.html

http://www.financialsense.com/fsu/editorials/2009/0123.html


---
ohk

Lies, Damn Lies and Technical Analysis

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polpak
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Do not understand Technical analysis.

Do not understand many a fundamental analysis.

See falling companies appear hold strong balance sheets, appear hold sensible long term plans, appear demonstrate sensible consideration for short term hiccups...

Thinking what do I not know, is this opportunity or greater risk ?


What do those who appear to understand TA/FA think ?



Whether is safer to run in front of the herd, with the herd, or behind the herd all depend on understanding the herd.



Are we comfortable to gamble some more ;-)


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colin_twiggs
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Polpak, You need to run in front of the herd, but keep looking over your shoulder to check that they are following.

Regards,
Colin


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dravo
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On Finance.Yahoo we have 81 years of DOW history. Most if not all of TA Indicators can be back tested for reliability on that time series with statistical significance. As far as I understand from the people who have done that and from the standard works on TA (Bulkowski e.o.), the reliability of most indicators, including trend lines and support lines with triangles, are in the range of 50% to 53%. The sequential Tom DeMark trend indicator seems to be an exception, however because of the at least nine sequential conditions, it forces you out of the market for more than 70%. What I don't understand is how Colin can state an 80% probability for his TA. Read also http://www.bloomberg.com/apps/n...


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colin_twiggs
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Dravo,

You may have mis-read the passage:

We never know the outcome of a particular pattern or series of events in the market with 100 per cent certainty. The best that we can hope to achieve is a probability of around 80 per cent for any particular outcome. That means something unexpected will occur at least one in five times.

My approach is to assign probabilities to each possible outcome. Assigning actual percentages would imply a degree of precision which, most of the time, is unachievable. Terms used are more general: "this is a strong signal"; "this is likely"; "expect this to follow"; "this is less likely to occur"; "this is unlikely"; and so on. Bear in mind that there are times, especially when the market is in equilibrium, when we may face several scenarios with fairly even probabilities.


"The best that we can hope to achieve .... for any particular outcome" is not a claim for overall 80% certainty of my TA.

Regards,
Colin







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dravo
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Dear Colin,
What is to misread from: The best that we can hope to achieve is a probability of around 80 per cent for any particular outcome. That means something unexpected will occur at least one in five times.

I understand that this is not a claim for overall 80% certainty four your TA. But the way I read it is that you suggest that for any particular outcome there may be hope for 80% probability. In most of your TA analysis you use support and resistance lines in combination with your money flow indicator. Although I like this creative approach, I don't think you can hope hope to achieve a probability of around 80 per cent for any particular outcome of this combination, nor of the individual indicator components. It would be more in line with present back tested findings over 80 years of DOW that people understand that they can hope to achieve a probability of around 50%-55% per cent for any particular outcome.
Regards,
Dravo

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Do stock prices really trend?scarlettsmith69436 28-Jun-19  08:58 pm
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I am backeric126-Apr-14  06:01 pm
It`s a kind of MAGIC=GAMBLING !stoian50 25-Sep-12  06:04 am
Proof that charts don`t work????2ndsniper44 19-May-11  03:00 pm
Well, does TA really work?furpo02-May-10  10:09 pm
Passive v. Active Selectionresillent117 31-Mar-10  11:11 am
Elliott waves are fake waves, Fourier waves are true waves!stoian28-Jun-09  11:06 am
The Boxcar Effectbeenjammin18-Feb-09  02:34 pm
Trading Books for Saleredrover24-Jan-09  01:55 pm
Why does Technical Analysis work?y3k32 17-Jan-08  04:32 pm
IT WORKS!maxboost25-Jun-07  12:10 am
OBV as a signal.colin_twiggs11 12-Jun-07  02:00 pm
Day Trippers ... it's time to give updes203-Jun-07  02:42 pm

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