StockFetcher Forums · General Discussion · Do you pure technicians agree with this article?<< 1 2 >>Post Follow-up
as214
184 posts
msg #62083
Ignore as214
5/2/2008 4:04:28 PM

As a deep value investor I haven't had the level of technical experience as this guy has, just curious as to what you guys think about it ! Very good read!


http://seekingalpha.com/article/59187-why-technical-analysis-is-nonsense

nikoschopen
2,824 posts
msg #62087
Ignore nikoschopen
5/2/2008 4:55:40 PM

Allow me to start off with a question: Why the hell are you even here if you hold no value in the importance of technical analysis?

Now to some rebuttals...
****

This article is for all investors that vehemently believe in the power of technical analysis but donít realize that on a risk-adjusted and tax-adjusted (ahÖthis is very important), they are not outperforming the market.

Risk-adjusted and tax-adjusted? First, as far as risk is concerned, investors who base their reason and rhyme on fundamental analysis are the ones who give back 10% or more of their profit. Second, does it make sense to hold my position for longer than a year in order to save a skimpy 20% on my taxes when I could be losing a lot more by doing so?

****

So if the most sophisticated institutional investors donít believe in it why should you as an individual investors subscribe to technical analysis?

A classic as214 argument. Unfortunately, most of these "sophisticated institutional investors" have hard time beating the S&P 500, which has an average ROI of less than 10%. No doubt, some of the best investors will garner returns much larger than that. But so do many best traders who use technical analysis.

****

Technical traders are also critiqued for being too late in identifying trends. All too often we see technical traders marking up charts showing price movements when they were unable to predict the trend before it started. As a result, many technical traders miss out on trends because they start riding them too late.

So are fundamental trader any better "in identifying trends"??? It's my understanding that fundies don't give a damn about trends. So why do you even care what the techies are up to?

****

Technical analysis is also chronically open to interpretation. For example, two technical traders can look at a chart and tell two different stories and see two different patterns. The chart's interpretations are in the eye of the beholder.

By the same token, no two fundamntal analysts will interpret the income statement and the balance sheet alike, let alone come to the same conclusion.

petrolpeter
439 posts
msg #62095
Ignore petrolpeter
5/2/2008 8:34:02 PM

So are we supposed to look at the fundamentals after we trade in and out of the symbol or before?

guru_trader
485 posts
msg #62098
Ignore guru_trader
5/2/2008 10:20:54 PM

Re: "So are we supposed to look at the fundamentals after we trade in and out of the symbol or before?"

yes! :D

freebooter_alpha
1 posts
msg #62176
Ignore freebooter_alpha
5/5/2008 5:11:57 PM

I have just started re reading "A Random Walk Down Wall Street". One thing that i noticed was that the unlying assumption is that price movement is random, and therefore unpredictable. But the unlying assumption is false. Stock prices move on information, emotion, technical and fundamental analysis. All things rolled into one thing- price. Technical analysis assumes there are patterns to all information. I believe there is. The pattern is the sum of all digested information of a stock at any given moment. Finding the pattern is another matter. We are fortunate enough to be able to backtest our patterns against historical data before we commit any money.

rharmelink
81 posts
msg #62182
Ignore rharmelink
5/5/2008 8:21:55 PM

Even random data has patterns.

There are books that document 72 hours of craps and/or roulette decisions, so "system makers" can test their theories with "real" historical data. I'll bet they have a lot of patterns that historically would have made money. But would you trust them?

nikoschopen
2,824 posts
msg #62184
Ignore nikoschopen
5/5/2008 9:00:50 PM

Be it random or not, what am I to use if not technical analysis? Fundies are full of crap in insisting that TA doesn't work but they never offer any alternative. Or am I to understand that fundamental analysis is its alternative? I ain't too sure that all fundies can make money just as not all techies will make money by reading tea leaves.

rharmelink
81 posts
msg #62253
Ignore rharmelink
5/6/2008 11:47:02 PM

Let me put it this way -- I believe in fundamentals more than technicals. But I don't think either of them alone provides all the answers. Or even clear answers.

I'm anti-TA in the sense that II don't think you can blindly apply a technical indicator to any chart or set of historical data and expect it to have equal effectiveness. Or even similar results. For example, I would NOT expect the same TA indicators and/or parameters to work on low-cap stocks, mid-cap stocks, large cap stocks, ETFs, mutual funds, options, futures, indexes, high growth or momentum stocks, turnaround stocks, etc.

I've been happiest with CANSLIM, which uses fundamentals to create a homogeneous group of stocks. Then, within that group of stocks, technicals can usually be applied -- because those stocks will have more or less the same technical dynamics of supply and demand -- which to a large degree is what TA is really measuring.

One aspect of CANSLIM investing I like is that it is typically looking for smaller companies, BEFORE the "big guys" are on board. Then, not only do you have the normal supply and demand, but you also have the mutual funds and institutions entering the supply and demand curve for the stock as the company grows. But I would avoid a small company that has a high institutional holding -- because they can unload the stock and drop it like a rock by creating excess supply where there isn't enough demand.

With CANSLIM, I would use fundamentals -- earnings growth, institutional ownership, etc -- to find the stocks. But use the technicals -- relative strength, C&H pattern, breakouts, etc. -- to measure the potential entry points, because price and volume are defining the supply and demand curve for the group of stocks that should more or less act similarly.

TA is just a tool. But if all you use is a hammer, even a screw looks like a nail. Using the right tool for the job is important.

But the nice thing about investing is that there are MANY ways to invest. The most important thing is to find a method one is comfortable with.

nikoschopen
2,824 posts
msg #62299
Ignore nikoschopen
5/7/2008 5:14:19 PM

But then again, is there a garden-variety fundamental analysis that can be applied across the board? Moreover, can fundamental analysis be deemed more "pure" than technical analysis when in fact a company's earnings (top-line and bottom-line) are judged on the expectations of financial analysts? What gives these analysts the power to raise or lower the expectations? If that ain't subjective, I don't know what is. Even worse, on a macro perspective, why does a stock market rally on the day of poor economic numbers? If we're to go strictly by the books, shouldn't the market decline?

As such, fundamental analysis is equally flawed in my opinion. I won't say that fundamental analysis has no merits or that technical analysis is not without drawbacks. However, I find it irksome that it's always the fundies who makes it their mission to debunk technical analysis. I fondly wish a techie would likewise make the same assault on fundamental analysis, which I believe is crap du jour.

rharmelink
81 posts
msg #62304
Ignore rharmelink
5/7/2008 8:04:07 PM

I think part of it is that it's easier to disprove TA than FA.

For FA, you have very few data points -- in many cases, quarterly or annual data. If you find a fundamental pattern -- MFI, CANSLIM, Rule #1, BTD, PSR, etc -- how many years of forward test data is required to discount the pattern?

For TA, you can go down to periods by the minute (or even less). That gives you a lot more permutations of patterns. And how many periods of forward testing data will it take to discount the pattern? Days, weeks?

But, again, it does depend on how you define TA. Does it mean that the same indicator and parameters should give equivalent results for any chart or set of O/H/L/C/V data? If you buy the argument that price and volume encompass all known information, I think it does?

StockFetcher Forums · General Discussion · Do you pure technicians agree with this article?<< 1 2 >>Post Follow-up

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