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Stock Market Technical Analysis

Carter Worth from fastmoney is a good technician. He has made good predictions based on technical analysis. I think technical analysis works best for short term trading.
 
"Stop trying to predict the direction of the stock market, the economy, interest rates or elections," (Warren) Buffet advises. Instead, he urges his followers to "buy companies with strong histories of profitability and with a dominant business franchise."

It can't be said any better.

No pie charts. No graphs. No trends. No beta. No book. No TV show. No infomercial. No training course "coming soon to your town". Everything you need to know about investing in one sentence.
 
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The Central Scrutinizer said:
"Stop trying to predict the direction of the stock market, the economy, interest rates or elections," (Warren) Buffet advises. Instead, he urges his followers to "buy companies with strong histories of profitability and with a dominant business franchise."

It can't be said any better.

No pie charts. No graphs. No trends. No beta. No book. No TV show. No infomercial. No training course "coming soon to your town". Everything you need to know about investing in one sentence.
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As if he would know :rolleyes:. There are a lot more experts out there than him who disagree.
 
Is there any argument why the reasoning in my post (#16) doesn't make a sufficiently popular shool of technical analysis self-defeating?

Or is the argument that no school is popular enough to influence the market sufficiently?
 
roger said:
The basic reasoning goes something like this - we are individual investors, and don't have our fingers on the pulse like the big money does. They will learn of a problem far sooner than we can, and get out before we do. So, if we watch for unusually heavy selling volume, get out while you can, even if you have heard no news, because somebody with more knowledge than you is dumping stock.
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Is this the way that financial regulators check on market manpulation or insider trading? For example the recent case with the HBOS market manipulation?
 
Scanning for chart patterns is a simplistic approach to technical analysis, and one that is unlikely to beat the market long term. More sophisticated approaches can yield a significant advantage. Check Wikipedia for "Renaissance Technologies":

Since 1989, the company's $5 billion Medallion Fund has averaged 35% annual returns[1][2], after fees...

For over two decades, Renaissance has been at the forefront of research in mathematics and economic analysis. Renaissance employs more than 150 scientific specialists, including mathematicians, physicists, astrophysicists and statisticians, half of whom have a PhD, who review market data to find statistical relationships that predict the price movements of commodities, currencies and stocks. These employees come from countries as diverse as Japan and Cuba [3].

Renaissance uses computer-based models to predict price changes in easily-traded financial instruments. These models are based on analyzing as much data as can be gathered, then looking for non-random movements to make predictions
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First of all, some sorts of technical analysis is useful to watch something less jumpy than the stock itself. Secondly, no one can "predict" the market, and much less using a derivate of the original signal or data (in this case, for instance stuff like "momentum", "Bollinger bands" or "RSI" are delayed towards the movement of the price). Some people doesn't get this and insist in believing that the derived signal is "anticipating the price".

That said, TA is useful if you know what you are looking for. For instance, I do not try to "predict the market" all I do is try to figure out which things are going to be volatile for a period of time and then attempt to cash on the emotional reactions of the people buying and selling the stock.

In a way, trading the market is sensing fear and greed, and acting exactly in the opposite way... this is, when everybody is buying I'm waiting for a short sell, when everybody is getting out (in fear) I'm looking for a place to buy.

In any case, TA alone is useless unless you know about a bit of statistics and probabilities. Something a lot more useful than "chaos theory" here is the Montecarlo Simulation.
 
I think TA is utter crap as well-- my problem is it explains and predicts any pattern. I've seen many times posters claim that the stock looks good because it's going to test some resistance level and if it goes through it's going to go up, and if it doesn't go through it's gonna go down and test some support level.

Ok then, so the stock might go up or down.

I do think volume is useful as a TA but I'm convinced that stock chart patters like head and shoulders / cups n handles and the pregnant dogi candlesticks are all crap.

Roger-- how's the options game going? I had a magnificent two months and am now starting to give some back.
 
bpesta, I pretty much do leaps - it's a long slog. However, I really haven't been doing them; I already buy pretty small cap stocks - if they even have options I don't need the added insolvency. I think there are real inefficiencies to be found in option pricing, but that just adds to the work - find a great stock, underpriced, then find a mispriced option for it. As it is, with the market dislocations, options seem to be priced pretty high, and the stocks are low, so I'm just buying the stocks.
 
roger said:
bpesta, I pretty much do leaps - it's a long slog. However, I really haven't been doing them; I already buy pretty small cap stocks - if they even have options I don't need the added insolvency. I think there are real inefficiencies to be found in option pricing, but that just adds to the work - find a great stock, underpriced, then find a mispriced option for it. As it is, with the market dislocations, options seem to be priced pretty high, and the stocks are low, so I'm just buying the stocks.
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Interesting strategy-- good luck with it.

I suspect my earnings were part luck and due just to the market being up nicely since March, but I will take it.
 
chapka said:
....But I was wondering if there'd been any more expert skeptical discussion on this topic here. Have paranormal and conspiracy thought patterns invaded the financial world? ....
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Yes! it's called government intervention and stimulus....cash enemas to bankrupt and zombie companies.
 
mhaze said:
Yes! it's called government intervention and stimulus....cash enemas to bankrupt and zombie companies.
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lol,

Regarding paranormal stuff or woo... all I can see are gullible people believing that they can "predict" if a stock is going up or down by looking in to derivate signals (which always FOLLOW the price!), but this is called confirmation bias, and it is simply a demonstration of the ZERO scientific capabilities of the general public.

In the end, however, this is not to say that you can't make money on the market by following a methodology that is based (to a point) on TA.
 
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Bodhi Dharma Zen said:
Regarding paranormal stuff or woo... all I can see are gullible people believing that they can "predict" if a stock is going up or down by looking in to derivate signals (which always FOLLOW the price!), but this is called confirmation bias, and it is simply a demonstration of the ZERO scientific capabilities of the general public.
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That's hardly paranormal, nor even irrational. To a first approximation, the best predictor of the weather this afternoon is the weather this morning; the conditions that created bright sunshine today are unlikely to suddenly reverse themselves and produce a hurricane.

There's even more support for the idea that stocks will continue to do this afternoon what they did this morning, because of the "natural" tendency of people to see patterns and expect them to continue. This means that people will naturally expect rising stocks to continue to rise, and therefore will buy into them and raise the price. Again, you will probably be right more often than you will be wrong if you simply follow the crowd.

The problem is that being right 51% of the time isn't very useful when your losses are, numerically, twice what your winnings are. Especially if you pay commission charges to play, which both reduce your winnings and increase your losses.

So the question becomes -- and I think this is a quite legitimate question in both psychology and economics -- when is it safe to trust to the wisdom of crowds and when is it unsafe? I've seen some very interesting theories that try to apply theories of judgement to stock prices (with mixed results, as you might expect) and a whole bunch of voodoo from technical analysts. What I haven't seen are any reliable results that will beat the transaction costs.

In the end, however, this is not to say that you can't make money on the market by following a methodology that is based (to a point) on TA.
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Of course not. My father-in-law made money this past week in Atlantic CIty by following a methodology that was based on "betting on black." But a lot of people at the same table actively lost money following a methodology based on "red," and those same people might well have lost money on "black" the next day. Lady Luck has a notoriously poor memory.
 
Last I checked, TA was one of many ways of analyzing the potential gains/losses of a stock. It is just another tool in the toolkit. Nothing more, nothing less.

It is not something to get dogmatic about. For example, on one of the stock forums I read, I noticed that there was a poster good at picking beatdown stocks that were ready to rise again. One of the other posters noticed that this person kept buying in at times where his profits weren't optimal and recommended using TA as a tool for that person to find his buy-in point.
 
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