Marketsurfer,
you slowly start to really annoy me, not just because of your lack of knowledge in some areas that you claim to possess (although you seem to be the big fish at ET with your 3000 something posts) but also because you are really fast to judge others with absolutely wrong statements.
Being a quant myself I believe I am not confusing quant finance with fundamental analysis. Almost all fundamental analysis is heavy on the quantification of market variables into probabilities. Example: You analyze dividend growth and compare dividend rates among stocks within a certain industry. You then form an opinion on your own how you expect dividends to grow, let's say, over the next 5 years. This is only one variable that goes into your entire fundamental analysis but for the sake of it I just limit it to this one and keep it very simplistic. For instance, I believe that the probability of the dividend growth to remain stable over the given time frame is 50%. I continue expressing all my other expectations as probabilities and end up with a tree and branches of the different probabilities of expected outcomes.
Another example is your outlook on the price of oil. You would look at all variables that influenced oil prices and you would end up (among others) analyzing the political landscape in oil producing regions, their policy stance towards setting crude prices and so on. If you stopped here you would not have anything that you could work with. Instead, opinions and expectations need to be quantified in order to let such variables flow into the bigger equation. So, FA is very technical indeed (not to be confused with TA) and that is why many traders shun such analysis in addition to the lack of understanding that also in FA, one needs to take a stance and form a subjective opinion.
May I ask one question about your comment regarding time frames in TA: You mentioned that time frames are directly related to the timeframe of a trade. How do you know in advance the timeframe of a trade? Are you one of those intelligent guys who knows already now that you will close out your trade in 60 minutes, hence you utilize , let' say 5 min bars for TA? (sorry, please excuse if I got the time frame relationships wrong, I rarely rely on such tools ;-) Or are you one of those guys who became a slave to your TA? (Meaning that even though you should let your profits run but because the time frame you decided to trade on tells you to exit you do exit) Then I get your point but still have to ask how you can then be flexible and adjust to market behavior if you decide a priori to do your own thing? In the end you got a crystal ball and the only way you are different from another TA trader (no matter how intelligent that other guy is or you are) is the time frames you guys trade on. You are no millimeter away from randomness because if every trader traded on different time frames each and every trader would end up entering and exiting trades at different levels, but if each and every trader traded on identical time frames, markets would not function as either everyone wanted to buy or sell. Do you see the contradiction of your time frame argument?
you slowly start to really annoy me, not just because of your lack of knowledge in some areas that you claim to possess (although you seem to be the big fish at ET with your 3000 something posts) but also because you are really fast to judge others with absolutely wrong statements.
Being a quant myself I believe I am not confusing quant finance with fundamental analysis. Almost all fundamental analysis is heavy on the quantification of market variables into probabilities. Example: You analyze dividend growth and compare dividend rates among stocks within a certain industry. You then form an opinion on your own how you expect dividends to grow, let's say, over the next 5 years. This is only one variable that goes into your entire fundamental analysis but for the sake of it I just limit it to this one and keep it very simplistic. For instance, I believe that the probability of the dividend growth to remain stable over the given time frame is 50%. I continue expressing all my other expectations as probabilities and end up with a tree and branches of the different probabilities of expected outcomes.
Another example is your outlook on the price of oil. You would look at all variables that influenced oil prices and you would end up (among others) analyzing the political landscape in oil producing regions, their policy stance towards setting crude prices and so on. If you stopped here you would not have anything that you could work with. Instead, opinions and expectations need to be quantified in order to let such variables flow into the bigger equation. So, FA is very technical indeed (not to be confused with TA) and that is why many traders shun such analysis in addition to the lack of understanding that also in FA, one needs to take a stance and form a subjective opinion.
May I ask one question about your comment regarding time frames in TA: You mentioned that time frames are directly related to the timeframe of a trade. How do you know in advance the timeframe of a trade? Are you one of those intelligent guys who knows already now that you will close out your trade in 60 minutes, hence you utilize , let' say 5 min bars for TA? (sorry, please excuse if I got the time frame relationships wrong, I rarely rely on such tools ;-) Or are you one of those guys who became a slave to your TA? (Meaning that even though you should let your profits run but because the time frame you decided to trade on tells you to exit you do exit) Then I get your point but still have to ask how you can then be flexible and adjust to market behavior if you decide a priori to do your own thing? In the end you got a crystal ball and the only way you are different from another TA trader (no matter how intelligent that other guy is or you are) is the time frames you guys trade on. You are no millimeter away from randomness because if every trader traded on different time frames each and every trader would end up entering and exiting trades at different levels, but if each and every trader traded on identical time frames, markets would not function as either everyone wanted to buy or sell. Do you see the contradiction of your time frame argument?
Quote from marketsurfer:
bbmat makes some valid points, but he is confusing fundamental analysis with quant finance--- binomial trees are quant tools not FA tools. not sure if we are dealing with a language issue or if he is truly confused. in addition, his time frame issue with TA is nonsensical-- the time frame used in TA is directly related to the timeframe of the trade. a three minute chart would be used on a shorter time frame trade than an hourly chart---so what is he talking about ?
best,
surfer