A question to people that don't "believe" in TA
- Thread starter tommo
- Start date
I'm only looking at the most basic, stripped-down definition of what TA is, to the exclusion of anyone's personal take on it. Some people seem to think that TA is Elliott, Gann, indicators and trend lines. Those are just a subset of TA because they use historical price (and/or related) data. However, the use of statistics can also arguably be defined as TA, depending on how it is implemented. Not everyone's version of TA is created equal. Some people's version of TA seems to be more robust than that of others, but that is a topic for another thread. The point is that it is just a distinction from the use of a wide array of economic variables that would fall under the category of fundamental analysis. But, in the end, who cares what you call the tools that you use if they work for you? And if they don't, then no name is colorful enough.
Let's get back to TA's definition:
- "A method of evaluating securities by analyzing statistics generated by market activity, such as past prices and volume. Technical analysts do not attempt to measure a security's intrinsic value, but instead use charts to identify patterns that can suggest future activity."
Technical analysis is called technical analysis to distinguish it from fundamental analysis. And just as there are many different forms of "fundamental" analysis, so there are many different forms of technical analysis.
Unfortunately, TA has become equated with indicators over the past thirty years, so if one says he uses TA, the assumption is made that he's using indicators. Or one may say that he doesn't use TA, he follows price only (which is, of course, the basis of TA, and sometimes its only form). Or he may say that he follows the tape, not charts, so he doesn't use TA.
But anything that focuses on price rather than fundamentals is by definition TA, even if one is using indicators only (since indicators are derived from price), even if one isn't using charts.
Therefore, if you're interested in who's doing what, you'd do well to define just what it is that you mean when you use the term "TA".
Unfortunately, TA has become equated with indicators over the past thirty years, so if one says he uses TA, the assumption is made that he's using indicators. Or one may say that he doesn't use TA, he follows price only (which is, of course, the basis of TA, and sometimes its only form). Or he may say that he follows the tape, not charts, so he doesn't use TA.
But anything that focuses on price rather than fundamentals is by definition TA, even if one is using indicators only (since indicators are derived from price), even if one isn't using charts.
Therefore, if you're interested in who's doing what, you'd do well to define just what it is that you mean when you use the term "TA".
I make markets in options on futures and the underlying futures. I use proprietary algorithms and software that estimate volatility and fair value to quote and hedge these instruments automatically.
I think your view of the markets is extremely narrow.
That depends on how you define "guessing". For example, does a decision to enter the market because some statistical calculation of price over n periods is relatively "low" or "high" count as "guessing"? What if we analyze this particular calculation out of sample, and discover that its predictive value is no better than random? In that case, the agent in question (the trader) is making a rational decision, but the outcome is no better than random "guessing". Are you sure you are not "guessing" on a regular basis with your technical analysis method? How do you know?
You are using the term "fundamental analysis" so broadly as to encompass virtually any strategy that estimates the theoretical value of an instrument. I think you must be specifically referring to investors who study the financial reports and market segments for particular corporations in order to derive a value estimation for a given stock. You need to broaden your view, and learn the widely varied ways institutional capital is applied in the different markets. There are at least as many strategies as there are participants.
To answer your question specifically, "fundamental analysis" drives more than half of the share volume in equity markets in the form of "program trading". For the most part, various arbitrage programs constitute the majority of "program trading" volume. At least, that was a true statement a few years ago. An increasing percentage of this volume is driven by buy-side and sell-side algorithms.
You are at least partly correct in the macro sense. In the macro sense, changes in price may reflect a change in fundamental values. Changes in price also occur because of supply and demand, rational and irrational speculation, and a host of other factors. The latter catagory often shifts temporarily, but the duration of the anomaly cannot be known. The problem is, how does one know when a shift in price is temporary, or when a shift in price reflects a change in fundamental valuation? Market-makers and dealers assume this risk when they trade. Microstructure theory suggests that they set their prices based on this risk, in order to compensate for the inevitable trade with those who are informed. Whether you realize it or not, you also assume this risk when you trade based on your technical analysis method.
Have you ever heard the term "survivorship bias"? In the game of trading, the game that you are playing, only the survivors are left to trade at the firm. The losers do not get to play any more. Why exactly the survivors are survivors is unknown, but we can often attribute this to luck and luck alone. You need to consider the possibility that luck is a major factor when measuring these types of outcomes.
You have really bought in to this, haven't you? I hope that you are not risking your own capital as you graduate from your training program. The fabled art of "discipline and money management" is ever the opiate of hopeful traders. I would even say that some traders take it to a level approaching mysticism. A trader fails, and they chalk it up to "lack of discipline", or violating their "money management" rules. This is a psychological defense mechanism called "denial". A decision is either right or wrong, irrespective of other factors.
Good luck with your trading. Feel free to PM me if you would like textbook or other educational references.
-segv
Absolutely true.
To be more precise...
"risk arbitrage" involves using "quantiative analysis"...
To hedge and trade off historic relationships between securities or baskets of securities.
There is ZERO connection between the above... and what is commonly called TA.
Where people use high school math and cool looking charts...
To analyze random systems for imaginary things like "price action" and "resistance".
But it is very important to understand...
That the securities industry ** heavily promotes ** TA for 2 reasons:
(1) It gets marginally sophisticated people addicted to trading.
(2) The sell side con artist broker...
Can sound intelligent when giving a customer a TA reason to buy...
And one minute later can sound intelligent giving another customer a TA reason to sell.
It's all a big hoax.
Ask any person with a Masters or Doctorate in stats...
They will dismiss TA out of hand...
Except in the rare instances it becomes a "self-fulfilling" prophecy due to large numbers of users.
Do not ask your broker...
Who only cares about only one thing... taking your money.
I stop taking someone seriously...
The minute they indicate that they believe in TA.
rm+
Can you really equate what a market maker does with someone trading intraday? Your profit mainly is locking in the spread. I think the questions posed are more towards non-market makers. I would not expect any market maker to use TA or FA nor have I heard any MM claiming to when making a market.
APPLE DECLARES WAR ON FRANCE
High level talks are underway... and I predict that France surrenders by 16:00
rm+
High level talks are underway... and I predict that France surrenders by 16:00
rm+