Do large banks and institutions use TA to profit?
- Thread starter londonkid
- Start date
I have no conviction either way on TA, but I've tried finding studies to prove/disprove it, this is the abstract from a study titled "Technical Analysis Around the World" by Massey University New Zealand;
Over 5,000 popular technical trading rules are not consistently profitable in the 49 country indices that comprise the Morgan Stanley Capital Index once data snooping bias is accounted for. Each market has some rules that are profitable when considered in isolation but these profits are not statistically significant after data snooping bias adjustment. There is some evidence that technical trading rules perform better in emerging markets than developed markets, which is consistent with the finding of previous studies that these markets are less efficient, but this result is not strong. While we cannot rule out the possibility that these trading rules compliment other market timing techniques or that trading rules we do not test are profitable, we do show that over 5,000 trading rules do not add value beyond what may be expected by chance when used in isolation during the time period we consider.
Over 5,000 popular technical trading rules are not consistently profitable in the 49 country indices that comprise the Morgan Stanley Capital Index once data snooping bias is accounted for. Each market has some rules that are profitable when considered in isolation but these profits are not statistically significant after data snooping bias adjustment. There is some evidence that technical trading rules perform better in emerging markets than developed markets, which is consistent with the finding of previous studies that these markets are less efficient, but this result is not strong. While we cannot rule out the possibility that these trading rules compliment other market timing techniques or that trading rules we do not test are profitable, we do show that over 5,000 trading rules do not add value beyond what may be expected by chance when used in isolation during the time period we consider.
Just to set the record straight--- I have been BANNED from talking about TA on this site---you have not destroyed anything. I am not ALLOWED to respond with any argument. sorry, i truly wish I could, but to prevent marketsurfer from being permanently banned, i need to abide by the rules.
with that said, you are clearly misinterpreting the context of that ancient document that you posted.
Sorry, I am not allowed to elaborate under strict orders. This post is strictly to explain why I can no longer respond, and to correct your misstatements of fact.
peace.
surf
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Don't forget, some people might think there using TA and even astrology yes seriously to make money, as well the later 1 is totally ludicrous, we can assume they merely think they are using this, it's a crux as such, in reality there using there own logic / pattern recognition / experience or maybe just keeping it simple to make profits.
So therefore, if someone is profit and claims to be using TA, they need to prove both.
So therefore, if someone is profit and claims to be using TA, they need to prove both.
In most banks the acronym "TA" stands for Technology Associate.
Top 3 answers from Quora, in response to the question:
Do large trading firms, investment management firms, large banks and/or hedge funds use technical analysis?
Joseph Wang, Ex-VP Quant - Investment banking - Hong Kong
1.6k Views • Upvoted by Albert Hong, NYU Stern '12, BlackRock, Blackstone
Joseph has 1,010+ answers in Finance.
Technical analysis is to professional trading what astrology is to astronomy.
Large banks, investment management firms. No. The business they are mostly in involves portfolio management, and so they aren't usually actively trading against patterns.
Some hedge funds and trading firms do look at statistical patterns, but they don't call it technical analysis, and it's a different philosophy. In particular, anyone that does serious trading is very careful to run simulations to make sure that what they are seeing is a "real signal" rather than fake randomness. You'll find if you backtest data that most of the strategies that technical analysts use just don't make any money.
The other issue is that technical analysis turns out to be mostly useless for most large trades even if it did work. The problem is that most large trades are going to change the market, and depending on what you want to do, you usually want to avoid moving the market, which means that what the market was like before doesn't matter.
Written 11 Aug, 2014
Peter Hans, 15 years on Wall Street, Former Interest Rate Derivatives Trader
601 Views • Upvoted by Laeeth Isharc, Former co-head in London at Citadel fixed income portfolio …
Peter has 40+ answers in Finance.
I disagree with most of the answers here. Yes, technical analysis is well behind fundamental analysis in terms of predominant investment strategy, and this is magnified for your typical PM and analyst. That said, in my experience most traders, at any institution, will look at charts and overlay studies for the securities that they trade. Typically these won't be the more commonly available moving averages, but rather more intensive and higher value studies, such as DeMark Indicators.
I have traded, professionally, across the capital structure, on both the buy and sell side. And while I am by no means a technician, I do find value in certain studies, especially DeMark, as a supplement to my macro and micro research. Typically I won't invest or execute a trade based on technical analysis, however, it can certainly help me to time trades, and the size of those trades.
Written 3 Sep, 2014
Daniel Chia, Call Levels co-founder, prev SWF and HF Portfolio Manager
440 Views
I've seen traders and managers in the biggest institutions out there use technical analysis and charts all the time. But they'll never admit to doing it.
The reason is that In the markets it's important to have an edge, or be perceived to have an edge. Basing a trade on "hocus pocus" like technical analysis (200 people can look at the same chart with wildly different predictions) can lose a lot of credibility even if it seems to work.
Telling your backer that the reason why you are keeping a losing trade because it hasn't moved below its 250 day moving average is a bad idea even if it's the truth.
So they layer on fundamental reasons and quantitative explanations, or simply call it "gut feel".
Written 25 Apr
https://www.quora.com/Do-large-trad...nks-and-or-hedge-funds-use-technical-analysis
I don't know who Laeeth Isharc is or what Citadel is, but he seemed to like Peter's answer.
Do large trading firms, investment management firms, large banks and/or hedge funds use technical analysis?
Joseph Wang, Ex-VP Quant - Investment banking - Hong Kong
1.6k Views • Upvoted by Albert Hong, NYU Stern '12, BlackRock, Blackstone
Joseph has 1,010+ answers in Finance.
Technical analysis is to professional trading what astrology is to astronomy.
Large banks, investment management firms. No. The business they are mostly in involves portfolio management, and so they aren't usually actively trading against patterns.
Some hedge funds and trading firms do look at statistical patterns, but they don't call it technical analysis, and it's a different philosophy. In particular, anyone that does serious trading is very careful to run simulations to make sure that what they are seeing is a "real signal" rather than fake randomness. You'll find if you backtest data that most of the strategies that technical analysts use just don't make any money.
The other issue is that technical analysis turns out to be mostly useless for most large trades even if it did work. The problem is that most large trades are going to change the market, and depending on what you want to do, you usually want to avoid moving the market, which means that what the market was like before doesn't matter.
Written 11 Aug, 2014
Peter Hans, 15 years on Wall Street, Former Interest Rate Derivatives Trader
601 Views • Upvoted by Laeeth Isharc, Former co-head in London at Citadel fixed income portfolio …
Peter has 40+ answers in Finance.
I disagree with most of the answers here. Yes, technical analysis is well behind fundamental analysis in terms of predominant investment strategy, and this is magnified for your typical PM and analyst. That said, in my experience most traders, at any institution, will look at charts and overlay studies for the securities that they trade. Typically these won't be the more commonly available moving averages, but rather more intensive and higher value studies, such as DeMark Indicators.
I have traded, professionally, across the capital structure, on both the buy and sell side. And while I am by no means a technician, I do find value in certain studies, especially DeMark, as a supplement to my macro and micro research. Typically I won't invest or execute a trade based on technical analysis, however, it can certainly help me to time trades, and the size of those trades.
Written 3 Sep, 2014
Daniel Chia, Call Levels co-founder, prev SWF and HF Portfolio Manager
440 Views
I've seen traders and managers in the biggest institutions out there use technical analysis and charts all the time. But they'll never admit to doing it.
The reason is that In the markets it's important to have an edge, or be perceived to have an edge. Basing a trade on "hocus pocus" like technical analysis (200 people can look at the same chart with wildly different predictions) can lose a lot of credibility even if it seems to work.
Telling your backer that the reason why you are keeping a losing trade because it hasn't moved below its 250 day moving average is a bad idea even if it's the truth.
So they layer on fundamental reasons and quantitative explanations, or simply call it "gut feel".
Written 25 Apr
https://www.quora.com/Do-large-trad...nks-and-or-hedge-funds-use-technical-analysis
I don't know who Laeeth Isharc is or what Citadel is, but he seemed to like Peter's answer.
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Another angle:
Who uses the Bloomberg Terminal and why would Bloomberg be interested in providing technical analysis functionality?
From Bloomberg.com:
Technical analysis is about identifying patterns in financial markets. It is a systematic way of studying the past by analyzing an instrument’s price and volume history in order to infer future moves.
The best way to analyze how something has traded in the past and make inferences on how it will trade in the future is to combine visual representations with statistical and quantitative analysis. This is where Bloomberg comes in. For those of you who use the Bloomberg Professional service, you know that anything that has been traded can be charted and analyzed.
[...]
The idea of technical analysis may be new to some and commonplace to others, but we feel it is important to continue to innovate so that we can provide the very best solutions for those who use it.
- Eugene Sorenson, Global Product Manager for Data Visualization, Bloomberg
Elsewhere on Bloomberg.com, a chart showing the rupee:
The price lows coincide with the green trend line ~9 times (depending on what fractal is used).
Random walk?
Or, traders watching the same chart, seeing the same obvious trend, whether or not they admit to using TA.
Who uses the Bloomberg Terminal and why would Bloomberg be interested in providing technical analysis functionality?
From Bloomberg.com:
Technical analysis is about identifying patterns in financial markets. It is a systematic way of studying the past by analyzing an instrument’s price and volume history in order to infer future moves.
The best way to analyze how something has traded in the past and make inferences on how it will trade in the future is to combine visual representations with statistical and quantitative analysis. This is where Bloomberg comes in. For those of you who use the Bloomberg Professional service, you know that anything that has been traded can be charted and analyzed.
[...]
The idea of technical analysis may be new to some and commonplace to others, but we feel it is important to continue to innovate so that we can provide the very best solutions for those who use it.
- Eugene Sorenson, Global Product Manager for Data Visualization, Bloomberg
Elsewhere on Bloomberg.com, a chart showing the rupee:
The price lows coincide with the green trend line ~9 times (depending on what fractal is used).
Random walk?
Or, traders watching the same chart, seeing the same obvious trend, whether or not they admit to using TA.
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