Do large banks and institutions use TA to profit?
- Thread starter londonkid
- Start date
That is bs. HFT firms act on price and volume, only, and they have nothing to do with TA.
TA is unfortunately a pretty loosely defined term which is why most who lose money are tricked into its promises and why it is at the same time so hard to prove it's lack of predictive power.
TA is unfortunately a pretty loosely defined term which is why most who lose money are tricked into its promises and why it is at the same time so hard to prove it's lack of predictive power.
The end of an era!!
You have the "strategist TA" person in the meeting. You also have the traders at their desks at the firm managing the position via TA and via those other data/resources they have access too. Thus, its more than someone with the title "strategist technical analyst" giving his/her perspective in a decision process meeting about what to do next. In fact, more often than not the decision has already been made...its now just a "when" to do it.
Not all firms are like that but many are...they are doing much more with TA than just showing charts at a meeting.
As to the issue about account destruction for the retail trader...the reasons do not involve TA.
In contrast, most retail traders fail at trading because of any of the following reasons:
1) No trading plan
2) Poor risk management
3) No discipline
4) Inadequate trading tools (this gets into that "other data/info/tools")
5) Poor business management of trading
6) Poor stress management
7) Trading the wrong trading instruments
8) Poor understanding of what moves the markets (Hint: Its not someone using TA).
9) Poor adjustments to new regulations and exchange rules
Simply, TA if listed as the reason to failure...its at the bottom of the totem pole. By the way, there's a growing list of traders here that use charts but do not believe they are using TA. Therefore, what is TA and what is not TA...its starting to quickly get muddy and I predict more debates about TA mainly because most do not know what it is or have developed their own opinion of what constitutes "using TA".
My point, there are just as many traders failing at the business of trading and they don't even use TA nor believe in it. Therefore, its logical to think that the reasons for failing at trading is not dependent upon TA.
I have seen plenty of guys blow up, fail, get removed from the trading business. In most every case it had zero to do with TA or no TA. I know guys who were pure price action traders who got demolished, and guys who were fundamental types who blew out. They failed because your list of 9 reasons, those and probably just as important they let their ego get in the way. "I can't be wrong........the market is wrong"........nonsense like that.
Now that Baron has put a muzzle on Surf and his anti TA stuff, probably time to put this stuff to rest.
I've been a skeptic all my life. Starting from religion, to teachers, to history, to parents, to media, and politicians.
The one thing I do believe in however is TA. The key however is that it is subjective based on the user however.
I had a massive short position in biotech that I've been accumulating prior to Black Monday and was very hyped about the trade and would be telling my friend about it. However he did not see anything based on his TA and claimed, "I'd rather short something that's weaker, only a few down days doesn't mean anything." Low and behold he missed out on a quick and easy 10-20%.
Paul Tudor Jones is a very skilled technician. He is known to have used Elliot Wave to predict the crash of 1987. I still don't have EW in my toolbox, because it is something I have not fully taken the time to understand yet. But that doesn't mean I dismiss it and laugh about it.It is simply subjective based on the chartist which I find beautiful.
And even when others laugh at me for using TA, I simply smile back =]
The one thing I do believe in however is TA. The key however is that it is subjective based on the user however.
I had a massive short position in biotech that I've been accumulating prior to Black Monday and was very hyped about the trade and would be telling my friend about it. However he did not see anything based on his TA and claimed, "I'd rather short something that's weaker, only a few down days doesn't mean anything." Low and behold he missed out on a quick and easy 10-20%.
Paul Tudor Jones is a very skilled technician. He is known to have used Elliot Wave to predict the crash of 1987. I still don't have EW in my toolbox, because it is something I have not fully taken the time to understand yet. But that doesn't mean I dismiss it and laugh about it.It is simply subjective based on the chartist which I find beautiful.
And even when others laugh at me for using TA, I simply smile back =]
Do large banks and institutions use TA to profit?"
The marketplace is So big and huge...with so many different types of players, each with their own personality.
I believe Everyone, more or less, uses Technical Analysis/Charts to see/gauge possible future patterns.
Fundamental analysis is for the longer term investors.
Oh well, may the Force be With You.
Mazal tov, Good luck -- because sometimes, that's all that matters...no matter how in control we may like to think of ourselves.
The marketplace is So big and huge...with so many different types of players, each with their own personality.
I believe Everyone, more or less, uses Technical Analysis/Charts to see/gauge possible future patterns.
Fundamental analysis is for the longer term investors.
Oh well, may the Force be With You.
Mazal tov, Good luck -- because sometimes, that's all that matters...no matter how in control we may like to think of ourselves.
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This would be my guess on Paul Tudor Jones. Correlation does not equal causation; just because he uses TA means very little when there are a million failed TA traders for every Tudor Jones…
Wow.
Loads of bad information here and only a few good posts.
Let's clear up the misconceptions.
Banks and institutions DO use technical analysis, but not how most here think they do..
Banks and other large financial institutions are divided into two categories, the buy-side and sell-side. The buy-side consists of hedge funds, pension funds, mutual funds, etc. The sell-side is the market makers or banks. The two have very different goals. The buy-side is profit-motivated through speculation while the sell-side is not. The sell-side is motivated in making profits through spreads or commissions, and the more volume transacted the more they make. Some sell-side traders do make speculative trades, although they rarely do this. The reason they would do it is to increase bank profits, "increase shareholder value", and mostly for fatter bonuses although if you're not achieving budget targets job security becomes another issue altogether.
Technical analysis as we retailers use it is not as widely used by large buy-side institutions like it used to be. However, some funds do still use technical concepts. Was it not Paul Tudor Jones who said trade fundamentally, but enter technically? The reason many large buy-side firms aren't using TA anymore is that they instead opt for the more profitable algorithmic and quantitative analysis techniques. Ironically, many of these types of strategies study historical price behavior and statistical patterns just as technical analysis does. Technical analysis concepts are extremely important to these types of strategies, but to quote a sentence from the below link, "admitting use of TA in public is bad for business."
https://www.quora.com/What-do-hedge-funds-think-of-technical-analysis
Therefore, we can say a form of technical analysis is being used on the buy-side, however these modeling techniques are much different than what we retailers do and that's why it has its own name AKA quantitative analysis trading.
Keep in mind there are still some funds and large individual traders using technical analysis like we do, but fundamentals and global macro play a much bigger role in their strategies. More on this below.
Next, let's talk about the sell-side. Since the sell-side isn't really motivated by profits through speculation, they don't use TA to make speculative trades. But TA still plays a role in their decision making. You will see traders using pivot points, fibs, especially support/resistance, etc., but they use it as a tool to set limit orders. They need to provide liquidity at all times and they tend to cluster limit orders at key levels because price tends to turn from there. However, they can also see their customer flow and this provides a massive edge, not to mention all the analysts giving them detailed reports on the fundamentals. If you take away their order flow edge, most of these guys could not trade for shit. Trading on the sell-side is a whole different game vs. the buy-side. The sell-side is in the business to minimize risk (and profit from spreads/commissions) while the buy-side creates risk (in order to turn a profit).
For the large market participants, fundamentals and macroeconomics plays a much bigger role. These guys don't trade every day and only look for high probability opportunities on the macro landscape. They need to make every trade count and 10% a month is an awesome result for them. They may well use TA for entries/exits and scaling purposes. This group may exclude HFT and quantitative firms who can also be large and may be getting in and out of trades super fast. Their core strategies are derived from technical analysis concepts, but with heavy math and coding. It's like technical analysis on steroids.
For those who are interested in learning more about institutions, check out this awesome thread on FF about institutional trading from actual institutional traders. Although FX based, it may open your eyes to how the institutional space differs from the retail.
http://www.forexfactory.com/showthread.php?t=486128
Loads of bad information here and only a few good posts.
Let's clear up the misconceptions.
Banks and institutions DO use technical analysis, but not how most here think they do..
Banks and other large financial institutions are divided into two categories, the buy-side and sell-side. The buy-side consists of hedge funds, pension funds, mutual funds, etc. The sell-side is the market makers or banks. The two have very different goals. The buy-side is profit-motivated through speculation while the sell-side is not. The sell-side is motivated in making profits through spreads or commissions, and the more volume transacted the more they make. Some sell-side traders do make speculative trades, although they rarely do this. The reason they would do it is to increase bank profits, "increase shareholder value", and mostly for fatter bonuses although if you're not achieving budget targets job security becomes another issue altogether.
Technical analysis as we retailers use it is not as widely used by large buy-side institutions like it used to be. However, some funds do still use technical concepts. Was it not Paul Tudor Jones who said trade fundamentally, but enter technically? The reason many large buy-side firms aren't using TA anymore is that they instead opt for the more profitable algorithmic and quantitative analysis techniques. Ironically, many of these types of strategies study historical price behavior and statistical patterns just as technical analysis does. Technical analysis concepts are extremely important to these types of strategies, but to quote a sentence from the below link, "admitting use of TA in public is bad for business."
https://www.quora.com/What-do-hedge-funds-think-of-technical-analysis
Therefore, we can say a form of technical analysis is being used on the buy-side, however these modeling techniques are much different than what we retailers do and that's why it has its own name AKA quantitative analysis trading.
Keep in mind there are still some funds and large individual traders using technical analysis like we do, but fundamentals and global macro play a much bigger role in their strategies. More on this below.
Next, let's talk about the sell-side. Since the sell-side isn't really motivated by profits through speculation, they don't use TA to make speculative trades. But TA still plays a role in their decision making. You will see traders using pivot points, fibs, especially support/resistance, etc., but they use it as a tool to set limit orders. They need to provide liquidity at all times and they tend to cluster limit orders at key levels because price tends to turn from there. However, they can also see their customer flow and this provides a massive edge, not to mention all the analysts giving them detailed reports on the fundamentals. If you take away their order flow edge, most of these guys could not trade for shit. Trading on the sell-side is a whole different game vs. the buy-side. The sell-side is in the business to minimize risk (and profit from spreads/commissions) while the buy-side creates risk (in order to turn a profit).
For the large market participants, fundamentals and macroeconomics plays a much bigger role. These guys don't trade every day and only look for high probability opportunities on the macro landscape. They need to make every trade count and 10% a month is an awesome result for them. They may well use TA for entries/exits and scaling purposes. This group may exclude HFT and quantitative firms who can also be large and may be getting in and out of trades super fast. Their core strategies are derived from technical analysis concepts, but with heavy math and coding. It's like technical analysis on steroids.
For those who are interested in learning more about institutions, check out this awesome thread on FF about institutional trading from actual institutional traders. Although FX based, it may open your eyes to how the institutional space differs from the retail.
http://www.forexfactory.com/showthread.php?t=486128
Hedge Fund guy I know has always said, "Fundamentals give you the What. And, technicals give you the When." That's his style..
Exactly! 35 years ago when I was hired as a technical analyst at an international investment bank the boss said FA tells you what to buy and TA tells you when and when not to buy.
Quit after I realized the the job was really just that of a salesman with a fancy title. Also I believed, and still do, that TA can tell you both what and when to buy. But, of course, few customers are going to be convinced to buy based on TA only. Interestingly though I did gain the trust of a number of customers, but which consequently made me a lot of enemies among the security analysts!
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