Do large banks and institutions use TA to profit?

[Handle123]

I think there are Fundamentalists and there are Technicians, one or the other and can be both. I believe Technicians use more logic skills than fundamentals. Now wasn't that easy? You can stick charting and 4000 indicators into being a Technician, and none of that matters so long as you are profitable.

I believe large banks and institutions would use tea leaves if that made a buck more end of the day.

 

[tt.texantrader]

I Know You implies that you'll be a better trader if you use technical analysis via his true story example.

I'm not sure that this is what he is saying. He isn't trying to prove that technical analysis is superior, or even necessary. All that he is saying is that if you are a quant and you make money trading, it means you know how to trade profitably. If a quant was to look at a chart, he would no doubt understand what he is looking at. And if he was told to look for profitable trades, his knowledge of making money via his quant models would very easily transfer to looking for trades based on the chart. He might feel more comfortable with numbers and formulas, but I little doubt that he couldn't make trading work with a chart. The information is similar, but more importantly, his understanding of probability, risk and reward, ego detachment, etc., all of these things would already be ingrained in him.

Lets put it like this. Does a retail trader lose because he looks at charts? Absolutely not. It is more than likely because of his inability to act and think with a trader's mindset, followed possibly by not having an edge.

Lastly, your posts wrbtrader are usually excellent. They have a journalistic feel in that you attempt to look at things from different angles, separate the facts, and back up those facts with evidence. If you were to write on something other than trading, I have no doubt that you would do that subject matter justice. Its not like you would all of a sudden just write random stuff that hasn't been researched or backed up. You are a writer at heart, and whether you write about trading or pottery, both articles would be acceptable I'm sure. Likewise, a quant, given his underlying trading prowess might feel more at home with numbers and formulas, but I have no doubt that he could decipher a chart and use it to put on a trade. This I believe is the point that @I Know You is trying to make.

 

[carrer]

I am not sure if you are not a trader or a newbie.

A fundamentalist, making a billion a year, who does not look at charts at all will not be profitable when you give him only charts. He needs information, news, etc and not charts because he does not know how to read charts. If you give him a chart to analyse, he will be like those newbies making wrong trade decisions because he does not know how to read charts.

 

[I Know You]

I am not sure if you are not a trader or a newbie.

A fundamentalist, making a billion a year, who does not look at charts at all will not be profitable when you give him only charts. He needs information, news, etc and not charts because he does not know how to read charts. If you give him a chart to analyse, he will be like those newbies making wrong trade decisions because he does not know how to read charts.

That's not the point being debated.

 

[I Know You]

I'm not sure that this is what he is saying. He isn't trying to prove that technical analysis is superior, or even necessary. All that he is saying is that if you are a quant and you make money trading, it means you know how to trade profitably. If a quant was to look at a chart, he would no doubt understand what he is looking at. And if he was told to look for profitable trades, his knowledge of making money via his quant models would very easily transfer to looking for trades based on the chart. He might feel more comfortable with numbers and formulas, but I little doubt that he couldn't make trading work with a chart. The information is similar, but more importantly, his understanding of probability, risk and reward, ego detachment, etc., all of these things would already be ingrained in him.

Lets put it like this. Does a retail trader lose because he looks at charts? Absolutely not. It is more than likely because of his inability to act and think with a trader's mindset, followed possibly by not having an edge.

Lastly, your posts wrbtrader are usually excellent. They have a journalistic feel in that you attempt to look at things from different angles, separate the facts, and back up those facts with evidence. If you were to write on something other than trading, I have no doubt that you would do that subject matter justice. Its not like you would all of a sudden just write random stuff that hasn't been researched or backed up. You are a writer at heart, and whether you write about trading or pottery, both articles would be acceptable I'm sure. Likewise, a quant, given his underlying trading prowess might feel more at home with numbers and formulas, but I have no doubt that he could decipher a chart and use it to put on a trade. This I believe is the point that @I Know You is trying to make.

Bingo!

 

[wrbtrader]

Reality is that financial institutions hire and train their traders and then give them specific responsibilities. Thus, the fundamentalists aren't require to know chart analysis because the firm has traders that know chart analysis. The quants aren't require to know chart analysis because the firm has traders that know chart analysis. Just the same, the chartists aren't require to know fundamentals and the chartist aren't require to know how to design and interpret/apply algorithms.

There are many other types of traders at a financial institution but I've limited my discussion just to 4 types that most of us retail traders can understand or seen frequently discussed at a public trading forum...quants (algorithms), fundamentalist, chartist and bid/ask/T&S.

All of these different types of professional traders working for the same financial institution. Sometimes they don't even work on the same floor, maybe not in the same building and in some financial institutions...not even in the same country.

My point is that we can't be generic in our statement with the word "professional trader". Many profitable professional traders never been educated on chart analysis, never been trained on the job involving chart analysis and they aren't hired to do such. It's because other types of professional traders have been hired for such. Also keep in mind that there are highly profitable financial institutions that do not even have a "technical analysis" department...nobody doing any type of chart analysis. That's because there business models doesn't require such to be successful.

I've often mention that one of the benefits that pros have over retail is that they have excellent communication between the different types of traders and departments at the financial institution. They have rules and regulations in place...all managed by another department. They also have regular meetings (collaboration) between the managers of each departments and they often collaborate with other financial institutions and they have access to certain types of data and information that the typical retail trader does not have access to.

Heck, most of the world's top financial institutions hire or work with psychologists for their employees. That alone is a 700 million dollar per year industry. Its a big advantage that the professional traders have and its the main reason why professional traders are able to better manage distractions in their personal lives (e.g. nasty divorce) or on the job problems than the typical retail trader unless the retail trader is smart enough to see the importance of such as the world's top financial institutions do. Financial institutions have a large investment in their traders and managers. They know someone managing millions of their dollars, they want that trader or manager in the right state of mind...some now have on staff (in house) psychologists.

Can us retail traders succeed in the business of trading ? Yes but only a small percentage and you don't need to be a chartist to do such. We aren't trying to make billions or millions. We just want to make a comfortable living, be independent, be self employed...walk our own path.

Technical analysis works...I use chart analysis but I've been around the block to know that I can't succeed on TA all by itself. Thus, there are other variables in the trading plan just as important as the use of TA. Variables that are the commonality with other different types of trading (e.f. fundamentals, bid/ask/t&s screens, statistical analysis) like discipline, proper risk management, proper trading instruments, proper position size management, stress management, proper business structure with my tax account/bank/insurance providers and so many other variables.

Someone here at Elitetrader.com once suggested that us retail traders can only succeed if we think like institutions. There's some truth to that statement and you'll then realize that if you're heavily into chart analysis, you better be heavy into other variables in your trading plan or else you're going to have a very short career as a trader.

Most retail traders lose and more often than not its because they don't know how to manage all those important variables in their trading plan as a team.

In fact, all the verified profitable retail traders or verified profitable professional traders in the world and even top professional traders of the Society of Technical Analysis (STA) that use chart analysis...it ain't the only thing they are using.

Chart analysis is a tool out of many other tools in a trading plan.

 

[I Know You]

Reality is that financial institutions hire and train their traders and then give them specific responsibilities. Thus, the fundamentalists aren't require to know chart analysis because the firm has traders that know chart analysis. The quants aren't require to know chart analysis because the firm has traders that know chart analysis. Just the same, the chartists aren't require to know fundamentals and the chartist aren't require to know how to design and interpret/apply algorithms.

There are many other types of traders at a financial institution but I've limited my discussion just to 4 types that most of us retail traders can understand or seen frequently discussed at a public trading forum...quants (algorithms), fundamentalist, chartist and bid/ask/T&S.

All of these different types of professional traders working for the same financial institution. Sometimes they don't even work on the same floor, maybe not in the same building and in some financial institutions...not even in the same country.

My point is that we can't be generic in our statement with the word "professional trader". Many profitable professional traders never been educated on chart analysis, never been trained on the job involving chart analysis and they aren't hired to do such. It's because other types of professional traders have been hired for such. Also keep in mind that there are highly profitable financial institutions that do not even have a "technical analysis" department...nobody doing any type of chart analysis. That's because there business models doesn't require such to be successful.

I've often mention that one of the benefits that pros have over retail is that they have excellent communication between the different types of traders and departments at the financial institution. They have rules and regulations in place...all managed by another department. They also have regular meetings (collaboration) between the managers of each departments and they often collaborate with other financial institutions and they have access to certain types of data and information that the typical retail trader does not have access to.

Heck, most of the world's top financial institutions hire or work with psychologists for their employees. That alone is a 700 million dollar per year industry. Its a big advantage that the professional traders have and its the main reason why professional traders are able to better manage distractions in their personal lives (e.g. nasty divorce) or on the job problems than the typical retail trader unless the retail trader is smart enough to see the importance of such as the world's top financial institutions do. Financial institutions have a large investment in their traders and managers. They know someone managing millions of their dollars, they want that trader or manager in the right state of mind...some now have on staff (in house) psychologists.

Can us retail traders succeed in the business of trading ? Yes but only a small percentage and you don't need to be a chartist to do such. We aren't trying to make billions or millions. We just want to make a comfortable living, be independent, be self employed...walk our own path.

Technical analysis works...I use chart analysis but I've been around the block to know that I can't succeed on TA all by itself. Thus, there are other variables in the trading plan just as important as the use of TA. Variables that are the commonality with other different types of trading (e.f. fundamentals, bid/ask/t&s screens, statistical analysis) like discipline, proper risk management, proper trading instruments, proper position size management, stress management, proper business structure with my tax account/bank/insurance providers and so many other variables.

Someone here at Elitetrader.com once suggested that us retail traders can only succeed if we think like institutions. There's some truth to that statement and you'll then realize that if you're heavily into chart analysis, you better be heavy into other variables in your trading plan or else you're going to have a very short career as a trader.

Most retail traders lose and more often than not its because they don't know how to manage all those important variables in their trading plan as a team.

In fact, all the verified profitable retail traders or verified profitable professional traders in the world and even top professional traders of the Society of Technical Analysis (STA) that use chart analysis...it ain't the only thing they are using.

Chart analysis is a tool out of many other tools in a trading plan.

Could we agree that no matter what is the reason to be in a trade the thing that separates a profitable from an unprofitable trader is successful implementation of risk management and probabilities?

Saying that, considering the fact that to trade charts one does not need to be a high IQ intellectual person, but to be a quant that is an absolute necessity, hence a quant ought to be able to adapt to charts, even though that is not his speciality. He may not achieve as good a results, nevertheless he will have the knowledge and experience to adapt and derive a profit.

 

[wrbtrader]

Could we agree that no matter what is the reason to be in a trade the thing that separates a profitable from an unprofitable trader is successful implementation of risk management and probabilities?

Saying that, considering the fact that to trade charts one does not need to be a high IQ intellectual person, but to be a quant that is an absolute necessity, hence a quant ought to be able to adapt to charts, even though that is not his speciality. He may not achieve as good a results, nevertheless he will have the knowledge and experience to adapt and derive a profit.

I've never disagreed with anyone anywhere in the business of trading about the importance and implementation of risk management or probabilities or many other variables of a trading plan. Thus, I'll always have a strong agreement with you on that.

Chart analysis, you don't need a high intelligence but you do need those other variables that I've mention and that you have now mentioned (e.g. risk management, understanding of probabilities and many other variables) to be consistently successful in chart analysis.

Heck, the most successful realtor in my area is into chart analysis. She uses candlestick charts to show trends and make forecasts models of many aspects of the home buying/selling. I only mention such because chart analysis can be applied in other professions.

As to the issue involving quants...high intelligence is required to be a quant along with the proper education background. Of course a quant "should be able" to adapt to systematic chart analysis but not discretionary chart analysis (a trader that uses charts but no automation).

Reality is this, as soon as the quant traverses into chart analysis, that quant will most likely try to go automation. Next, due to the automation, the quant will traverse back into into algorithm trading considering that's his/her background and not discretionary chart analysis. Maybe I'm wrong but if I meet a quant that tells me he/she is into chart analysis...I can only imagine that quant trying to code his/her trading. It would just seem like a natural thing for the quant to do.

 

[tt.texantrader]

Reality is that financial institutions hire and train their traders and then give them specific responsibilities. Thus, the fundamentalists aren't require to know chart analysis because the firm has traders that know chart analysis. The quants aren't require to know chart analysis because the firm has traders that know chart analysis. Just the same, the chartists aren't require to know fundamentals and the chartist aren't require to know how to design and interpret/apply algorithms.

There are many other types of traders at a financial institution but I've limited my discussion just to 4 types that most of us retail traders can understand or seen frequently discussed at a public trading forum...quants (algorithms), fundamentalist, chartist and bid/ask/T&S.

All of these different types of professional traders working for the same financial institution. Sometimes they don't even work on the same floor, maybe not in the same building and in some financial institutions...not even in the same country.

My point is that we can't be generic in our statement with the word "professional trader". Many profitable professional traders never been educated on chart analysis, never been trained on the job involving chart analysis and they aren't hired to do such. It's because other types of professional traders have been hired for such. Also keep in mind that there are highly profitable financial institutions that do not even have a "technical analysis" department...nobody doing any type of chart analysis. That's because there business models doesn't require such to be successful.

I've often mention that one of the benefits that pros have over retail is that they have excellent communication between the different types of traders and departments at the financial institution. They have rules and regulations in place...all managed by another department. They also have regular meetings (collaboration) between the managers of each departments and they often collaborate with other financial institutions and they have access to certain types of data and information that the typical retail trader does not have access to.

Heck, most of the world's top financial institutions hire or work with psychologists for their employees. That alone is a 700 million dollar per year industry. Its a big advantage that the professional traders have and its the main reason why professional traders are able to better manage distractions in their personal lives (e.g. nasty divorce) or on the job problems than the typical retail trader unless the retail trader is smart enough to see the importance of such as the world's top financial institutions do. Financial institutions have a large investment in their traders and managers. They know someone managing millions of their dollars, they want that trader or manager in the right state of mind...some now have on staff (in house) psychologists.

I don't know anything about the world of professional trading, so all I can do is comment based on what I think, which of course is fairly useless in the whole grand scheme of things.

What you describe doesn't sound like a trader anymore. If the firm just hires a guy to read a chart and teaches him how, and the firm hires a guy to write a formula and teaches him how, and the firm hires a guy to read T&S and teaches him how, and then makes all of these guys have to talk together about a trade, none of these guys are traders. Heck, if a firm even has a risk department, where its the job of that department to monitor all trades and make sure the firm isn't too heavily exposed at any one time, then once again, much of what it means to be a trader isn't being done by any one individual person.

So now, I'm not exactly sure what to think of a trader at professional firm if he isn't the guy who thinks of a trade, looks for a trade, puts on a trade, exits the trade, and moves on to the next one, all by himself.

If how professional trading is that multiple different people have to interact, and this takes time, then perhaps the biggest advantage that the institutional "traders" have is that they aren't constantly in and out like a retail trader would be. The HFT firms are of course different in that their trades can last seconds or less, so the guy doing the programming has to have entry, exit and next trade all ready to go, but for everything else, with multiple people being involved in any one trade, and hence nobody being really all that responsible, then this does change things.

But no matter as I simply entered the conversation to highlight what I thought @I Know You was trying to get at. I do believe this point has come across now and whether or not others agree is a whole different matter that is pointless for me to explore.

 

[wrbtrader]

...What you describe doesn't sound like a trader anymore. If the firm just hires a guy to read a chart and teaches him how, and the firm hires a guy to write a formula and teaches him how, and the firm hires a guy to read T&S and teaches him how, and then makes all of these guys have to talk together about a trade, none of these guys are traders. Heck, if a firm even has a risk department, where its the job of that department to monitor all trades and make sure the firm isn't too heavily exposed at any one time, then once again, much of what it means to be a trader isn't being done by any one individual person.

So now, I'm not exactly sure what to think of a trader at professional firm if he isn't the guy who thinks of a trade, looks for a trade, puts on a trade, exits the trade, and moves on to the next one, all by himself.

If how professional trading is that multiple different people have to interact, and this takes time, then perhaps the biggest advantage that the institutional "traders" have is that they aren't constantly in and out like a retail trader would be...

I was being very general and a firm doesn't hire someone to be a "chartist". In contrast, they hire someone to be a "technical analyst" although each firm will use a different job description title but a more common title you'll see is "technical strategist" but from firm to firm you may see 5 other types of titles for the same job description...being called a chartist or chart analyst...I've never seen that title before.

Like I said, traders use many different tools depending upon their job description and the firm and you apply for position based upon the qualifications.

Simply, as you suspected...professional traders are not on their own and in my opinion that's an advantage considering they have a higher success rate than retail traders that tend to be the lone wolf types. For example, if someone has been hired and is trained on understanding interest rates and is instructed to trade bonds/notes...

That trader will probably lose his/her job if caught putting on positions in Crude Oil CL futures without the boss permission. Thus, its more about what they're trained to do and less about what they want to do.

In fact, its not uncommon to hear about a highly successful professional trader at an institutional trading firm decide to quit their job to become a private trader or start their own hedge fund. They probably do such because they got tired of all the restrictions. Then again, the restrictions are understandable considering we're talking about millions of dollars that belongs to the clients of the firm (e.g. pension plans, private wealth management, debt and so on).

There's no lone wolf mentality at financial institutions. Its a team. Sports analogy would be like a professional athletic team. You have a head coach and than assistance coaches, scouts, owners, team doctor, team psychologist, lawyers, investors, board members...they have management meetings just like any other organization with everything (instructions, restrictions) flowing downhill to the players. Now throw in regulations by the governing body of the sport like the NBA, NHL, NFL, NCAA, CIS, FIA, FIFA or whatever...you really get that "team" theme instilled.

Everybody with a job to do and communication (collaboration) between all those involved is an important variable for success.

As retail traders, we really are dependent upon ourselves and most retail traders do not trust their own decisions especially when real money is on the line.