Technical analysis is nothing more than the study of stockcharts. It is not a magic tool and nobody claims it works 100%. It does not work 100% however, its value is being to pick out information in the stockcharts. Take note, each candlestick in a daily stockcharts with a period of 6 months covers all the trading positions of market participants in that stock during those 6 months, let us just call it XYZ stock. Let us say XYZ has a huge spike in price from $2 to suddenly, $20. Now, you see volume coming in, buying. Those are all retail traders bidding the stock price higher. What do you think is going to happen next? The stock price will collapse and head lower. That is in 90% of cases. In some cases, it might go up a bit more for 1-2 days. How did I get this valuable information? It is by studying the stockcharts. Not, by merely eyeballing it 5-10 seconds and saying I am done. This stock is going to the moon. After they have lost most of their monies, the same retail traders say, the stockmarket is rigged, technical analysis is bunk, trends are bunk. Okay, Bucky. How is your genius of a mind, guessing, following hunches, following other trolls and doing what they do, worked out for you? Are you a successful trader already, making millions? That is the reason 90% of retail traders fail. They do not put in enough effort and time. How much time? As long as it take for you to become a competent stock trader or investor. If not, you are wasting your time and monies----go to Las Vegas. You might get lucky and win millions.
TA is BS?
- Thread starter MrAgi1
- Start date
Technical analysis is nothing more than the study of stockcharts. It is not a magic tool and nobody claims it works 100%. It does not work 100% however, its value is being to pick out information in the stockcharts. Take note, each candlestick in a daily stockcharts with a period of 6 months covers all the trading positions of market participants in that stock during those 6 months, let us just call it XYZ stock. Let us say XYZ has a huge spike in price from $2 to suddenly, $20. Now, you see volume coming in, buying. Those are all retail traders bidding the stock price higher. What do you think is going to happen next? The stock price will collapse and head lower. That is in 90% of cases. In some cases, it might go up a bit more for 1-2 days. How did I get this valuable information? It is by studying the stockcharts. Not, by merely eyeballing it 5-10 seconds and saying I am done. This stock is going to the moon. After they have lost most of their monies, the same retail traders say, the stockmarket is rigged, technical analysis is bunk, trends are bunk. Okay, Bucky. How is your genius of a mind, guessing, following hunches, following other trolls and doing what they do, worked out for you? Are you a successful trader already, making millions? That is the reason 90% of retail traders fail. They do not put in enough effort and time. How much time? As long as it take for you to become a competent stock trader or investor. If not, you are wasting your time and monies----go to Las Vegas. You might get lucky and win millions.
TL;DR version…. See the last sentence.
I think I’ve got good perspective on this even though I know less than most of you about TA. Being a reformed former buy and hold guy, maybe I’ve got a handle on both sides of the argument.
When I became an advisor, in training we were told , look around the room (120 people in the training class) 95% of you, at least, will be out of the business in less than 5 years because you weren’t willing to do the work.
It’s the same think with TA. Most people, (probably me too, to an extent) are just not gonna put in the time. I would, if I was younger, but not now. So yeah, it does work, just not for the 95%
There are a lot of good ways to make money in the market. Not just one way. There are day traders and swing traders who make a living trading. Probably a lot less here than are claiming to (would love to see a poll, but it would never be accurate). Brian Shannon, Mark Minervini, Matt Patraglia, Mark Ritchie. I could go on. Those guys put in the work. And if you listen to their stories, the went bust multiple times before they figured it out. Unlike financial advisors, they got second chances after they failed. And they were persistent and driven. Most aren’t.
then there’s long term investing, buy hold and add. Yeah I guess that works. Problem is you may have periods where you make zilch, for 10-20 years. (1972-1982 for one). And you have to deal with big drawdowns that take years to come back from.
That’s fine I guess if you are in your 30’s. And if you don’t want to spend a ton of time managing your investments on a daily basis. Not so much if you are in your 60’s or 70’s.
I’ve been slowly coming around to the conclusion that, for me at least, and probably a lot of others who just don’t realize it, there’s a better way and it’s a combination. I’ll never be a great trader. I know that. If for no other reason, I don’t have the personality. I’ll still trade, on a combination of my limited knowledge and hunches (sounds stupid, I know). But I’ll keep it small, for entertainment purposes only.
But I also don’t have the patience or the personality to sit through another 40% drawdown.
So I think a good way to invest, is use a combination of FA and TA. Identify great companies, (CANSLIM?) and use the charts to know when to buy them. Use the charts to make decisions on how much exposure you should take. I think it could be as simple as just the 200, or the 50 MA (probably the 200). Look at the SPX daily chart. If you had reduced exposure substantially in March 2022, after the index tried to recover the 200 day, and was rejected, you would’ve saved yourself a lot of aggravation. I suspect if you went back to 2002, 2008, you would see the same thing (I’m too lazy right now, do it yourself).
of course some guys just have a need to trade using TA. So good luck. It’s a tough game, that you can win, but the odds are stacked against you.
Righr now, market is down 25%, and risk still exists that it could go lower, but it’s greatly reduced from a year ago. Seems like the game is still stacked against you, but less so, especially if you’ve got time. You just need to ignore the intermediate term moves. look at the forest, not the trees, guys. (I know, I’m talking like an investor not a trader).
I can buy stocks like JPM at 8x. I can buy CRWD at 145, down from 280 and revenue growing fast , in a growing and vital sector. I’ve been buying tag positions in stocks like that. Not enough to make a diff, just 5-10 shares each. Just to keep them on my radar. I’ll buy more as the market drops more. if they, and/or the indices break through resistance convincingly, I’ll accelerate my buys. I’ll use charts to make those decisions
so, yeah, TA is useful. It’s a tool. It has its place. In combination with fundamentals and big picture thinking.
Flame away, it’s just my opinion.
P.S. IF I could onky convince my wife that being down 9.8% YTD is a GOOD thing, I’d be Golden LOL
I think I’ve got good perspective on this even though I know less than most of you about TA. Being a reformed former buy and hold guy, maybe I’ve got a handle on both sides of the argument.
When I became an advisor, in training we were told , look around the room (120 people in the training class) 95% of you, at least, will be out of the business in less than 5 years because you weren’t willing to do the work.
It’s the same think with TA. Most people, (probably me too, to an extent) are just not gonna put in the time. I would, if I was younger, but not now. So yeah, it does work, just not for the 95%
There are a lot of good ways to make money in the market. Not just one way. There are day traders and swing traders who make a living trading. Probably a lot less here than are claiming to (would love to see a poll, but it would never be accurate). Brian Shannon, Mark Minervini, Matt Patraglia, Mark Ritchie. I could go on. Those guys put in the work. And if you listen to their stories, the went bust multiple times before they figured it out. Unlike financial advisors, they got second chances after they failed. And they were persistent and driven. Most aren’t.
then there’s long term investing, buy hold and add. Yeah I guess that works. Problem is you may have periods where you make zilch, for 10-20 years. (1972-1982 for one). And you have to deal with big drawdowns that take years to come back from.
That’s fine I guess if you are in your 30’s. And if you don’t want to spend a ton of time managing your investments on a daily basis. Not so much if you are in your 60’s or 70’s.
I’ve been slowly coming around to the conclusion that, for me at least, and probably a lot of others who just don’t realize it, there’s a better way and it’s a combination. I’ll never be a great trader. I know that. If for no other reason, I don’t have the personality. I’ll still trade, on a combination of my limited knowledge and hunches (sounds stupid, I know). But I’ll keep it small, for entertainment purposes only.
But I also don’t have the patience or the personality to sit through another 40% drawdown.
So I think a good way to invest, is use a combination of FA and TA. Identify great companies, (CANSLIM?) and use the charts to know when to buy them. Use the charts to make decisions on how much exposure you should take. I think it could be as simple as just the 200, or the 50 MA (probably the 200). Look at the SPX daily chart. If you had reduced exposure substantially in March 2022, after the index tried to recover the 200 day, and was rejected, you would’ve saved yourself a lot of aggravation. I suspect if you went back to 2002, 2008, you would see the same thing (I’m too lazy right now, do it yourself).
of course some guys just have a need to trade using TA. So good luck. It’s a tough game, that you can win, but the odds are stacked against you.
Righr now, market is down 25%, and risk still exists that it could go lower, but it’s greatly reduced from a year ago. Seems like the game is still stacked against you, but less so, especially if you’ve got time. You just need to ignore the intermediate term moves. look at the forest, not the trees, guys. (I know, I’m talking like an investor not a trader).
I can buy stocks like JPM at 8x. I can buy CRWD at 145, down from 280 and revenue growing fast , in a growing and vital sector. I’ve been buying tag positions in stocks like that. Not enough to make a diff, just 5-10 shares each. Just to keep them on my radar. I’ll buy more as the market drops more. if they, and/or the indices break through resistance convincingly, I’ll accelerate my buys. I’ll use charts to make those decisions
so, yeah, TA is useful. It’s a tool. It has its place. In combination with fundamentals and big picture thinking.
Flame away, it’s just my opinion.
P.S. IF I could onky convince my wife that being down 9.8% YTD is a GOOD thing, I’d be Golden LOL
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You have a better grasp of it more than others. The fundamental analysis part works best over the longer time period. For shorter time periods, swing trading will easily give you 8-20% per trade on average and that is substantial if you consider compounded interest. The holding period is about 1-2 weeks. One way to beat inflation these days. Of course, I find stockcharts and technical analysis extremely valuable when, I swing trade. You have to fine tune your entries and exits as the profits are smaller.
Checked and backtested it. Cointegration based on price and volume is not so good, as the sharpe ratio is only about 2.5 and momentum anomaly you do not get better sharpes than 1.5. But of course both strategies are still far superior to buyandhold equity index (which is around Sharpe ca. 0.5).
Drawing lines on charts that are based on the past data, of the companies, that has future growth etc already priced in.
The irony.
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i think with long time frames as well you have to time your entries and exits. If you are going to buy and hold for 15-20 years, you’ll just get market returns. But where TA comes in, you can use the longer MA’s to make decisions that occur onky once in a while. You may get hit by a kid on a bicycle on occasion, but TA will help you avoid the freight train coming at you every 4-6 years. That will greatly improve returns.
TA is actually about reducing drawdowns compared to buyandhold the equity index. It is incredible difficult to achieve outperformance long only without leverage. But reducing drawdowns means be less hurt by big drawdowns. This also important longterm when you are moving from saving to spending at the age of 65 or so, then you cannot afford to be in a large drawdown. So there are some serious reasons to look for reducing drawdowns. Then you have also the side effect that you can use leverage to get rich of your found edge/alpha.
If you believe everything it is already priced in.
That would mean price doesn't move till funnymentals change again.
For sure, the greatest strength of technical analysis is the timing aspect of trading. If you are patient and time your entries, your chances for success is that much better. Compared to buy and hold, where you set it and forget it. You bought XYZ stock at $30, now 20 years later, you check on your stock to sell it and it is worth only $25? So, you waited 20 years and ended up empty and with losses? Using technical analysis, you could have bought XYZ multiple times during those 20 years, capturing smaller returns in the process, 20% here, another 35% here, 10% here, after 20 years, you probably, will be sitting at a nice pile of profits, accounting for the losses, of course. In addition, with buy and hold, you will be holding your stock thru drawdowns as it loses value thru days, weeks, months, years. With swing traders and trend followers using technical analysis, we will be making monies while, most of the retail traders lose their monies.
Most hedge funds attempt to do this nowadays through vol targeting and managing their daily/weekly var. The challenge is in estimating future volatility and then synthesizing it through your variance co-variance matrix. Typically there’s software that’ll do it for you, but this is much more useful when using leverage than being simply LO. For LO, the key is to understand your underlying bets and to “diversify” among them.