TA of individual stocks is pointless
- Thread starter shark
- Start date
Yes you are making yourself clearer and it is now obvious your knowledge of technical analysis is limited to old school trend lines and simple pattern recognition. Just to let you know, those are about as worthless as moving averages, fib retracement levels & Gann waves.
If you are tracking stocks, I agree that tracking the Index along side the stock will give you a great comparison but it will not give you the exact price points associated with the exact reversals. Only the stock price and its specific and unique oscillations themselves will do that. So many traders think they can use generalities and probabilities to trade and that there is no such thing as being exact. What a crock. Exact price points and their associated oscillations have more meaning than you will ever imagine.
If you are tracking commodities or futures, good luck with making generalities there. This is one of the main reasons 95% of traders fail.
Quote from shark:
The market in general moves as a whole, down to the minute level. What this means is that any technical analysis that applies only to an individual stock has no value.
If you overlay the intraday charts of any two S&P500 stocks, you will see that they are highly positively correlated. Any negative correlations are short lived, unless a major event happens that affects only one of the stocks. This is unlikely, as a major shift in the price of IBM, for example, will definitely affect the whole market. Thus, we can conclude that any negative correlations on the chart are simply unpredictable, random noise.
This positive correlation, to me, provides strong evidence that the bulk of TA is fruitless. We can go through individual technical indicators to show how they have no real-world foundation.
Closing of the gap: Because the market moves as a whole, an individual stock has absolutely no reason or ability to close it's own gap. Gaps are only closed when the general market moves in that direction, for completely different reasons.
Most trendlines: Any trendline that neatly connects the highs or lows of an individual stock is an illusion. One could draw generally the same line on 500 other stocks, but some of these lines will be curved, have a different slope, or be generally ugly.
Volume: The volume formation on a particular stock will be roughly similar to every other stock at the same time. Any differences between the volume patterns of the two stocks are just noise.
Head and Shoulders: The neckline on a head and shoulders pattern is far too precise to have meaning. The market likes to be "fuzzy" in a way; it rarely reverses at an exact point because the differences between S&P500 stock A and stock B are simply noise.
Range & Channel breakouts: A nice, neat range breakout could appear on the chart for a particular stock, but it might be nonexistent for 500 other similar stocks.
Support and Resistance: Individual stocks cannot have meaningful support and resistance, because the market moves as a whole. The only real S&R is that which exists for the market as a whole.
Yesterday's H/L/C: These points are absolutely worthless in serving as support and resistance. They are arbitrary and have no meaning for the whole market.
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I am not saying that technical analysis does not work. My point is only that TA traders need to be able to distinguish noise from real substance in the market. The biggest trap one can fall into is to start seeing something that is not there. If you are trading an S&P500 stock, only pay attention to price moves that are also apparent in the average itself. Any negative correlation is the accumulation of random trades placed by random people at random time periods.
TL,DR: Every stock in the SP500 is highly positively correlated. Negative correlations are almost always noise. A price/volume pattern that has meaning and is not noise should be apparent on almost all stocks collectively.
Please correct me if i'm wrong.
There are still stocks that move intraday with little correlation to the market, but in a way you are right, since the 2008 crash , the stocks that move together with the market has increased dramatically. Whereas in the past you can readily find stocks doing their own thing, now its harder. I think a lot of this has to do with the illiquidity that has taken place especially in the small caps
Shark- one of the lamest posts I have ever seen...
yours is one of the lamest response by a newbie. like children a newbie
in most cases should be seen but not heard especially when they offer an opinion lacking in specifics.
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to shark why did u not post to an existing thread instead of a new thread?
http://www.elitetrader.com/vb/showthread.php?threadid=197367
I would say that more money is made in stocks that outperform the market than in stocks that have a higher correlation?
I'd say that had you bought a higher low in SNDK VMW or even LVS when the market was making a lower low on the 25th of may you'd be sitting pretty now....
Looking for those inefficiencies would be a great way to gain an edge, in any timeframe.
I'd say that had you bought a higher low in SNDK VMW or even LVS when the market was making a lower low on the 25th of may you'd be sitting pretty now....
Looking for those inefficiencies would be a great way to gain an edge, in any timeframe.