uninvited guest ... other than your excellent choice of name ... you are giving yourself a bad name. Why not stop wasting thread space and be uninvited somewhere else?
You are using an out of date browser. It may not display this or other websites correctly.
You should upgrade or use an alternative browser.
You should upgrade or use an alternative browser.
the basic flaws in TA
- Thread starter marketsurfer
- Start date
Quote from marketsurfer:
darkhorse.
a question:
what is your opinion of "fooled by randomness" by taleb. do you consider his work junk science?
thanks!
surfer
Great book. Why would I consider it junk science.
Survivorship bias is a real phenomenon. Mostly it applies to mutual fund managers who get lucky when their specific sector or asset class focus outperforms for a time. Also applies to style-specific hedge fund managers who see their particular niche get hot for a while.
Mutual funds in particular can get lucky for a period of months to years because certain sectors or investing styles can stay hot for months to years.
But survivorship bias does not apply to twenty year track records, which by definition encompass a wide variety of cycles and virtually all types of market conditions. Nor do I recall Taleb suggesting that it would.
In fact, a key point of Fooled By Randomness is that lucky fools get their comeuppance in the end. The odds of a long-only guy making great money for a few quarters, or for a number of years in a secular bull market, are decent. The odds of being lucky for two decades on the other hand, while playing both directions + paying commish and slip all the while, are essentially zero.
Given Taleb's extreme skepticism, it would seem longevity is about the only criteria he gives respect to. Trend followers have longevity in spades.
What do you think of Taleb, especially given what Taleb thinks of Niederhoffer?
Nevermind, don't answer that. Let me hide in peace.
Quote from darkhorse:
Great book. Why would I consider it junk science.
...
Given Taleb's extreme skepticism, it would seem longevity is about the only criteria he gives respect to. Trend followers have longevity in spades.
Having recently reread the book he also gives respect to risk management - his examples of flaming star traders never understood risk management. And again the long lived trendfollowers live by risk management.
Actually, thinking about his flameout examples, many (most?) of them were fundamentalist in their approach.
A support level can become a resistance level and visa versa when those levels are breached. Also new levels emerge over time but I am assuming that when you want to trade you would be looking at the relevant levels at the time of that trade.
The most important point to note is that much of the time the charts will tell you nothing - so dont expect to look at a chart, do a few calculations and enter a trade. Its not like that - you need to wait for your opportunities. If a stock has been bouncing up against a resistance level for some weeks and then breaks through jump on board - but only when the break is confirmed.
At the race track when money comes for a particular horse it firms in the betting - on the market when you see increasing volumes and high prices (or lower prices) a footprint is being left - something is in the wind! Look at the market action of companies that have risen or fallen just before a 'surprise' announcement of impending bankrupcy/ takeover/discovery of a pill for eternal life etc. Money from people in the know. TA reveals a lot of that stuff
The most important point to note is that much of the time the charts will tell you nothing - so dont expect to look at a chart, do a few calculations and enter a trade. Its not like that - you need to wait for your opportunities. If a stock has been bouncing up against a resistance level for some weeks and then breaks through jump on board - but only when the break is confirmed.
At the race track when money comes for a particular horse it firms in the betting - on the market when you see increasing volumes and high prices (or lower prices) a footprint is being left - something is in the wind! Look at the market action of companies that have risen or fallen just before a 'surprise' announcement of impending bankrupcy/ takeover/discovery of a pill for eternal life etc. Money from people in the know. TA reveals a lot of that stuff
Quote from zygma:
A support level can become a resistance level and visa versa when those levels are breached. Also new levels emerge over time but I am assuming that when you want to trade you would be looking at the relevant levels at the time of that trade.
The most important point to note is that much of the time the charts will tell you nothing - so dont expect to look at a chart, do a few calculations and enter a trade. Its not like that - you need to wait for your opportunities. If a stock has been bouncing up against a resistance level for some weeks and then breaks through jump on board - but only when the break is confirmed.
At the race track when money comes for a particular horse it firms in the betting - on the market when you see increasing volumes and high prices (or lower prices) a footprint is being left - something is in the wind! Look at the market action of companies that have risen or fallen just before a 'surprise' announcement of impending bankrupcy/ takeover/discovery of a pill for eternal life etc. Money from people in the know. TA reveals a lot of that stuff
Care to post a live trading journal to prove that? Can you back up your BS with actual proof?
All TA does is tell you WERE the stock traded in the past, like driving your car looking through the rear view mirror.
Quote from uninvited_guest:
27 pages and no proof that TA works.
Here's rigorous academic proof that T/A works.
====
FOUNDATIONS OF TECHNICAL ANALYSIS: COMPUTATIONAL ALGORITHMS, STATISTICAL INFERENCE, AND EMPIRICAL IMPLEMENTATION
Journal of Finance 55(2000), 1705-1765.
Andrew W. Lo
Technical analysis, also known as ``charting,'' has been a part of financial practice for many decades, but this discipline has not received the same level of academic scrutiny and acceptance as more traditional approaches such as fundamental analysis. One of the main obstacles is the highly subjective nature of technical analysis---the presence of geometric shapes in historical price charts is often in the eyes of the beholder. In this paper, we propose a systematic and automatic approach to technical pattern recognition using nonparametric kernel regression, and apply this method to a large number of U.S.\ stocks from 1962 to 1996 to evaluate the effectiveness of technical analysis. By comparing the unconditional empirical distribution of daily stock returns to the conditional distribution---conditioned on specific technical indicators such as head-and-shoulders or double-bottoms---we find that over the 31-year sample period, several technical indicators do provide incremental information and may have some practical value.
====
Table VI of this study lists 10 common T/A patterns that were tested. In the Nasdaq, all 10 patterns yielded positive, non-random returns. The best patterns are the triangle top, triangle bottom and inverted head and shoulders.
Well you know its not only in the market that history can help us with the future. Based on your responses to my and others comments it was easy enough to predict what you would say next. Very easy really but I have to agree I could have been wrong. Most behaviour is not random but fairly consistant. If all was random, of course, we might as well act like the infamous diceman.
I am intrigued, if history is of no relevance to your decision making, what you have replaced it with. I am no believer in astrology nor the mostly biased and self serving company reports (what did the last Enron company report say before it went under?). As for fundamental analysis - well accounting practices are so flexible its not even easy to decide is a company is solvent.
I am intrigued, if history is of no relevance to your decision making, what you have replaced it with. I am no believer in astrology nor the mostly biased and self serving company reports (what did the last Enron company report say before it went under?). As for fundamental analysis - well accounting practices are so flexible its not even easy to decide is a company is solvent.
Quote from jamis359:
Here's rigorous academic proof that T/A works.
====
FOUNDATIONS OF TECHNICAL ANALYSIS: COMPUTATIONAL ALGORITHMS, STATISTICAL INFERENCE, AND EMPIRICAL IMPLEMENTATION
Journal of Finance 55(2000), 1705-1765.
Andrew W. Lo
Technical analysis, also known as ``charting,'' has been a part of financial practice for many decades, but this discipline has not received the same level of academic scrutiny and acceptance as more traditional approaches such as fundamental analysis. One of the main obstacles is the highly subjective nature of technical analysis---the presence of geometric shapes in historical price charts is often in the eyes of the beholder. In this paper, we propose a systematic and automatic approach to technical pattern recognition using nonparametric kernel regression, and apply this method to a large number of U.S.\ stocks from 1962 to 1996 to evaluate the effectiveness of technical analysis. By comparing the unconditional empirical distribution of daily stock returns to the conditional distribution---conditioned on specific technical indicators such as head-and-shoulders or double-bottoms---we find that over the 31-year sample period, several technical indicators do provide incremental information and may have some practical value.
====
Table VI of this study lists 10 common T/A patterns that were tested. In the Nasdaq, all 10 patterns yielded positive, non-random returns. The best patterns are the triangle top, triangle bottom and inverted head and shoulders.
No need to post all that crap. Just some live trades will do.