What Do Hedge Funds Think of Technical Analysis?

[SunTrader]

I hear what you’re saying but I think we just see price and markets differently. For me the price of the car reflects the it’s perceived value, which fluctuates day to day based upon things like interest rates, dealer inventory, and such. For me to know I’m getting a good deal, I’d want to reference the ranges in kelly blue book, look at how crowded the lot is, and consider what’s happening to the model and oem production.

I don’t “daytrade” in a colloquial sense, i do round trips multiple times per week, my time horizon is ~0-20 days. 0 meaning intraday.

I’m not denying that you or others use charts and may even be lucky with them. I’m responding to the topic prompt by stating that hedge funds are not using charts and what retail considers “technical analysis” as the basis for their trades. E.g. If you walked into a hedge fund, sat next to the PM, and said “buy xyz it hit resistance and will bounce up to $ level” he would respond with “why?” and politely (or not) ask for a rationale that’s based upon more than just the price on the chart.

So you don't day-trade yet presume to know what we all should use when doing so. Ego much.

As for taking a trade just because "it hit resistance" - come on why do you assume so much about how any of us trade?

As for luck, there is no such thing.

 

[taowave]

Hmmm,In that case I would say that 99% of my trading vol decisions(short vol) are based on "TA",especially in the indicies..

I dont consider slope,vol percentiles or IV-HV technical..More quanty..much sexier,dont you agree

I think he’s saying that using TA to determine what risk you want. Whether you use options or stocks is this issue.

 

[longandshort]

So you don't day-trade yet presume to know what we all should use when doing so. Ego much.

As for taking a trade just because "it hit resistance" - come on why do you assume so much about how any of us trade?

As for luck, there is no such thing.

Where did I say day traders don’t use charts? I am talking about hedge funds, which I can speak to.

 

[longandshort]

I guess I am asking

1) can we use TA and options for our directional trades??

2) Does selling/buying vol based on TA count,or is that cheating as implied may be jacked/super cheap and the "edge" would be more of a derivatives play..

3) Does the TA argument strictly apply to pure directional bets not using derivatives..Cash only

Strategy vs. tactic. If your strategy is momentum and you’re looking at periodic deltas in slope then that’s a technical tactic, but your disposition is based upon your strategy, which is typically rooted in evidence.

Similarly if you think vol is cheap or rich based upon the level of spx, that’s based upon understanding the risk premia of vol and its relationship or correlation to spot.

If you’re doing this:
“Spx moving against 200 dma, macd solid rsi low, but rising volume, let’s buy call options on spx because I expect a breakout”
Then you’re lucky to have survived this long.

 

[Frederick Foresight]

What’s your basis for why you think someone using a chart alone would outperform others?

Your question was not directed to me, and I certainly wouldn't suggest that someone using only charts would necessarily outperform others. But let's take a crack at it just for argument's sake. (And who here doesn't like to argue, am I right?)

Suppose you were principally a fundamental trader. Would you for any reason buy an instrument whose price was just going straight into the toilet with no end in sight?

Alternatively, suppose that you were not especially drawn to the fundamentals of a company or commodity or whatever, but its price was consistently buoyant and rising. Would you wait for supporting fundamentals, which may be slow in coming for one reason or another, before making a foray into it?

Again, all just for the sake of argument.

 

[longandshort]

Your question was not directed to me, and I certainly wouldn't suggest that someone using only charts would necessarily outperform others. But let's take a crack at it just for argument's sake. (And who here doesn't like to argue, am I right?)

Suppose you were principally a fundamental trader. Would you buy an instrument whose price was just going straight into the toilet with no end in sight?

Alternatively, suppose that you were not especially drawn to the fundamentals of a company or commodity or whatever, but its price was consistently buoyant and rising. Would you wait for supporting fundamentals, which may be slow in coming for one reason or another, before making a foray into it?

Again, all just for the sake of argument.

Very good illustration of why betting purely on price is speculation and is a terrible idea. Imagine betting on whether price was going to rise or fall based purely on an assumption of autocorrelation.

 

[taowave]

Gotcha....

Im going to water it down to strictly buying/selling stocks based on charts only and possibly fundamental metrics..Stops and money management included..

Im going to go out on a limb and say I think you can generate excess returns by looking at MA and RS,though I have to see how much market capitalization came into play...If I remove the small cap effect,maybe I am wrong

Strategy vs. tactic. If your strategy is momentum and you’re looking at periodic deltas in slope then that’s a technical tactic, but your disposition is based upon your strategy, which is typically rooted in evidence.

Similarly if you think vol is cheap or rich based upon the level of spx, that’s based upon understanding the risk premia of vol and its relationship or correlation to spot.

If you’re doing this:
“Spx moving against 200 dma, macd solid rsi low, but rising volume, let’s buy call options on spx because I expect a breakout”
Then you’re lucky to have survived this long.

 

[newwurldmn]

Hmmm,In that case I would say that 99% of my trading vol decisions(short vol) are based on "TA",especially in the indicies..

I dont consider slope,vol percentiles or IV-HV technical..More quanty..much sexier,dont you agree

i agree but I wouldn’t even consider those quanty.

 

[deaddog]

Very good illustration of why betting purely on price is speculation and is a terrible idea.

That's what speculators do. Of course you have to throw in some money management and risk control.

 

[Frederick Foresight]

Very good illustration of why betting purely on price is speculation and is a terrible idea. Imagine betting on whether price was going to rise or fall based purely on an assumption of autocorrelation.