Technical Analysis: Is it voodoo? Or does it work?

[Logic 10]

Hi Logic,

 

I consider myself somewhat persuadable - please could you share a little about the easier approach to creating systems that you advocate?

 

BlueHorseshoe

 

 

Sorry, no.

 

I have to use 20 characters otherwise my answer would have been shorter.

 

Logic

[SIUYA 11]

Understand that you can use those tools to build "Reactive" signals as well. Reactive signals are completely different than predictive signals.

 

............ used to spend, literally hundreds of hours, trying to persuade people that were hard headed and "thick as a brick" that there was an easier way to create systems but I gave up. Now I co-manage 2 funds, one is a 1/3 billion dollar private fund that has been around for over 13 years and I just keep my mouth shut. We did over 15% last month in the one I am primary on and I consider that a shitty month.

 

Hi Logic, i too would be interested in the above quote (I dont care about the returns but are more interested in what you mean) i saw a similar quote (I cant remember where) from AQR Capital and he talked about creating systems differently.

Given you brought it up it seems unfair not to continue

 

Also just as an extra - I have always thought of any signal as being reactive from the point of view that everything is drawn from data in the past.....ie; there is not really any predictive signals. (even most fundamental analysis is similar, unless you are really trying to predict certain market trends, new innovations etc)

Slight semantics maybe/definately, and while i can understand that mean reversion systems (even if the mean is entering on trend reversals say) might be considered more 'predictive' as you are trying to pre-empt a move....I was wondering if this is a large factor in what you mean when you talk about creating systems?

[Logic 10]

Hi Logic, i too would be interested in the above quote (I dont care about the returns but are more interested in what you mean) i saw a similar quote (I cant remember where) from AQR Capital and he talked about creating systems differently.

Given you brought it up it seems unfair not to continue

 

Also just as an extra - I have always thought of any signal as being reactive from the point of view that everything is drawn from data in the past.....ie; there is not really any predictive signals. (even most fundamental analysis is similar, unless you are really trying to predict certain market trends, new innovations etc)

Slight semantics maybe/definately, and while i can understand that mean reversion systems (even if the mean is entering on trend reversals say) might be considered more 'predictive' as you are trying to pre-empt a move....I was wondering if this is a large factor in what you mean when you talk about creating systems?

 

I used to openly share what I do, I no longer feel so giving. Individuals like the mouse have poisoned those waters.

 

When I think of the differences between "reacting" and "predicting", I thnk of reaction points in models that produce consistent outcomes. I think of prediction points in models that produce chaotic random outcomes. This is the extent of what I will say onthe subject.

[zdo 20]

...first define the environment ...

 

:thumbs up: ...first define the environment

[BlueHorseshoe 10]

Sorry, no.

 

I have to use 20 characters otherwise my answer would have been shorter.

 

Logic

 

Hi Logic,

 

Thanks for your reply.

 

You're not here to promote your fund(s) (should they even exist) - I've tried to get that out of you in the past . . . and you're not here for idle chit-chat . . . One wonders why you come to TL at all?

 

Until next time . . .

 

BlueHorseshoe

[straddle 10]

I personally believe that there is some voodoo in Technical analysis . There is a possibility that pasts trades are completely random (ie dont follow a pattern) and are unrelated to future trades .

 

BUT if most traders are seeing patterns in past behavior they will base thair trades on past perfomance and patterns .

 

So you have to take TA seriously if you want to predict other people's trades .

[Logic 10]

Hi Logic,

 

Thanks for your reply.

 

You're not here to promote your fund(s) (should they even exist) - I've tried to get that out of you in the past . . . and you're not here for idle chit-chat . . . One wonders why you come to TL at all?

 

Until next time . . .

 

BlueHorseshoe

 

I used to have a lot of free time while watching the markets and trading each day but over the last 18 months, time has gotten a light tighter. I really enjoy interacting with smart people in this field that like to shoot the $hit about stuff that effects them each day. It is the rude flaming morons that have driven me out of the forums though. Chit chat breaks up the routine of the day. Arguing with lower forms of functioning children is not fun. I've always considered you and your posts some of the brighter spots on here though.

 

We just bought a new office building and I have to manage the build out on the technology side. We are building a massive pedabyte server environment that is really a thing of beauty. By next Spring it will house all of our historic data for futures, FOREX, Options, ETF's, Stocks, and electric trading data all while being updated in real time. Backups are a real bugger. It is a lot of fun but I miss trading every day. I go hang out with the couple manual traders we have for a bit every day to "smell" the enthusiasm. Ninety percent of the trades we take each day are fully automated but the manual traders babysit the robots. We are adding a group of power traders as of December 1st to complete the diversity of the group and they are fully manual. This is getting more fun all of the time.

[MightyMouse 12]

I used to have a lot of free time while watching the markets and trading each day but over the last 18 months, time has gotten a light tighter. I really enjoy interacting with smart people in this field that like to shoot the $hit about stuff that effects them each day. It is the rude flaming morons that have driven me out of the forums though. Chit chat breaks up the routine of the day. Arguing with lower forms of functioning children is not fun. I've always considered you and your posts some of the brighter spots on here though.

 

We just bought a new office building and I have to manage the build out on the technology side. We are building a massive pedabyte server environment that is really a thing of beauty. By next Spring it will house all of our historic data for futures, FOREX, Options, ETF's, Stocks, and electric trading data all while being updated in real time. Backups are a real bugger. It is a lot of fun but I miss trading every day. I go hang out with the couple manual traders we have for a bit every day to "smell" the enthusiasm. Ninety percent of the trades we take each day are fully automated but the manual traders babysit the robots. We are adding a group of power traders as of December 1st to complete the diversity of the group and they are fully manual. This is getting more fun all of the time.

 

Wow you are really something, you co-manage a fund that only did a shitty 15% last month and you are building out an office building ( which is just an awesomely stupid use of funds for someone who earns 15% on a shitty month) so I extend my congratulations even further than before.

 

Keep it coming. To me this is similar to playing a simple game of tetris.

[MadMarketScientist 11]

Easy guys ... let's keep it civil

 

thx

MMS

[SIUYA 11]

Here is an interesting article that is very topical - i will also post it in a few other threads - for those who miss it.

 

DeMark Fibonacci Charts Embraced by Steve Cohen Lure Investors - SFGate

 

More so for the the diverging comments from quants - the headline article is not the whole story

[BlueHorseshoe 10]

I used to have a lot of free time while watching the markets and trading each day but over the last 18 months, time has gotten a light tighter. I really enjoy interacting with smart people in this field that like to shoot the $hit about stuff that effects them each day. It is the rude flaming morons that have driven me out of the forums though. Chit chat breaks up the routine of the day. Arguing with lower forms of functioning children is not fun. I've always considered you and your posts some of the brighter spots on here though.

 

We just bought a new office building and I have to manage the build out on the technology side. We are building a massive pedabyte server environment that is really a thing of beauty. By next Spring it will house all of our historic data for futures, FOREX, Options, ETF's, Stocks, and electric trading data all while being updated in real time. Backups are a real bugger. It is a lot of fun but I miss trading every day. I go hang out with the couple manual traders we have for a bit every day to "smell" the enthusiasm. Ninety percent of the trades we take each day are fully automated but the manual traders babysit the robots. We are adding a group of power traders as of December 1st to complete the diversity of the group and they are fully manual. This is getting more fun all of the time.

 

Hopefully once your office build is complete you might find time to contribute here more regularly again - automated trading is somewhat under-represented on TL, I think.

 

Regards,

 

BlueHorseshoe

[Logic 10]

Hopefully once your office build is complete you might find time to contribute here more regularly again - automated trading is somewhat under-represented on TL, I think.

 

Regards,

 

BlueHorseshoe

 

We'll be fully in the new digs in January. I promise to participate more then. The automated side is my favorite.

[Perrin 10]

Here is an interesting article that is very topical - i will also post it in a few other threads - for those who miss it.

 

DeMark Fibonacci Charts Embraced by Steve Cohen Lure Investors - SFGate

 

More so for the the diverging comments from quants - the headline article is not the whole story

 

Thanks for the article. Of course, everyone will read it, I hope! But some bits I picked out:-

 

Traditional investors who look at fundamentals and managers of quantitative funds can barely hide their contempt for the technicians.

 

“Comparing technical indicators to what we do is like comparing bush medicine to the research performed by drug companies,” says Matthew Beddall, chief investment officer at London-based Winton Capital Management Ltd., a quantitative hedge fund staffed by physics and math Ph.D.s.

 

Investor Warren Buffett is also dubious of the notion that a stock or index’s direction can be predicted merely by studying historical price data.

 

“I realized that technical analysis didn’t work when I turned the chart upside down and didn’t get a different answer,” the Berkshire Hathaway Inc. chairman joked to an audience at Vanderbilt University in 2005. A spokesman says that Buffett stands by the statement.

 

So assuming those guys weren't lying or telling half-truths, it seems that they are not keen on TA.

 

I thought this next bit was interesting too, DeMark is a TA who sees the world of trading as Fibonnachi numbers. Only $500 a month if you want to use his indicators, apparently. It has worked perfectly on Silver, which is great if you used it on Silver during the specified time period . (Just ignore the massive losses that may have occured in other markets.)

 

DeMark says he’s obsessive by nature. As a kid, he played as many as 81 holes of golf a day during the summer on the way to becoming Wisconsin state champion among players 13 and under. One year, he ate spaghetti in red sauce 60 consecutive nights.

“I go to extremes,” he says.

 

During a flight home from London in 2009, DeMark listened to a single song -- Coldplay’s “Viva la Vida” -- for 11 hours and 20 minutes. He says he was captivated by both the tune and the message: that a respected king -- or a brilliant market forecaster, in his case -- can see his world turned upside down by a single mistake.

 

As an experiment I just listened to that song 3 times and then I was ordered to turn it off (to be fair, I didn't want to listen to it again). It is a good song! However, I believe that listening to the same song (any song) for 11 hours straight might drive you mad, if you weren't mad already. Might be like autism of some kind?

[SIUYA 11]

I'll bet if a man as capable as WB at making money was forced to use TA he'd make a damn sight better job of it than all the people who think the sun shines out of his ass.

 

well put - Every time WB is used as a basis for why TA does not work, you could probably find plenty of FA losers as well.......the man is the best at what he does - he is also not a retail punter.

Even WB says price is everything - - its just a horizontal line - everything for this stock below this price is cheap - above its expensive. he uses TA !!

 

IMGHO Accounting is more voodoo than TA

 

This argument will go on and on and on and on by smarter and dumber people than us..........

 

if a placbo works and cures you, great,

if steroids gets you 7 yellow jerseys and you dont care about the results but it works for you then great

if a forum passes the time during the day and its all BS but you enjoy it then great.

if TA works for you but not for others and they think its voodoo because it cant be proved beyond doubt then so what. If it could be proved beyond doubt - then is it not the elusive holy grail that does not exist, and if it did then by definition everyone would use it and circumstances would change so that it does not exist?

[Seeker 11]

I'd take a different approach. Not that Buffett or Winton are wrong exactly, just that they're playing different games to the majority of small time traders.

 

Winton and Buffett are so huge, that they can't enter and exit at precise values. These can move the market temporarily. And if you move the market when trading, then you increase the error associated with your technical analysis.So if I believe it is going to turn up at price X, with target Y, and I can't enter there, without getting an average price of X+error, and out at Y-error, then I've lost 2*error, the larger you get, the larger the error, and the less well this is going to work.

 

Winton and Buffett can't get out of a trade in an instant, we can. Technical analysis can work for us, and not them. It doesn't make it invalid.

[MightyMouse 12]

Warren Buffett is an expert on everything.You know why? because he is rich.

When someone is extremely rich it buys them the ability to talk shit and have people agree with them.

For some strange reason,many people feel intimidated by other people's money.That is why the SEC goes after small fry and not Bernie M.

He has never used TA and neither have most of the readers of any article or members of his audience.He isn't qualified to talk jack shit about something he knows nothing about.

The financial WMD he so despises didn't prevent him from finally dealing in them once he realised he was A- running out of time and B- in danger of getting down to his last few billion.

 

Be honest,if a paper written by a Professor Concluded TA was worthless because he turned the chart upside down he'd be laughed out of the room.

I'll bet if a man as capable as WB at making money was forced to use TA he'd make a damn sight better job of it than all the people who think the sun shines out of his ass.

 

It is a lot easier to trade markets when one is assured that his $5 billion investment in a failing company such as GS will be supported by the federal reserve bank and that his investment in preferred stock will pay him a 10% dividend plus options to purchase the stock at 115. I wouldn't call that either FA or TA; instead, I would call it insider trading or some other fitting term.

 

Recall that GS made bad bets with AIG who could not make good on its bet. GS should have failed along side AIG, but was supported by American taxpayers who provided AIG the funds to pay back GS.

 

 

.

[BlueHorseshoe 10]

http://shookrun.com/documents/fibofail.pdf

 

BlueHorseshoe

[Ammeo 10]

There is no holy grail in trading not even technical analysis bt i have seen in my short trading career that simple 50,200 DMA and S/R levels on Daily Charts (be it any asset) is the best and also the simplest setup when it comes to TA and it works often if not always...

[JasonW 10]

Something I'd like to point out regarding Warren Buffet: What he reports his analysis to be and what he actually uses may not be the same. We certainly know it is not in the interest of a successful investor or trader to divulge his or her actions in real time (say you're trying to offload 500,000 shares of INTC, do you want to go on CNBC and announce that you're doing so?) But extending this out further it is questionable if they would even want to divulge their true techniques. Do Warren Buffet and George Soros really want to have more of their own kind to compete against.

 

Buffet claims that he is completely indifferent to price movement. But is he? Would he tell us if this were untrue?

[Crude8 10]

:helloooo: Most people "think" they know how to analyze technically but in reality they don't. They are using the tools without any background knowledge , even if they have background knowledge chances are it might be primitive without any authentic source , i do not consider forum discussion about technical analysis authentic.

Technical analysis works beautifully for those who know how to follow it as they usually have experience in trading and have a realization that there is a 50% chance of it working and letting the winner ride but a 100% chance of cutting the looser short.

[tradingwizzard 10]

of course it works, but like anything in life, one needs to dig harder for success in the field

[Guest OILFXPRO]

of course it works, but like anything in life, one needs to dig harder for success in the field

 

It depends on the quality of the technical analyst and how he analyses the trade , if he analyzes poorly it is a mess up but if he analyses correctly he can make billions

Edited October 22, 2013 by OILFXPRO

[tradingwizzard 10]

 

Compromise is a better description of the business we are in rather than 'voodoo'

.

 

I couldn't have said it better

TW

[zupcon 10]

Unless a trader is using a random entry or is trading fundamentals then he is using TA.

 

I use a random entry, but I'd consider myself to be a technical analyst

 

Personally, my belief is that unless technical analysis is based on an evidence based approach, I don't really consider it to be technical analysis at all.

[MightyMouse 12]

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Your dashed line seems to be in a consolidation phase. I would expect it to stay flat.