I am looking at ways to make money, and I was wondering if anyone has had experience with Technical Analysis. I am not afraid of the hard work and long hours required to master it. But I understand it is a bit controversial. Can someone reasonably expect to make alot of money with technical Analysis or is it alot of crap?
Is Technical Analysis Worth My Time?
- Thread starter probyn
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You may not be afraid of the hard work and time involved to master it, but can you master it in a way that you can accurately predict the movement of stock prices and even more importantly can you convince others that you are good at it and therefore they should be paying you?
If you think you can become good enough at it that you can reliably pick winning moves you should be able to make a lot of money. I'd be more than happy to pay you if you were pretty much a guarantee of being profitable.
Technical analysis is only part of the picture, if it were that easy, all you have to do is to let a computer analyze your investments and sit back and become rich. You can never take all the risk out of investments.
In my opinion it should only be used as the last confirming tool you use in making an investment decision (and even then I question its value)
If you try to make investment decisions based only on technical analysis, you and your money will soon be seperated.
Not everyone will agree, however there has to be more than just the shape of a chart to drive a stock up or down
In my opinion a stock will move up or down as a result of how well the company is performing and grwoing its earnings / cash flow
If you try to make investment decisions based only on technical analysis, you and your money will soon be seperated.
Not everyone will agree, however there has to be more than just the shape of a chart to drive a stock up or down
In my opinion a stock will move up or down as a result of how well the company is performing and grwoing its earnings / cash flow
heh maybe ur not afraid now but u will be soon when u take the course to master it, i have experienced it.
I think it depends on the market you're aiming for. For stocks, I primarily use fundamental analysis for choosing good companies. Once done, technical analysis is then used to buy the stock at a decent (aka cheap), price. If you're targeting the foreign exchange market, technical analysis is worth a look. However, start off small and within your risk tolerance.
B
burt-oh-my!
There have been a lot of studies showing that the vast majority of technical analysis does not work. Which is only logical, if you think about it.
Technical analysis is basically looking at PRICE ACTION (although sometimes other factors such as volume, AD etc) as a predictor of futures moves in the instrument. As such, simple rules which are known by everyone are highly unlikely to provide excess returns. Ithink if you spent a lot of time researching custom-made indicators or patterns you might come across omething valuable, but it takes a lot of work. people get into trading because it seems so easy - no boss to be responsible to, etc, but to succeed you definitely have to do something different than everyone else.
Technical analysis is basically looking at PRICE ACTION (although sometimes other factors such as volume, AD etc) as a predictor of futures moves in the instrument. As such, simple rules which are known by everyone are highly unlikely to provide excess returns. Ithink if you spent a lot of time researching custom-made indicators or patterns you might come across omething valuable, but it takes a lot of work. people get into trading because it seems so easy - no boss to be responsible to, etc, but to succeed you definitely have to do something different than everyone else.
Might as well roll a friggin dice if you ask me. Stock markets are one of the most unpredictable things in the world. The problem is the markets are not even fully random, so people start thinking they can figure out all the causes and effects - well, you can't. There are trillions of inter-related things happening, and you might as well try to predict how life will evolve from a couple of cells into all the species of life we have today. Good luck with that.
Modern quantitative financial analysis is about the speed of play. Unless you have a direct fibre connection to the stock exchange next door, a supercomputer in the basement, and a multi-million dollar hedge fund as backup, you can go home.
If you have a good statistical predictor, expect one of the big players to be analysing your plays in real time and trying to identify and exploit the same predictor. It is an arms race.
For the small investor, technical analysis of stocks is a useful component of an investment strategy, because of its capability of identifying losing stocks. Keeping the turkeys out of an investment portfolio is a very useful activity. Removal of losers lessons downside risk.
Identifying winning plays is a very different activity than identifying losing plays. Much more competition exists in the race to find winners.
If you have a good statistical predictor, expect one of the big players to be analysing your plays in real time and trying to identify and exploit the same predictor. It is an arms race.
For the small investor, technical analysis of stocks is a useful component of an investment strategy, because of its capability of identifying losing stocks. Keeping the turkeys out of an investment portfolio is a very useful activity. Removal of losers lessons downside risk.
Identifying winning plays is a very different activity than identifying losing plays. Much more competition exists in the race to find winners.
Classic technical analysis is bunk. There's some evidence for things like 'momentum', but there is no evidence that the "head and shoulders" type chart reading is any more accurate that throwing darts at a newspaper.
Burton Malkiel's "A Random Walk Down Wall Street" would be a good book for you to start with. Some of that's been challenged, especially by the financial crisis, but not in a way that would resuscitate technical analysis.
My question was intended to ask you what work you have done in this field in order to have this opinion. I have spent many hours figuring out how markets move and why they move. I have come to the conclusion that some technical analysis is useful. The markets move on the basis of contraction and expansion of energy. This is why sometimes markets trend and sometimes seem to be random. The real sweet spot is to be able to identify the times when a market is about to enter an expansion period and enter just before. This is where the majority of my work has been spent. This method works on any stock or commodity in any time frame as energy patterns do not change. Thanks for the book recommendation; I prefer to do my own research. To summarize, the markets are only random some of the time and other times are very predictable if you have the knowledge.
Make sure you are not walking into the "correlation = causation" trap.
Avoid the assumption that your predictions are unaffected by your interventions.
Predicting a bubble is a different activity than making money.
Anyone who tries to predict a bubble is an amateur and is a sure way to lose money. I don't assume in the markets. I've been at the game for far too long. The real money is made finding contractions of energy in the market within an existing trend. For an example in what I am suggesting, please look at a gold chart on December 21, 2007 or August 29, 2009. I entered long on both those days. I very rarely post on these investment threads because the opinions expressed are just that; opinions with no real research to back it up. Unfortunately, I suspect that I'll regret posting on this thread also.
It's been my observation that consistent excess returns are mainly generated via one of two strategies:
Purely quantative methods (HFT, algorithms) or fundamentals based value investing.
Purely quantative methods (HFT, algorithms) or fundamentals based value investing.
Can you afford to hire 10 (or several hundred, like Goldman Sachs) math / CompSci PhDs from the world's top universities, and build a 5,000 CPU Linux cluster to run the simulations / analyses these mathematicians propose?
That's who you're competing against, not the guy with a windows machine running TA charts (who thinks he's uber-sophisticated because he has 3 or 4 monitors hooked to the machine) who will probably never even break even on his time for "TA education" & computers and the fees on the short term trading churn.
try it,
AND track your investment in it (to make sure you don't fool yourself)
track:
cost and time for education
cost and time for your analysis
cost and time to set up stops / execute your trades
costs for slippage (NOT ONE of the trading systems I've seen account for bid/ask[0] or missed buy-in or sell-out[1])
cost for data feeds
cost for trades
(remember that you are paying ALL of these costs using after-tax income)
and at the end of the day, figure out the return you need to make on your trades to come out ahead on all that expense. I bet you'll need to earn 30 ro 50%, minimum, and that's BEFORE you make one thin dime of profit.
[0] I looked at a ton of systems in the late 80s / early 90s and NOT ONE systems seller ever analyzed their "profit" correctly. All systems lost money if you accounted for all the costs. Most never included this slippage, or even trading costs or tax in their calculations. For the longest time, US municipal funds were the ONLY money making "systems" investment, if you accounted for all the costs, because they were tax-advantaged.
[1] And all the systems assumed you sold at their trigger price - you never missed a fill at a fast-moving target price.
That's who you're competing against, not the guy with a windows machine running TA charts (who thinks he's uber-sophisticated because he has 3 or 4 monitors hooked to the machine) who will probably never even break even on his time for "TA education" & computers and the fees on the short term trading churn.
try it,
AND track your investment in it (to make sure you don't fool yourself)
track:
cost and time for education
cost and time for your analysis
cost and time to set up stops / execute your trades
costs for slippage (NOT ONE of the trading systems I've seen account for bid/ask[0] or missed buy-in or sell-out[1])
cost for data feeds
cost for trades
(remember that you are paying ALL of these costs using after-tax income)
and at the end of the day, figure out the return you need to make on your trades to come out ahead on all that expense. I bet you'll need to earn 30 ro 50%, minimum, and that's BEFORE you make one thin dime of profit.
[0] I looked at a ton of systems in the late 80s / early 90s and NOT ONE systems seller ever analyzed their "profit" correctly. All systems lost money if you accounted for all the costs. Most never included this slippage, or even trading costs or tax in their calculations. For the longest time, US municipal funds were the ONLY money making "systems" investment, if you accounted for all the costs, because they were tax-advantaged.
[1] And all the systems assumed you sold at their trigger price - you never missed a fill at a fast-moving target price.
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