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View Diary: Technical Analysis & The Fallacy of a News Driven Stock Market (17 comments)

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  •  TA a walk on the random side (3+ / 0-)
    Recommended by:
    wilderness voice, Downpuppy, Miggles

    I used to follow TA, and occasionally will come up with an idea that I'll write a program to test on some historical data.

    I see pretty pictures in those clouds.  The problem with TA, is that no matter how objective it appears, with charts and graphs and numbers, it always turns out to be very subjective.  2 people looking at the same  P&F charts or price chart formations, or momentum indexes, or whatever, can and do come up with 2 different conclusions.

    You also have to ask, what moves a stock price over the short or long term?  Over the short term, something like 40% of the trades are computer generated, and have nothing to do with P&G charts.  Over the long term, It's the big institutional traders who move the price, no matter what the thousands of individual traders see in their charts.

    Most predictions usually boil down to "the price is going to go up, unless it doesn't, then it'll go down".  Then the forecaster claims success no matter what happens.  So lets have your prediction over the next few months.

    •  I've got a better non-sequitur (2+ / 0-)
      Recommended by:
      pollwatcher, Chrisfs

      When dealing with TA

      "A trend is a trend until it isn't."

      It's so meaningless, and yet it's so true. I agree that it's the big institutions that move the price, but they don't do so randomly or accidentally.  

      Do you remember in 2010 how the market nearly crashed due to the computers all reacting to an "accidental" trade?  Accident, my ass.  A lot of people lost their shirts that day... but for every dollar lost, there is one dollar gained.  In other words, someone made a killing that day. And that's the gist of my article - people make money in both directions, and despite their constantly bullish yammering, the talking heads are always assisting the big money.

      You will not rest, settle for less • Until you guzzle and squander whats left • Do not deny that you live and let die - MUSE

      by bondibox on Sun Jul 07, 2013 at 08:26:48 AM PDT

      [ Parent ]

    •  Hey, at least it's better than astrology... (1+ / 0-)
      Recommended by:
      pollwatcher

      Although astrology does just as well in controlled testing, "Technical Analysis" sounds better than "reading entrails", right?

      As long as bondibox limits it to its own trading, and doesn't try to sell a newsletter, no harm will be done.

    •  agree (2+ / 0-)
      Recommended by:
      pollwatcher, Miggles

      as a full time trader I can say from experience what works are my programmed systems properly back tested and validated against historical data.  Lines drawn on charts are  often simply bait for the unwary - it is commonplace to see a name "break support" and trigger an avalanche of stops before heading up without pause.

      •  TA can be self fullfilling (2+ / 0-)
        Recommended by:
        wilderness voice, Miggles

        If enough people are using the same TA, it can move a stock for a brief time, and like you say, the big players can force the stock to those points and take advantage of it.

        Care to share any info about those programmed systems?  I'm always curious about mechanical systems that can help you put those darn emotions aside.

        •  most of my systems are proprietary (0+ / 0-)

          and not able to disclose because of the risk of being rendered ineffective.  One system I use that is public are run-ups to biotech catalyst events.  This system is traded at the subscription site biorunup.com. Not taking credit for it - I merely validated it after subscribing. Feel free to PM me for further discussion of trading.

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