Fundamental Analysis vs. Technical Analysis vs. Any other form of Analysis

[tech/a]

There is quite a muted debate going on over in the PEN thread.

So qualified Fundies over there who have a strong view.
Having Traded 17 yrs as a techie we see small debates rage infinitum.

So I invite all and any who can debate

WITHOUT PERSONAL ATTACK

The topic here.

(Joe any chance of taking the Debate from PEN over to here?)

 

[motorway]

Re: Fundamental Analysis V Technical Analysis V Any other form of Analysis --OPEN DEB

http://www.zyen.com/PDF/Perceptions.pdf

Really good paper

He gives four scenarios which are maybe the equivalent of

TA
FA
TA + FA
One is with perfect FA
one other interesting one

The point here is that the system and the person, even with very good
foreknowledge, can’t really improve on basic feedback, in fact they can make it worse by
knowing when they cannot use that knowledge to cooperate.

OK

What's wrong with Fundamentals ?

Traditionally, economic models have assumed that markets have an equilibrium price level, where prices match fundamentals and forces of demand and supply are in balance.

Increasingly, economists are becoming aware that there is no such thing as a fundamental price and that there is a need to find a substitute for the role of fundamental price, which is a kind of anchor, where market prices are expected to gravitate towards.

Dynamic Equilibrium..

price "Hunts" ( another word for Oscillates ) ..



What drives Supply and Demand ?

Perceptions !

financial markets incorporate people’s perceptions. Mark Twain puts these words in Huckleberry Finn’s mouth, “Hain’t we got all the fools in town on our side? And hain’t that a big enough majority in any town.” Many people’s perceptions matter to markets – and that leads to 10,000 Fat-Tailed Maniacs deciding the fates of most financial markets.

So what is the best way to measure perceptions ?

Ideally you need objective facts.
You measure their behavior and the change of their behavior.

FA may well be a useful form of analysis but it does not qualify.

FA will not move the shareprice or it might only to the extent it is an important driver of enough people's perceptions.

And do these people tell us their perceptions
so that we know that everyone knows this is worth a $100 ?

So we should buy at .10 cents

Markets Misbehave because Perceptions of Future Perceptions create actions today.
When maybe the only thing that is real is what is happening today..

Motorway

 

[luke256]

Re: Fundamental Analysis V Technical Analysis V Any other form of Analysis --OPEN DEB

Fundamental Analysis maybe good for long term investing but i doubt it has much benefit for the short term trader.

By the time the fundamental info has been made public it is usually already factored into the share price. There is usually someone who knows what is going to be annouced before hand (and willing to trade it) and the t/a analysis of charts can show this.

You can plot price movements and volume on a chart and see what is happening to the share price clearly. You can see how much is being bought/sold before major announcements and learn the patterns for future use.

 

[luke256]

Re: Fundamental Analysis V Technical Analysis V Any other form of Analysis --OPEN DEB

Also
FA vs TA vs an other forms of analysis.

There is only FA and TA.

Other forms of analysis = gambling (no analysis) i.e flip a coin or guess

 

[Wysiwyg]

Re: Fundamental Analysis V Technical Analysis V Any other form of Analysis --OPEN DEB

Markets Misbehave because Perceptions of Future Perceptions create actions today.
When maybe the only thing that is real is what is happening today..

Motorway

I don't understand.

So data preceding "what is happening today" has no benefit with regard to for example the phenomenon of trend or the phenomenon of repetition? Is it all 50/50 ... really?

 

[skyQuake]

Re: Fundamental Analysis V Technical Analysis V Any other form of Analysis --OPEN DEB

Also
FA vs TA vs an other forms of analysis.

There is only FA and TA.

Other forms of analysis = gambling (no analysis) i.e flip a coin or guess

Left out arbitrage and heuristics (which i suppose is more like statistics than technicals)

 

[motorway]

Re: Fundamental Analysis V Technical Analysis V Any other form of Analysis --OPEN DEB

I don't understand.

So data preceding "what is happening today" has no benefit with regard to for example the phenomenon of trend or the phenomenon of repetition? Is it all 50/50 ... really?

Well do some reading and study

The direct quote is about today in relation to perceptions of future perceptions.

Your question is a silly one.

Did you read the paper ?
of course you only know eg if today is going up
By reference to the where from.

But how do you know something is going up based on what your perception of the future is ?

If you did not read the paper
why are we talking ?
If you did . read it again..

Because you did not understand it.

What matters is what is happening today
Does yesterday ?
Are You trying to tell me you buy and sell stocks x days ago ?
I do not believe you ! But if you do yesterday benefits you and greatly.

However that does not stop anyone referencing the past to get some bearings.
So I do not understand YOUR points


Dynamic Equilibrium. Is a about trend is about support resistance is about how price is fluctuating and how that is changing..

The where from is a key input of course
But history is History and a Population of interest surging can blow away past structure..

Eg Resistance is met or not.. what ever the historic chart may suggest as levels to look at.

The action NOW is always the most important


This is the Dynamic in Dynamic,,

FA is slippery
TA is Slippery
and for the same reasons

Only the current action can really reveal much of use. ( and no crystal balls..)

The historic chart is maybe less useful than many think ?

Motorway

 

[luke256]

Re: Fundamental Analysis V Technical Analysis V Any other form of Analysis --OPEN DEB

But how do you know something is going up based on what your perception of the future is ?

Perception of the future (based on technical trading signals to buy or sell) can be tested and expressed as % success rate after applying technical analysis to past data. You don't know if it will go up for certain but you can tilt the odds of a making a profit in your favour with FA or TA.

The paper was quite boring and wasted 10 minutes of my life.

 

[motorway]

Re: Fundamental Analysis V Technical Analysis V Any other form of Analysis --OPEN DEB

http://www.olsenblog.com/2009/10/scaling-laws-as-powerful-tools-of-economics/

Here is Some good info. Some will dismiss , Some will be interested.
Thats fine

But here are the building blocks of how to measure and what to measure..

The scaling law is a metric to determine, how far the market has diverged from its equilibrium.

So very different from looking at a historic chart and noting
support resistance etc or many other things..

It is measuring what is happening NOW to reveal if==>

Price is moving away from Equilibrium or to Equilibrium.

It is about Dynamic Support Resistance.. Which is always being met in the moment.
The NOW.

What does the action NOW reveal ! Is the question.

Motorway

 

[motorway]

Re: Fundamental Analysis V Technical Analysis V Any other form of Analysis --OPEN DEB

Perception of the future (based on technical trading signals to buy or sell) can be tested and expressed as % success rate after applying technical analysis to past data. You don't know if it will go up for certain but you can tilt the odds of a making a profit in your favour with FA or TA.

The paper was quite boring and wasted 10 minutes of my life.

Fine thanks for the feedback.
What is the TA you do that takes perception of the future into account ?
The trading Signals ? I mean in general .
Surely your TA can only use data up to the present moment
even if you use projections etc

A perception of the Future
is because X is going to happen I will do Y now.
Even if there is no sign of X happening at the moment
Like in the first little story in the paper.

What sort of X is your input ? in your TA just in a general sense

Something like Gann ? or EW

Motorway

 

[Wysiwyg]

Re: Fundamental Analysis V Technical Analysis V Any other form of Analysis --OPEN DEB

If you did not read the paper
why are we talking ?
If you did . read it again..

Because you did not understand it.

Well converting this opinion, theory and fact into practicality may take some further thought. I am a simple man.

Only the current action can really reveal much of use. ( and no crystal balls..)

The historic chart is maybe less useful than many think ?

Motorway

Motorway you portray knowing yet no application. Do you yourself practically trade using past perception or forward perception? After all, there are two simplicities that take place after perception ...

1) Open
2) Close

Maybe knowledge leads to second guessing the next move!

 

[luke256]

Re: Fundamental Analysis V Technical Analysis V Any other form of Analysis --OPEN DEB

Motorway I think you are too hooked into the theory. Being practical is what makes the money.

Obviously I can only run signals over data after the event occurs. But the technical signals will show me the trend to that point of time and provide an entry signal with x% chance of success.

With TA, I can say based on a technical signal there is a x% chance the market will be up tomorrow. Thats enough for me to trade or not trade off.

Something like Gann ? or EW

The olsenblog link posted above has Gann type techniques in it. Is this something you use in trading?

 

[motorway]

Re: Fundamental Analysis V Technical Analysis V Any other form of Analysis --OPEN DEB

Well converting this opinion, theory and fact into practicality may take some further thought. I am a simple man.


Motorway you portray knowing yet no application. Do you yourself practically trade using past perception or forward perception? After all, there are two simplicities that take place after perception ...

1) Open
2) Close

Maybe knowledge leads to second guessing the next move!

Wysiwg

The point of the paper ( and what I found interesting in it... And I happened to have dug it out today, first read it a few years back )

That using feedback will often be the best course to take.
And most likely ( when it comes to things like Markets ) the most profitable.
That by keeping and adjusting to what is happening ( scale comes into this you operate on a scale that meets your needs ) You will arrive in the future fine .

Ok in your example you have a Bar with a range & volume and that bar has a position in relation to the others.. So what will you do with it .

Use it as feedback ?

Or do you do something else ?

My application is informed by Wyckoff
He would say you use the study of responses to reveal the technical postion

Same thing Richard Olsen says.

Both are talking about a dynamic form of analysis
That is objective..

X a Behavior ==ahh ===> Change of Behavior == I better consider doing Y

feed back

Wyckoff is too big a topic for this thread

But how do you measure behavior and COB ?
By looking at the historic chart ? Well yes but what about the way the "Tape" is clattering right NOW ?

By making projections into the future ?
FA or TA you need good objective metrics that
reveal facts about behavior imo
useful facts
If Value is Slippery
and some TA is too
you need to seek a different compass maybe

Motorway

 

[motorway]

Re: Fundamental Analysis V Technical Analysis V Any other form of Analysis --OPEN DEB

Motorway I think you are too hooked into the theory. Being practical is what makes the money.

Obviously I can only run signals over data after the event occurs. But the technical signals will show me the trend to that point of time and provide an entry signal with x% chance of success.

With TA, I can say based on a technical signal there is a x% chance the market will be up tomorrow. Thats enough for me to trade or not trade off.


The olsenblog link posted above has Gann type techniques in it. Is this something you use in trading?

It does ?

I would be interested in what way ( There are many Gann's I suppose the tape reading one the swing trader etc which one ?

This sums up Olsen's Work from that link

How can we leverage these scaling laws for model building?
Scaling laws are efficient at condensing a lot of data, they are computed as follows: for every x quantity, we observe quantity y and then average y. The scaling law tells us, how average y changes with x.

Scaling laws have an important role as a yardstick for measurements and more importantly carry a significant message for the design of economic and financial models.

Traditionally, economic models have assumed that markets have an equilibrium price level, where prices match fundamentals and forces of demand and supply are in balance.

Increasingly, economists are becoming aware that there is no such thing as a fundamental price and that there is a need to find a substitute for the role of fundamental price, which is a kind of anchor, where market prices are expected to gravitate towards.

I conjecture that scaling laws are a substitute and are an indicator for the dynamic equilibrium where financial markets and the economy at large gravitate, not in terms of absolute price levels but rates of change.

He is defining Equilibrium in a Dynamic Way
By how far the current action is from the Average as defined by the Scaling LAWS
Which he finds operate at all scales.

This washes away most theories

you are back to tape reading

measuring behavior and watching out for how it changes.

Most TA is complicated by overlays on the action itself.

It depends what you are used to maybe..

But the price moves X amount
did it move faster / slower / Further etc
Than when it moved X amount before ?
and compared to X amount on average ?

Here is where you start.. Most people then go on to complicate it

No I have found it tends to be always best to start with good practical use of a tool. With some basic guidance..

Theory will then help inform and widen ones options ..

Things can sound complicated when they aren't in practice.

Olsen is just measuring behavior
He uses the analogy of the Richter Scale. It just measures..

Maybe you mean he measures "Vibrations"
as in price fluctuations ? Well he does but nothing like Gann ( completely different in Theory and practice . Gann completely misunderstood something very important imo )

Motorway

 

[tech/a]

Re: Fundamental Analysis v Technical Analysis v Any other form of Analysis - OPEN DEB

I see things have started WITHOUT our Fundamentalists.

A pity they may well learn something.

It was this post which I thought could bring about some discussion.
So I will present my view in the absence of our Fundamental warriors.

Click to expand---on the PEN thread

fundamental analysis is the driver of a share price not lines on a chart.

Your or anyones analysis leads YOU to an opinion if that opinion is held by enough people then YOUR analysis will be vindicated. It could well be seen as incorrect by many---you wont know until sometime in the future. You also only have information which may or may not be accurate. Reports are out on a quarterly basis and could well change the current view as can announcements. Perception will see price alter.

Lines on a chart.
If your speaking Oscillators then I agree.
Price itself and Volume I dont. (Wyckoff)
Market Profile or Steidlmayer No again
P&F (Motorways specialty) No again

T/A has it's place for both investors and traders, but T/A is an indicator only and is historical by it's very existence

Yes and No
Read in conjunction with the above
In experienced hands T/A can indeed pre empt future price moves---just as a Fundamentalist could claim that various reports could do the same.

The difference is F/A is a perception
T/A is in motion.

I will stick to fundamental analysis as the basis of my investments. It takes a lot more effort than T/A, however it takes the guess work and emotion out of it based on sound information and facts

Fundamental analysis takes Months if not years to un fold--the eager waiting of the next announcement and today I even saw excitement and indeed comfort in a Sale in 1 lot of around 5 million in the stock PEN. (It seems those selling didn't have the same view). To say it takes out the guess work is crazy. If it did every valuation would be correct and every announcement would be reacted to in perfect harmony---truth is they Dont----often price is at a tangent prompting questions of WHY did price drop with such a great quarterly result" (As an example).

T/A is great for finding an entry point with a fundamentally sound stock, it is also useful to aid in identifying an exit point for a stock with failing fundamentals.

how can you be sure a stock is Fundamentally sound.
All those in HIH believed they were on a winner!
LHG another. If you know when a stock is fundamentally sound OR failing why would you want T/A?

Yes I prefer to take the hard way and read wads of information and reap the benefits of doing so, including massive taxation benefits of LT investment.

Thats fine and all you need is one Poseidon and your set for life---so to your kids!
But techies can choose exactly the same and MORE.
We can take small chunks ---pay the tax and take Large chunks and pay less tax over time.
Takes me around 40 mins a day and I have no idea what the company does---I Dont care.
No worry about the next announcement or the X$ I have invested in Y.
I understand risk and Portfolio management something a large number of fundamental and technical traders DONT KNOW!

 

[robusta]

Ok Just got home 10 seconds from my FA point of view.

PEN

No profit = loosing money NOW.

Book value $0.03 per share.

SP = $0.10

No need to look further - may be a trading opportunity and if that is your thing good luck. But as a investment my first rule is it has to MAKE MONEY not maybe/probably make money in the future. It has to MAKE MONEY

 

[So_Cynical]

My form of analysis works for me, i make money consistently and while i don't fully understand why i make money (beyond i sell my stocks to someone for more than i paid for it) i figure that's all that's really important.

i could care less what anybody else thinks and or does.

 

[doctorj]

I think the people below that have said something to the effect of 'Who cares?!' are correct. Both methods make money and if they work for you, then it's mission achieved.

One thing I am certain of is that technicals never permanently move markets. The deep pockets are with the institutions that base their decisions on fundamentals. Technical analysis is simply a set of methods for using market data to estimate the average opinion of market participants (including the fundamental folk).

 

[Billyb]

Re: Fundamental Analysis v Technical Analysis v Any other form of Analysis - OPEN DEB

Fundamental anlalysts:

-Purest form of stock analysis as you are purchasing the the business, not a chart
-Less risk, when used well
-can be fun for some people to study and understand businesses
-Less transaction costs in most cases
-Generally a more relaxed form of investment - it is time consuming initially but once you have bought the stock that you are comfortable with, you can sit back and just keep an eye on the stock/anouncements, thus allowing you to forget about your investments and enjoy life, with less stress.
-Greater predictablity of making a return, although returns may not be fabulous

but

-Less pool of stock to pick from
-cannot 'screen' through/filter as many stocks in a given time period compared to technical analysis - might miss opportunities
-Can't take advantage of speculation
-Very time consuming initially
-Requires more knowledge and experience than technical trading
-Very difficult to value a stock, with many different methods to do so

However, in the long term, I believe in fundamental analysis as Warren Buffett does.

I do believe that by accepting both approaches, returns can be maximised further, as some stocks are better taken advantage with one method or the other.

 

[motorway]

Interesting quote not from Ben Graham
But someone who thinks investors should keep an eye on technicals

Ben Graham called the stock market a

“voting machine.”

To be a successful investor, you need to measure how the votes are being cast.

Why ? Maybe to make use of them.


In the Long term Graham stated

The Stock Market acts like a weighing machine

So how does the Stock market get to the "right weight" surely only by way of the Votes.

An investment operation is one which, upon thorough analysis, promises safety of principal and an adequate return. Operations not meeting these requirements are speculative

So Investment in this sense will be long term. Not to be confused with trading
and ignore the shorter speculative trends.. Even though there is uncertainty about whether a certain market move is just a ''Vote" or an accurate "Weighing"

An investor is ready under Graham's definition to continually buck the trend
and rely on his analysis..

Yet how certain are fundamentals ?
At the top of the last Bull Market How sound were Australian Bank Fundamentals.
Did the Banks look like good Buys ?

If so did anyone buy them all the way down and buck the trend do you think ?
Or were they obvious poor investments well before the down turn ?

Motorway