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

[Market Depth]

It's quite simple for me. TA allows me to create cashflow everyday, very important if you trade for a living. You need to know where the crowds are gathering. You can slice it and dice it however you like, but greed drives a share price up, and fear slaps it down. Either way I want in.

FA needs patience and time. What you see may not be seen by all, at that moment in time. It's like a great game of chess. Sometimes you win, rather quickly. Sometimes you die a slow painful death, forced to average down a loss, and sometimes your holding onto a Stalemate for many years, whilst keeping the game of chess alive, by reading and number crunching to constantly validate your decision to play that particular game of chess. All OK if you have the funds to dedicate to the thrill of the chase.

Both methods work, and can make money, a combination of the two, if you have the capital, would be ideal IMHO.

Personally I like 'Instant Gratification' from very short term trading, but I also like my 'Long Hunting Trips' as well

 

[operandi]

Fundamental Analysis: amidst the quiet Mubarak looks like he might get lynched. Will he, wont he, if he will & what etc etc
Technical Analysis: Hmm those swing lows is perfect structure for where retail accounts are gonna get in, lets see the bonds? lets see who goes first!
Other Form of Analaysis: Pre Open on Monday (& i dont mean the Asian session, your either looking at Europe or the US, we "kick in" after the Monday US close) : "hmm yes lets see the flow.. OMG selling, omg buying omg selling selling lets get short with these "dudes" in front of that structure and see what happens around that retail price point Oh its going, oh its not, oh it is" and so on and so forth

MBA speak term:
Fundamanetal Analysis views a fundamental event as a catalyst for a revaluation of an asset because the event or lack thereoff creates a perceived alternate value and hence price. Price does not equal value
Technical Analysis attempts to find structural and technical patterns based on previous action in an attempt to discern future price movements.

The problem is there are too many variables in fundamental analysis to close a system and even if you do, force majeure still can play its hand so "shrug"
The problem with technical analysis is past price movements do not replicate future movements so we tweak money management to get the metrics suited to utility preference curve.

Profitable trading is the capital gain from the crystalisation of fundamental event that causes a technical pattern to emerge or vice versa. Fundamental and technical analysis are not mutually exclusive so the heading of this thread is lame.

Other form of analysis: Now this is the closest anyone can ever get to true edge and that is fleeting so you have to be super alert cause right around the corner some other trader is on the ready.

 

[luke256]

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

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 ?

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

1.

From Olsenblog link: The first scaling law states that there is a fixed relationship between the average price move and the time interval over which the price move is measured.

- Sounds like Ganns squaring of time and price and geometric angles to find relationships between time and price....nothing new here. Only difference is the 'scaling laws' can be tested quickly on a computer and therefore consider more complex time/price squarings than Gann could by hand.

2.

We define an event as having occurred, when the price has moved down by more than 0.5% from its last high or the reverse; the next event has happened when the price has moved up by more than 0.5% from its last low.

- Gann discussed a trading signal based on 9 point movements from tops and bottoms, Olsen says use a 0.5% movement....they are doing the same thing. Again olsen has the benefit of a computer to quickly test 0.5% price movements from tops and bottoms and other percentages.

3. Olsen uses the analogy of the richter scale, Gann uses the analogy of telephone (sound wave structure) therefore they are making the same point.

4.

From Olsenblog link: Scaling laws play an increasingly important role in natural sciences from biology to physics

- just sounds similar to Ganns writing of natural phenomena and that of EW theory.

It seems most of that article is based on Gann / Elliot theory and some may have not realised it.

 

[luke256]

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

Fundamental analysis takes Months if not years to un fold--

I totally agree. I purchased HVN in 2005 at about $2.5 and sold at $4 in 2006 because the fundamentals didn't look that great at the time (they were surviving off credit sales and interest free terms - IMO that can't be sustained forever). Then it went up to $7 in 2007.

My question to people who use fundamental analysis is what was the sound fundamental driver(s) to push it to $7 and then pull it back to $1.8ish in 2009??????

IMO Dilusion pushed it to $7 and fear pulled it back. These emotions can be read off the chart...price movements and volume behind it show the supply and demand.

 

[motorway]

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

1. - Sounds like Ganns squaring of time and price and geometric angles to find relationships between time and price....nothing new here. Only difference is the 'scaling laws' can be tested quickly on a computer and therefore consider more complex time/price squarings than Gann could by hand.

2. - Gann discussed a trading signal based on 9 point movements from tops and bottoms, Olsen says use a 0.5% movement....they are doing the same thing. Again olsen has the benefit of a computer to quickly test 0.5% price movements from tops and bottoms and other percentages.

3. Olsen uses the analogy of the richter scale, Gann uses the analogy of telephone (sound wave structure) therefore they are making the same point.

4. - just sounds similar to Ganns writing of natural phenomena and that of EW theory.

It seems most of that article is based on Gann / Elliot theory and some may have not realised it.

Hey Luke to the extent you are interested in it. You will study a little bit before making so many wrong conclusions..

It is exactly on the point of time. That Gann was completely wrong and Olsen is completely right..

Gann beleived you could predict with what he beleived was time
Olsen knows that that time is only a measure. And you can not predict anything with it ( except the time )

That it is something else that allows you to identify what it is important
and the last thing you can do is to predict like Gann did.

Does a Richter scale predict Earthquakes ?
No it measures them as they might unfold

Everything rests on an understanding of Time
But Gann had NO understanding

Olsen uses ''Intrinsic time"
Same time as a Point and figure chart uses
Gann uses what Olsen calls a Foreign body to reality Clock Time
Olsen's time is work... He says of it it eats things

Now you can not predict ( with intrinsic time )
because you only know the intrinsic time of the past and present

Not the future

But you can forecast like like weather forecasting
because you can identify
high and low pressure systems
dynamically..

clock time is 100% predictable
next Thursday at noon
it will be 12 O'clock

But you can not forecast with that sort of time

only "intrinsic time"

Motorway

Yes with a clock you can say what the time will be in 5 years time
But you can predict nothing with that information..

You can forecast though from looking at the work something does over a period of time..

No work .. nothing will be done = no time...eg a P&F chart will not have moved
Someone will not have earned a degree . A house will not be built
There will be no bubble in the stock market..

The concept of intrinsic time is a key concept because it allows so much useful analysis..

"That's the difference between intrinsic time and physical time," he laughs, referring to one of the epiphanies that got him hooked on "high-frequency finance" - his term for an approach to markets that, in part, measures time in terms of volatility instead of seconds.
"It's the same concept that's behind point-and-figure charting, except we do it mathematically instead of visually, which is not an insignificant achievement." R Olsen

Gann with his flawed concept of time . never understood P&F charts , which he called
Space Charts .. He was unable to see that they incorporated the real and much more powerful Time..

To show how wrong you are . Gann said do not use them . ( though he used their geometric angles etc )
He would never have used Olsen's techniques.

Gann , said by knowing the time he can predict . But the only thing you can predict is the Time..

GEOMETRIC ANGLES PRE DATE Gann . He applied them to the time on the clock and with them could draw pretty lines on a chart . That mean almost nothing.

In Intrinsic time.. They are useful . But again they do not predict.
They define probabilities and I do not mean of Future predictions .
But of the unfolding of the Runs of Directional changes versus Overshoot ( to use Olsen's terms ) ie on a P&F chart they are a very useful tool.

You have to think in terms of what is on the x & y axis on a P&F chart
and then start to realize what a diagonal line is measuring ( and that is all you are doing )


Olsen and Gann are POLES a part . EW too imo.. They talk about fractals
But unless you measure work ( intrinsic time ) instead of just the ticking of the clock.
You incorporate too much noise.. For scaling laws to work .

Best to do and see for your self,, is there work done or not ? Yes then you fill a box on your P&F chart... Time on the clock just draws bars across your screen regardless
always too slow or too fast.. never just right....

Luke you do not understand any of Olsen's Work.
There is nothing important about the .5% it is just example of a scale

Olsen 's work is related to P&F which predates Gann ( really a chart of DC + OS is a P&F CHART ).

That is why his Theory ( better his facts )are useful
It has application and had application.

P&F goes from ~ at least 1880 to Richard Olsen Today..
Olsen's is back to a pure form of P&F like that of the 1920's tape reading


It speeds up and expands and contacts
so that scale of the work is always being measured in correct scale
So scaling laws scale eg are Fractal..

Olsen's Intrinsic Time

But nothing like Gann's

Motorway

 

[Billyb]

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

I totally agree. I purchased HVN in 2005 at about $2.5 and sold at $4 in 2006 because the fundamentals didn't look that great at the time (they were surviving off credit sales and interest free terms - IMO that can't be sustained forever). Then it went up to $7 in 2007.

My question to people who use fundamental analysis is what was the sound fundamental driver(s) to push it to $7 and then pull it back to $1.8ish in 2009??????

In the long term your fundamental analysis proved right because the market pushed the price down. You could have hung on if you wanted, but that would be based on speculation and so you would have been taking a risk. The whole point of fundamental analysis is to minimise risk.

Fundamental analysis vs technical analysis - The question is which gives better returns long term and how many hours/week is spent on the analysis. If you are spending 20hours a week and making 10% return, and this is in addition to your full time job, then it's pretty crap return for the time you've put in. I'd rather put it in my Ubank at 6.5% and have 20 hours of my life back.

 

[IFocus]

All a bit pointless IMHO

As its all about pattern recognition nothing more nothing less. Anyone that can do this can make returns from the market the method is really irrelevant.

 

[motorway]

All a bit pointless IMHO

As its all about pattern recognition nothing more nothing less. Anyone that can do this can make returns from the market the method is really irrelevant.

And that is part of the problem

http://www.shvoong.com/social-sciences/economics/1655144-rats-pigeons-better-investors-people/

Motorway

 

[luke256]

And that is part of the problem

http://www.shvoong.com/social-sciences/economics/1655144-rats-pigeons-better-investors-people/

Motorway

If anyone can make returns by just recognising a pattern is this really a problem? Isn't it a good thing. Run scan, find stocks showing pattern, trade and make money!!

The article you posted was interesting and IMO proved the benefits of pattern recognition as opposed to guessing. I think pattern recognition can be applied to both TA and FA but I choose to only use it on TA now.

 

[Noddy]

And that is part of the problem

http://www.shvoong.com/social-sciences/economics/1655144-rats-pigeons-better-investors-people/

Motorway

Interesting article, and I agree completely.
That's why money management is the key to making money on the stock market.
Cut losses quickly, let profits run.
Still can do well with a 50% success rate IMO.

When you take out the sideways movement, stock must eventually go up or down.
50/50 chance. The patterns are only a tool to get into the market, then money management takes over. Patterns are only a 50/50 proposition, same as all other systems IMO.

 

[motorway]

If anyone can make returns by just recognising a pattern is this really a problem? Isn't it a good thing. Run scan, find stocks showing pattern, trade and make money!!

The article you posted was interesting and IMO proved the benefits of pattern recognition as opposed to guessing. I think pattern recognition can be applied to both TA and FA but I choose to only use it on TA now.

No the problem is are the patterns there ?

eg Gann saw many patterns

many people who talk about value stocks and FA see patterns

So do TA people

The Patterns we want to see relate to Trends

Nothing is pure Trend..
Say there is maybe a Trend to Something FA or TA

The Trend will be embedded in Randomness
Maybe more Randomness than Trend

And here is a very important point
And need to be very clear about

Random may only be random in the sense of not having to do with what we interested in.. or it might be truly random..Does not matter..

How much Trend component in TA or FA at different time sales ?

eg Decade Yearly monthly Weekly Daily 15 min 5 min 1 min

Think of a bar chart made up of bars of these frequencies
Or analyzing changes in Fundamentals over these periods

Something is wrong

The Trend component relative to the Random component
Decreases with time frame ( I mean in terms of relative Proportion )

IE it does not Scale,, So something is wrong and the something is very obvious
If you try TA or FA on a 1 min Frequency..

markets are Fractal so why does Trend component not scale with time frame ?
Two reasons . One is the more interesting

It is Easy to see trends on a weekly chart ? Monthly ?
Why not on a 1 min chart ?
Easy to see the FA over a Decade ( xyz did well didn't it )

But could it be seen at the inception when it was a great time to buy ?

If you think in Intrinsic time...and not time
You lose a much larger proportion of the random component

Not because you are using a filter ( That is mistake in thinking )
But because you are measuring in terms or units of the trend component itself.
and thus are in a better position to be a smart Pigeon..

There only two patterns
up and down

There are no other patterns

Up down build the three trends ( Up down Sideways )

Of course it is the how of up and down and the relationship of up and down.

Olsen article uses Gold as example
Tech/a mentioned some good TA techniques

MP VSA P&F

They all defining value in a dynamic way
Very related to the way Olsen desribes



Motorway

 

[KurwaJegoMac]

The article you posted was interesting and IMO proved the benefits of pattern recognition as opposed to guessing. I think pattern recognition can be applied to both TA and FA but I choose to only use it on TA now.

I'm not sure how you came to the understanding that the article proved the benefits of pattern recognition?

The main argument of the article is that attempting to recognise patterns is NOT beneficial. Refer to the experiment with the rats and pigeons where they did not attempt to recognise a pattern but chose 'green' every time.

In my view, I don't agree with anybody's ability to 'forecast' whether it be using T/A or F/A. Nobody can accurately predict the future in any endeavour. The world is a chaotic place and all too often people are sucked in and lured into forecasts by so called 'experts'.

Every day your investment is exposed to new effects so it must be evaluated so. Putting your head in the sand anticipating that something is temporary or continuous will only set you up for failure.

The most important thing in my mind for any investing is risk management (encompassing position sizing, expectancy, etc). If you have a positive expectancy and appropriate position sizing minimising capital risk then you will make money in the long run. You can't be right 100% of the time so it's all about minimising risk for an appropriate return. Then once you hit that big return, ensuring you manage your position accordingly so you don't give too much of it back.

 

[KurwaJegoMac]

Interesting article, and I agree completely.
That's why money management is the key to making money on the stock market.
Cut losses quickly, let profits run.
Still can do well with a 50% success rate IMO.

It's such a simple concept and one that almost everyone ignores when they first start. People look for complexity where there shouldn't be any. They don't understand risk management, expectancy or portfolio management and always chase the elusive "I need to always be right to make money in the market"

There only two patterns
up and down

There are no other patterns

Up down build the three trends ( Up down Sideways )

Of course it is the how of up and down and the relationship of up and down.

Olsen article uses Gold as example
Tech/a mentioned some good TA techniques

MP VSA P&F

They all defining value in a dynamic way
Very related to the way Olsen desribes



Motorway

Well said and very true. You need to be dynamic with any assessments you make.

 

[Noddy]

Can pick stocks using a pin and blindfold if you like.
Some will go up, some will go down.
All that matters is how you trade them.
Cut losers short, let winners run. How hard is it ?

To believe that the market is predictable, or there is some holy graille, is a fantasy promoted by vested interests --
Stock brokers
Authors of books
Web sites that want your money
Finance "gurus"
etc. etc.

 

[KurwaJegoMac]

Can pick stocks using a pin and blindfold if you like.
Some will go up, some will go down.
All that matters is how you trade them.
Cut losers short, let winners run. How hard is it ?

That's the thing though - it's not hard. But when most people start investing, they listen to the 'experts' such as:

To believe that the market is predictable, or there is some holy graille, is a fantasy promoted by vested interests --
Stock brokers
Authors of books
Web sites that want your money
Finance "gurus"
etc. etc.

Also it's something you need to eliminate from your psyche - the fear of losing a profit means most people take it to early and don't let it run. On the flipside, most people remain optimistic that 'the share price was at my purchase price once before, it'll come back again eventually'. For those that have been investing for a while it's a no-brainer, but for newcomers it goes against what they believe in and most will only learn after Mr. Market has taught them (if they survive long enough : )

 

[luke256]

I'm not sure how you came to the understanding that the article proved the benefits of pattern recognition?

The main argument of the article is that attempting to recognise patterns is NOT beneficial. Refer to the experiment with the rats and pigeons where they did not attempt to recognise a pattern but chose 'green' every time.

The article begins by saying that looking for patterns in investing causes heartache but fails to give an adequate example of failed patterns. Here are examples from the article of failed trades:

We buy a stock because some guy at a barbecue recommended it

- this is just guessing not pattern recognition based market data.

We put every dime in stocks after hearing that they''ve trounced bonds forever--only to see bonds zoom past stocks this year

- Once year performance doesn't create a pattern when you are comparing that one year to 'forever'. Again this is not an example of failed pattern recognition.

so-called experts scan the momentary twitches of the market and predict what will happen next. Far more often than they''re right, they''re wrong

- the fact that the article states that so-called experts are wrong more than right is a pattern in itself. Trade opposite to what they advise if thay are consistantly wrong!

when a day-trader makes a fat profit off a stock after
doing no research and owning it for only seconds, he''s likely to
conclude that he''s an analytical genius or has an uncanny feel
for the market. In truth, that profit is probably an accident

- again in this example this day trader was not using patterns if they did not do any research. Just another example of guessing.

(A run of 20 flashes could look something like this: GGGGRGGGGGGGRRGGGGGR.) In guessing which light will flash next, the best strategy is simply to predict green every time, since you stand an 80% chance of being right.

- Using Motorway's theory that the only patterns are up or down for the market... in the above case the only pattern can be green or red. This test actually proves the benefit of patterns. Green has an 80% occurannce so keep betting on green. Problem is not the pattern but human nature to think we can second guess the pattern.

 

[ThingyMajiggy]

Problem is not the pattern but human nature to think we can second guess the pattern.

Thats a pattern in itself yeah? Are we talking patterns as in H&S, ascending hounding dog under a jumping horse patterns or human nature, trading each other relying on the fact that people always do the same things, esp in the markets(early birds, laggers etc)? Interesting points

 

[barney]

ascending hounding dog under a jumping horse patterns

Lol .... bugger .... I thought i was the only one that used that pattern !!

I'll leave now ....

. :run:

 

[Frankie]

I like to start with fundamental analysis and end with technical analysis.

I take as many short cuts with fundamental analysis as possible because it can be so damn time consuming. I prefer to let the research houses do most of the work for me.

When it comes to actually placing the trade, technical analysis allows me to set my stop loss and profit targets.

 

[Value Hunter]

Technical analysis = squiggly line voodoo. Yeah I really just said what most of us fundamental guys actually think.

I have yet to hear of a single person that has made a few hundred million from technical analysis alone and managed to actually keep it until death. As for fundamental analysis there are plenty of billionaires who fit that category.

Tell me what does a technical analyst do when buying an unlisted asset with no price history such as a small business for sale? They have to look at the fundamentals don't they?

Technical analysis is absolute non-sense and has no basis in fact. In fact calling it analysis is akin to labeling a tarot card using fortune teller an analyst.