Technical Analysis - Smoke & Mirrors?

[Agentm]

this is an interesting subject

i just posted up on the TXN thread a TA that was just posted in the past few hours by haspete on TXN..

anyway, its a nice 6 minutes long and goes into very good detail.

I have never invested on the basis of TA,, i absolutely only invest on the back of my own detailed research, i always research the company and the management, if they come up to speed and there is a project in the pipeline that i feel is likely to be achieved, then i invest for and outcome

i know txn is a share that will be re rated with the eagleford wells coming on and being producers. but i find the TA very interesting..

i dont follow how people can pick a bottom on a share that in a moment can announce a frac of a well and see a huge spike in its share price in a few hours..

there was comment on this thread about how detailed TA needs to be to be effective, so how does this one rate in terms of detail?

 

[So_Cynical]

In regard to odds and trends I guess it is similar to how I bet at the casino on red or black. Wait for a series of reds to come up then bet black with the law of averages being that a black is likely after say a series of 5 reds.
Unfortunately I have done this and 13 reds have come up in a row. Ouch!!

Is using TA really increasing your chances of a better than 50/50 bet? or would the price movement have happened anyhow.

You have it ass about...the trick to casino games like roulette and two up etc is to follow the run of consecutive's, not bet against it....when it comes to the stock market betting on consecutive's is called trend following and can be a very successful strategy.

what you describe is precisely the fallacy that non-technicians fall into. Even after 50 times Red, the odds for the next 50:50 bet are exactly the same, 50:50! Nothng you do can and will improve the odds for you, no matter what some non-Mathematicians may claim.

The odds for any single 50:50 event are always the same....the odds however for a event of 50 x 50:50 events are totally different....the odds for 51 reds in a row is millions to one.

 

[captain black]

You have it ass about...the trick to casino games like roulette and two up etc is to follow the run of consecutive's, not bet against it....

http://en.wikipedia.org/wiki/Gambler's_fallacy

The reversal is also a fallacy, the inverse gambler's fallacy, in which a gambler may instead decide that tails are more likely out of some mystical preconception that fate has thus far allowed for consistent results of tails; the false conclusion being: Why change if odds favor tails? Again, the fallacy is the belief that the "universe" somehow carries a memory of past results which tend to favor or disfavor future outcomes.

 

[So_Cynical]

http://en.wikipedia.org/wiki/Gambler's_fallacy

Capt can i suggest you get an education in gambling...im constantly amazed at the amount of people on this forum that struggle with the basics of gambling.

 

[captain black]

...im constantly amazed at the amount of people on this forum that struggle with the basics of gambling.

As am I......

 

[tech/a]

this is an interesting subject

i just posted up on the TXN thread a TA that was just posted in the past few hours by haspete on TXN..

anyway, its a nice 6 minutes long and goes into very good detail.

I have never invested on the basis of TA,, i absolutely only invest on the back of my own detailed research, i always research the company and the management, if they come up to speed and there is a project in the pipeline that i feel is likely to be achieved, then i invest for and outcome

i know txn is a share that will be re rated with the eagleford wells coming on and being producers. but i find the TA very interesting..

i dont follow how people can pick a bottom on a share that in a moment can announce a frac of a well and see a huge spike in its share price in a few hours..

there was comment on this thread about how detailed TA needs to be to be effective, so how does this one rate in terms of detail?

Very average Analysis I'm afraid.
Appears the more the merrier for this guy. (indicators)

Ignoring some very basic Support and resistance analysis.
In the end he has no conclusion and very little Idea of trade direction.
Some wishy washy could go here in this area OR there in that area.
Brilliant.---It COULD go up or down.

Here is some application for you.
If your holding this long still then your a goose.
If your thinking of going long then your goose's brother.
If you really have to take a trade then here are your short stops for aggressive and more conservative---There is a 3rd but you can pick it.

It aint that hard!
Can you see the difference between analysis and APPLICATION of analysis????

 

[outback]

....snip....
Here is some application for you.
If your holding this long still then your a goose.
If your thinking of going long then your goose's brother.
If you really have to take a trade then here are your short stops for aggressive and more conservative---There is a 3rd but you can pick it.It aint that hard!
Can you see the difference between analysis and APPLICATION of analysis????

How about, back away, don't make eye contact, and try not to startle it, when cornered like this they can become very dangerous.

 

[tech/a]

How about, back away, don't make eye contact, and try not to startle it, when cornered like this they can become very dangerous.

Duck Season!

 

[Agentm]

Very average Analysis I'm afraid.
Appears the more the merrier for this guy. (indicators)

Ignoring some very basic Support and resistance analysis.
In the end he has no conclusion and very little Idea of trade direction.
Some wishy washy could go here in this area OR there in that area.
Brilliant.---It COULD go up or down.

Here is some application for you.
If your holding this long still then your a goose.
If your thinking of going long then your goose's brother.
If you really have to take a trade then here are your short stops for aggressive and more conservative---There is a 3rd but you can pick it.

It aint that hard!
Can you see the difference between analysis and APPLICATION of analysis????

thanks for that tech/a

i am in the category of goose.. as i know the valuation of the eagleford shale is yet to be factored into the share price.. the recent few announcements of a few weeks of delays has seen some exits, and a fall away in the support of the sp as the buyers keep pegging down and the sellers keep taking the price, imho the .35 cap raising a few months back contributes to the selling atm.. getting .60 in a matter of about 6 months or so is a pretty nice gain, and risk free, and perhaps running a bit of free carry into the future of a successful well in the eagleford shale is a nice reward for christmas..

for me i see the current prices as an opportunity to buy, and i have been, yet interestingly your seeing it as a red flag to sell. but the volumes are real low on the share, and like the patterns with adi when they had delays, the share always shot up as soon as a positive news announcement was issued..

perhaps this is a case when a gooses investment for outcomes versus TA will be an interesting experiment.

lets look at this again in a month, revisit and see how the outcome of the share is.. my pick is the share will run into the 70's and 80's on any success in the eagleford.

another goose investment i got into about 60 days ago was CDU,, if you pull up a TA on that one you would say when i bought it was a screaming red flag sell.. yet my own valuations suggested to me the share was a screaming buy.. since that purchase i have a 100% gain in 60 days.. investing as a goose is sometimes golden..honk..

cheers

the goose and the gooses brother.. honk.. lol

 

[nioka]

I'm another goose. My goose strategy is to look for stocks that the "technachists" say has a red flag and a screaming sell written all over it. However one that has fundamentals telling me that it is past events that have formed the chart patterns and that the future will not reflect the past.

Eg; ADI Multibagger, AUT Multibagger, EKA Multibagger, CER Multibagger, LYC Multibagger, NTU Multibagger, SDL Multibagger. These have made a tidy amount which exceeds those that showed a loss by a ratio of 20 to 1.

Even those that show a loss now and that loss is small, still have the potential to bloom. Stocks like EDE, BUL, TAS and VPE which I hold in fair number at about breakeven point still have the potential to make me a quid or two in the next year or so would not be on the chartist list to buy. Actually when they get there it will probably be the time to watch for a profitable exit strategy and pluck the fat goose.

 

[$20shoes]

thanks for that tech/a

perhaps this is a case when a gooses investment for outcomes versus TA will be an interesting experiment.

lets look at this again in a month, revisit and see how the outcome of the share is.. my pick is the share will run into the 70's and 80's on any success in the eagleford.

l

This is interesting - the more it falls the more value you see. That is, you have in your mind an informed view of what constitutes a fair price and you are willing to get in at lower prices while there is weakness.

I don't want to be cute about this because you've been around the blocks a few times, but at what point does weakness exhibit too much weakness? Actually, what I'm trying to get at, is not how you trade per se', but what is your thought process as you're potentially down 15 or 20% and hoping for the rebound. Do you cut your losses or do you have an unshakeable belief that you have beaten the market and prices will inveriably go up if I'm patient?

To me it sounds like you're locked into an informed idea of what is fair value and contrary to market action you will buy lower and hope for higher. No disrespect but I don;t have the risk appetite to play that game.


With T/A you wouldn't be locked into holding a thought process like this. Even with TXN, you might see supply dry up at 51c and then see a confirming bar of buying volume and immediately look at going long. So potentially, the application of T/A wouldn't preclude Tech from entering long as the landscape changes ( though it is ugly at 60-65c). That is, you trade what the market gives you.

The application of TA should be about following price action in your time frame.

The application of FA seems to be finding value in your timeframe.

...and never the twain shall meet :

 

[nioka]

, but what is your thought process as you're potentially down 15 or 20% and hoping for the rebound. Do you cut your losses or do you have an unshakeable belief that you have beaten the market and prices will inveriably go up if I'm patient?

To me it sounds like you're locked into an informed idea of what is fair value and contrary to market action you will buy lower and hope for higher. No disrespect but I don;t have the risk appetite to play that game. :

I don't want to reply for Agent but my thoughts are:

Each day I assess my investments. If the fundamentals say they are good value TO ME at the current price then I hold long term. I decide if the current trading in the particular stock offers an opportunity to trde some for accumulating "freebies" then I may trade. I never EXIT a stock on techicnals, only on fundamentals.

I never use a stop loss facility.Had I done this I would never had had the success I have had with investing.

 

[Agentm]

This is interesting - the more it falls the more value you see. That is, you have in your mind an informed view of what constitutes a fair price and you are willing to get in at lower prices while there is weakness.

I don't want to be cute about this because you've been around the blocks a few times, but at what point does weakness exhibit too much weakness? Actually, what I'm trying to get at, is not how you trade per se', but what is your thought process as you're potentially down 15 or 20% and hoping for the rebound. Do you cut your losses or do you have an unshakeable belief that you have beaten the market and prices will inveriably go up if I'm patient?

To me it sounds like you're locked into an informed idea of what is fair value and contrary to market action you will buy lower and hope for higher. No disrespect but I don;t have the risk appetite to play that game.


With T/A you wouldn't be locked into holding a thought process like this. Even with TXN, you might see supply dry up at 51c and then see a confirming bar of buying volume and immediately look at going long. So potentially, the application of T/A wouldn't preclude Tech from entering long as the landscape changes ( though it is ugly at 60-65c). That is, you trade what the market gives you.

The application of TA should be about following price action in your time frame.

The application of FA seems to be finding value in your timeframe.

...and never the twain shall meet :

its simple really, i am not a chartist.

simply look at a share and research it hard. i look at management first, then if hey qualify, then i look at the play or resource, or the plan ahead..

with adi it went from .12 to $1 and all the way to .06 .. many sold, and to me as well.. so at .06 i averaged up.. if you ask nursery here, you will learn how he increased his holdings by selling between the 3 shares involved in the same oil play, adi, eka and aut.. he did amazingly well out of it as the share price plummeted throughout the gfc

i averaged down, as people sold to me at .06, i had the ability to make some substantial gains.. my eventual exit was .40 ish

cdu a few weeks back were $2.. today $4 i have been following cdu since it was $10.. happily went there when i gather the charts said sell..

also into vpe like nursery, and i am very much in front..

for me its about the story in the research, whats about to happen next.. where the value comes from in the share itself.

is it too simplistic to say that the average TA trader has little or no clue what the company they are investing in actually does, or if that aspect of knowing actually matters or not?

right now i am buying TXN,, and the TA is saying sell..

as i said before, lets see if the valuation of the eagleford play will impact the share as i expect it will.. lets revisit in a month..

my way is obviously the way of the goose,, but imho TA is the way of the sheep..

will my method of investing for an outcome prevail? i hope so.. having a substantial holding in PLA from .11 to $3 was an enjoyment in research.. how hard can it be?

 

[tech/a]

My opinion is based upon the chart as seen on Sunday night.

The chart may well in the future alter my view and be one in sync with others here.

But until that happens I'm not interested in joining the flock of geese.

 

[professor_frink]

my way is obviously the way of the goose,, but imho TA is the way of the sheep..

Looking at the analysis video you posted earlier, I can see why you would come to that conclusion.

Not all TA traders are like that though

 

[tech/a]

Strange as it may seem I am in agreeance with the majority of posters on the topic.

By far the larger majority of technical analysis CAN be viewed by both the initiated and those not versed---as contradictory at times and complete mumbo at others.
Take the Video presented!!!
Much is hindsite analysis which while it has a place certainly has no value as a stand alone analytic tool.

What it can do if applied correctly is tell you very clearly when to join the rest of the animals (Geese/Sheep etc) and when to leave or completely ignore them.

 

[pixel]

its simple really, i am not a chartist.

...

right now i am buying TXN,, and the TA is saying sell..

Hi Agentm,
Your first statement is obviously true, just as your claim that TA says sell TXN is obviously wrong.

The TXN chart shows flag consolidation after a very nice rally in September. The doji at resistance on October 27th would have suggested to get out, and the trailing stop - a technical calculation I use - confirmed it on November 1st.
Meanwhile, however, support has been found, and even though the volume is still low, I'd put TXN back on my shopping list, waiting for -

• rising volume at or near the support level
• red MACD line rising above zero
• break above the middle of the channel
• daily Close Above 58c

whichever comes first.

 

[Sir Osisofliver]

I am a newbie to tech analysis and have only studied it for a couple of months.
I would appreciate comments from forum users as to the success or otherwise they have had with tech analysis. Sometimes I wonder if shapes on a chart become a self fulling prophecy such as when people see a head and shoulders and react accordingly. There seem to be so many theories on charting that if one theory does not fit simply use another to explain away the one that did not fit. I have yet to find one which will tell me where the market will be in 7 days but there a plently which will explain after the fact why the past share market action had occurred. It almost seems that if one theory does not fit into the slot simply pick another which will, voila they say it goes to show it works. I think not. I want to believe but it seems to be like my baby daughter playing with her shapes toy trying to fit a star into a round hole. Eventually she gets one to work.

Hi Dragon8,

Ahh Technical Analysis a most misunderstood creature. To answer your question simply...I find great value in Technical Analysis. This doesn't answer the question however of ..... does technical analysis have any value to you.

I've come to the conclusion after many years that technical analysis is not for everyone. It is a very complex topic and some people are simply not suited to it. I'm not trying to sound elitist or up myself or that I have nothing left to learn here, merely that certain factors can mean that technical analysis, is much harder for some people than others. Let me elaborate...

How you learn is determined by the way in which your brain prefers to receive its inputs. Everyone takes in information through their senses, but everyone generally has one sense that they prefer. This sense is the one that your brain has been trained over your lifetime to respond to in the most efficient manner. You may be visually orientated - Like to watch things, auditory orientated - like to hear things, or Kinesthic - like to do things. Depending on which one you are will influence your ability to use and understand TA. If you are a Kinesthetic the best way for you to learn is to actually do something. Reading all the textbooks and watching others will have little value to you until you actually do it yourself. Which in trading can be dangerous if you don't know what you are doing.

Your personality type and attitude towards risk will also determine how suited you are to technical analysis. I know we are all unique and special snowflakes, but the BB & K five way model will help you here....

Currently one of the more sophisticated models in use, the BB & K five way model stresses the emotional confidence of an investor; and their preferred method of action or how they typically respond. The level of confidence is determined by a number of emotional choices made based on how much an investor is concerned about a certain course of action or decision. Investors range from confident to anxious. The method of action is a reflection of how meticulous an investor is, as well as how analytical and intuitive they are. This ranges from careful to impetuous.
Within these two ranges, the model defines five personalities:
adventurers - confident and strong-willed investors who are ready to take chances;
celebrities - those who feel the need to be in the middle of things and don't like to be left out. They may frequently check whether they should be in the latest fashionable investment but may not really have any clue as to how to take control of their finances;
individualists - confident individuals who make their own decisions but who are methodical, careful, balanced and analytical;
guardians - investors, often older ones, who are cautious and intent on safeguarding their wealth;
straight arrows – the average investor who doesn't fall into any of the extremes of the above categories. They tend to be somewhat balanced in their investment approach and willing to take on moderate risk.

And now we get to the market itself, and the representation of the market through data. How we interpret the data will be a function of our personality and past experience.

Ask yourself this question. Is the market Chaotic? If the answer is yes, like it is for me, you may wish to consider looking at chaotic math. There are a number of technical indicators that are based on chaotic math. The problem however that this is still an emergent field of study. We are attempting to analyze a complex chaotic data stream with imperfect tools at our disposal. In much the same way that the meteorologists cannot perfectly predict the weather, current forms of technical analysis cannot perfectly predict the market...like the weather there are too many variables. So why do we do it? The toolkits that we do have enable us to increase our probability of success, just like the meteorologists when predicting weather patterns.

Hope that helps you see the bigger picture Dragon8

Cheers

Sir O

 

[tech/a]

Hi Dragon8,

Ahh Technical Analysis a most misunderstood creature. To answer your question simply...I find great value in Technical Analysis. This doesn't answer the question however of ..... does technical analysis have any value to you.

I've come to the conclusion after many years that technical analysis is not for everyone. It is a very complex topic and some people are simply not suited to it. I'm not trying to sound elitist or up myself or that I have nothing left to learn here, merely that certain factors can mean that technical analysis, is much harder for some people than others. Let me elaborate...

How you learn is determined by the way in which your brain prefers to receive its inputs. Everyone takes in information through their senses, but everyone generally has one sense that they prefer. This sense is the one that your brain has been trained over your lifetime to respond to in the most efficient manner. You may be visually orientated - Like to watch things, auditory orientated - like to hear things, or Kinesthic - like to do things. Depending on which one you are will influence your ability to use and understand TA. If you are a Kinesthetic the best way for you to learn is to actually do something. Reading all the textbooks and watching others will have little value to you until you actually do it yourself. Which in trading can be dangerous if you don't know what you are doing.

Your personality type and attitude towards risk will also determine how suited you are to technical analysis. I know we are all unique and special snowflakes, but the BB & K five way model will help you here....

Currently one of the more sophisticated models in use, the BB & K five way model stresses the emotional confidence of an investor; and their preferred method of action or how they typically respond. The level of confidence is determined by a number of emotional choices made based on how much an investor is concerned about a certain course of action or decision. Investors range from confident to anxious. The method of action is a reflection of how meticulous an investor is, as well as how analytical and intuitive they are. This ranges from careful to impetuous.
Within these two ranges, the model defines five personalities:
adventurers - confident and strong-willed investors who are ready to take chances;
celebrities - those who feel the need to be in the middle of things and don't like to be left out. They may frequently check whether they should be in the latest fashionable investment but may not really have any clue as to how to take control of their finances;
individualists - confident individuals who make their own decisions but who are methodical, careful, balanced and analytical;
guardians - investors, often older ones, who are cautious and intent on safeguarding their wealth;
straight arrows – the average investor who doesn't fall into any of the extremes of the above categories. They tend to be somewhat balanced in their investment approach and willing to take on moderate risk.

Interesting.
Are you suggesting that when trading we should ---- if we are risk tolerant
less strict with our risk control? That we can and even should take riskier positions? I find it rather strange and disturbing that it maybe seen that those who take on more risk are likely to benefit more.(not that you've said that).
I'm of the view that taking on more risk is not a fast track to more profit.

And now we get to the market itself, and the representation of the market through data. How we interpret the data will be a function of our personality and past experience.

An interesting observation.
Your implying that emotion through experience plays a great part. It may.
But it shouldn't!

Ask yourself this question. Is the market Chaotic? If the answer is yes, like it is for me, you may wish to consider looking at chaotic math. There are a number of technical indicators that are based on chaotic math. The problem however that this is still an emergent field of study. We are attempting to analyze a complex chaotic data stream with imperfect tools at our disposal. In much the same way that the meteorologists cannot perfectly predict the weather, current forms of technical analysis cannot perfectly predict the market...like the weather there are too many variables. So why do we do it? The toolkits that we do have enable us to increase our probability of success, just like the meteorologists when predicting weather patterns.

Hope that helps you see the bigger picture Dragon8

Cheers

Sir O

I see this as being the greatest stumbling block for technical traders.
The frustration and disillusionment when they find their analysis doesn't pan out as planned.
When in actual fact if applied correctly it doesn't matter one bit.It will be just as anticipated as the analysis moving positively.
If you understand the way Elliot works and how to apply a trading method to Elliot then I'm sure you will understand the application of all analysis.

All you need do then is Apply it correctly.

rising volume at or near the support level
red MACD line rising above zero
break above the middle of the channel
daily Close Above 58c

I wish to ask some questions relative to this analysis---I do not wish to detract from it or suggest it is not accurate or relevant.I do think like the other analysis it does need to be discussed.
Particularly on application.

(1) How can you tell rising volume is positive to the share price? Even if the price goes up (initially)

(2) Why would the red line (3 day ema) rise above zero? Price would have to move positively above the 3 day ema.

(3) Why is a break above the middle of the channel significant--is not the top or bottom of the channel just as if not more significant?

(4) daily close above 58c---why not 54/55/56/57/60/61 etc?

Why would 1 of these have you immediately buying?
What is it you expect from any one of these happening?

 

[Sir Osisofliver]

Interesting.
Are you suggesting that when trading we should ---- if we are risk tolerant
less strict with our risk control? That we can and even should take riskier positions? I find it rather strange and disturbing that it maybe seen that those who take on more risk are likely to benefit more.(not that you've said that).
I'm of the view that taking on more risk is not a fast track to more profit.

Hell no! I would totally agree that taking on more risk is not conducive to better trading. BUT I believe there is a right way to trade for me based upon how I take in information and my personality type. The same is true for everyone. Remember Trembling Hands thread about placing a hedge against a self-built stock index? TH is a successful trader in his own right, but his methodology of I think I have a fair idea how this will play out so I'm just gonna try it completely did my head in. He's a Kinesthetic, you can tell from the language he uses on these boards. I have a strong Aural focus which means I am "detail orientated" IE Anal retentive and to do what he did without running numbers is sheer lunacy!!!!! LUNACY I tell you. In that circumstance I would have said TH was taking on way to much risk...was it? That's only a question that he can answer. Does that make it clearer?

An interesting observation.
Your implying that emotion through experience plays a great part. It may.
But it shouldn't!

Once again we agree, with a slight difference. It DOES have an effect, if you let it. The negative feedback mechanism is a very well understood one. Ow that hurt, I won't do that again. That has helped our species to evolve, so those feedback mechanisms are literally hard-wired into our brain. IMO only by using a system or strategy that removes emotion from the decision making, do we eliminate this as a factor from our trading....but some people hate system trading.

I see this as being the greatest stumbling block for technical traders.
The frustration and disillusionment when they find their analysis doesn't pan out as planned.
When in actual fact if applied correctly it doesn't matter one bit.It will be just as anticipated as the analysis moving positively.
If you understand the way Elliot works and how to apply a trading method to Elliot then I'm sure you will understand the application of all analysis.

All you need do then is Apply it correctly.

Yes once again we find ourselves in agreement, but I also think that those that use Fundamental Analysis because they understand it better delude themselves that it is more robust than TA. Anyone who thinks that FA doesn't have an equal amount of subjectivity to it needs to look closer at their methodology.

Cheers

Sir O