Technical Analysis vs. Fundamental Analysis

[TheAnalyst]

Re: Technical Analysis vs Fundamental Analysis

Happytrader that last post of yours is pure brilliance and corroborates everything I have been reading lately, thankyou very much for your insight - it is great to hear from someone who has APPLIED these techniques...

Didnt you like my overview as well?? I put a lot of effort into that.

 

[ctp6360]

Re: Technical Analysis vs Fundamental Analysis

Oh yes absolutely I did TheAnalyst! The problem is, because I haven't learnt much about the fundamentals yet myself I find myself lost when I read your analysis simply because of my own lack of basic knowledge on this method of analysis.

However, I have been reading your posts closely - especially the flurry of them you wrote yesterday, I have been trying to combine yours (and others) comments with what I am learning and what I observe from graphs to see if I can correlate people's ways of thinking to my own learning.

So sorry if I gave the impression I overlooked what you wrote, it was just that Happy hit right on what I have been reading and digesting the last few days so I could relate to it in a more concrete way, I hope this explains things

 

[wayneL]

Re: Technical Analysis vs Fundamental Analysis

Found this and thought it was good:

The fundamentalist studies the cause of market movement, while the technician studies the effect.

 

[wayneL]

Re: Technical Analysis vs Fundamental Analysis

The tuth about earnings?

http://www.financialsense.com/Market/crap.htm

 

[TheAnalyst]

Re: Technical Analysis vs Fundamental Analysis

Lets have a worked example on the subject while we are here....lets look at MBL and RIO....how do you people think the share price of RIO will react today considering it seems as though it may have priced itself ahead before the full year earnings report came out and its price was reacting more aggressively bullish than say MLB. I was in both trades over a week ago i made money out of RIO but lost on MLB installment warrants...I chose to jump off RIO two or three days ago and take a almost 20% profit in a week and took a 15% loss on MLB in about a week and a half......fundamentals were what drove me into both stocks and the fundamentals were what drove the dynamics of the share price.

 

[markrmau]

Re: Technical Analysis vs Fundamental Analysis

http://www.financialsense.com/Market/crap.htm

That is what I don't understand. Why is it that from about 1992 onwards, the US market seemed happy with PE's mostly above 20 and a yield below 3%.

You could only argue that this is a true valuation if a huge increase in earnings was just around the corner (say doubling of earnings in the next couple of years). However, this was obviously not true from 1992-present. Alternatively, yields could be even worse for other investments, but this has not been consistantly true over that whole period either.

Yield looks almost as bad as sydney real estate.

 

[willow]

Re: Technical Analysis vs Fundamental Analysis

I'd like to also thankyou Happytrader and every other poster, my spirit has been down somewhat lately and your post Happytrader has managed to help give me back something I had lost. Cheers Willow

 

[Nick Radge]

Re: Technical Analysis vs Fundamental Analysis

Fundamental or technical, two things are required regardless:

(1) A positive expectancy,
(2) A trend.

Every trader, regardless of method or time frame, requires a trend of some description in order to profit.

Profitable trading can be summarised as:

1. Find something that works
2. Validate it
3. Do it

TA tends to get discarded by academics becuase they study the outcome of particular patterns or situations without the positive expectancy angle. Add in positive expectancy and tossing a coin is profitable.

 

[Julia]

Re: Technical Analysis vs Fundamental Analysis

Lets have a worked example on the subject while we are here....lets look at MBL and RIO....how do you people think the share price of RIO will react today considering it seems as though it may have priced itself ahead before the full year earnings report came out and its price was reacting more aggressively bullish than say MLB. I was in both trades over a week ago i made money out of RIO but lost on MLB installment warrants...I chose to jump off RIO two or three days ago and take a almost 20% profit in a week and took a 15% loss on MLB in about a week and a half......fundamentals were what drove me into both stocks and the fundamentals were what drove the dynamics of the share price.

Yes, and then there is the "overall market sentiment" like late yesterday and today where most stocks are in the red.

Could some TA people say if they consider this when deciding to sell or hold on. e.g. you have a stoploss on company XYZ which is triggered by the overall downturn of the market. Do you sell anyway and possibly buy back in if uptrend is re-established or more or less ignore your stoploss in the light of what is likely to be a temporary downturn? If you always heed your stoploss regardless of the fundamental situation, doesn't this incur an excessive amount of brokerage if you are trading frequently?

Julia

 

[ctp6360]

Re: Technical Analysis vs Fundamental Analysis

Bloody good question Julia, thankyou very much for asking it! My stop loss is very close to being triggered because of yesterday's downturn and although I plan on following it religiously simply for the dicipline of it, I wonder what the experts would do in this situation....

Given that its obvious that as a whole the entire market went down yesterday and it wasn't this particular stock's bad day to go down, should we exercise discretion and wait for it to fix itself? Or is that silly given that it is the market sentiment which is ultimately going to drive the price up or down anyway - perhaps a stop loss triggered in this case should be followed MORE religiously?

Some insight from the experts on this would be wonderful!

 

[Dutchy3]

Re: Technical Analysis vs Fundamental Analysis

Hi Everyone

I stick to my STOP.

Now ... if I am getting stopped out due to overall market conditions then my stops are too tight. If I need to use wider stops, then I will also need to reduce my position size. Makes sense, market starts to misbehave, reduce exposure.

STOP's are placed at the logical swing low points, always protected by the most recent BIG WHITE. If a BIG WHITE is taken out by a swing down, market conditions or not, I have to question why I'm continuing to hold the stock.

 

[bullmarket]

Re: Technical Analysis vs Fundamental Analysis

Hi Julia

I suppose if your trading plan includes when and how to set stop losses then you should imo stick to your plan, even if it's only to just maintain discipline and so not let emotions (the old fear and greed) take over and influence decisions.

But having said this remember that ideally stop losses should in the long run preserve more of your capital, by getting you out of bad trades early, than what you may lose through brokerage and a few up-ticks in price if the share price rebounds at or soon after being stopped out.

But if you find you are being stopped out too often then maybe consider reviewing when and how you set stop losses and postion sizes as Dutchy3 suggested.

Bear in mind I am not a trader so this is just my worth.

cheers

bullmarket

 

[Julia]

Re: Technical Analysis vs Fundamental Analysis

I wasn't actually asking what I should be doing. I'm just interested in whether people who take a purely technical approach allow themselves the leeway of considering various fundamental factors like general market downturn at any given time.

Nick, thank you for your earlier post which I have absorbed. If you could comment on my question re TA flexibility or otherwise, I'd appreciate it.

With thanks.

Julia

 

[Nick Radge]

Re: Technical Analysis vs Fundamental Analysis

Julia,
I operate several accounts and styles, so I'll address what I tend to do and offer a sugestion for your dilemma.

My superfund is strictly buy and hold. I am an accumulator of quality and my time frame is 20-years+. I focus on a stock and with each salary sacrifice I buy some. If it moves too far in my favour, then I focus on another one. And the process goes on. I tend not to add if they go up sharply unless they show siginificant long term potential. An example is IVC which I started buying at $2.25. Once it got past $2.75 I stopped, then decided the upside was much more. If it dips below $3.50 again then I'll step back up. A key component I look at is the total shareholder return over the last 10-years (although IVC hasn't been around that long). I will only exit a position if the company stops paying a dividend or I think they will go under. PBB was one I exited because I thought/think there may be a risk of them going under.

With trading, I use a different entity and a different game plan. When my stop is hit - I'm out. No second thoughts. No adjustments. No if's or but's. I'm out. I can always re-enter if prices start moving in my direction again. You always have that choice. Letting a loss run does two damaging things:

(1) It obviously skews the win/loss ratio the wrong way. You must remember that trading is about capital gain, not income growth. You never put your capital at more risk than is acceptable. Your mind will do everything it can to keep you in a bad trade and get you out of a good trade. Discipline is the core ingredient and there is no harm in having another go if prices go back again. But after 20-years of trading you will learn that sometimes prices will never go back. Look at MGW, PPX, PBG, IIN, WYL, PBB etc etc. These are top quality companies that kept diving and diving. I haven't even suggested HIH, ION, SGW, ONE, etc etc. From a trading perspective, holding these beyond reasonable risk will take you out of the game.

(2) Allowing a bad trade to go further than your anticipated stop, then seeing it come back will create negative reinforcement. Do it once, and becomes easier the second time and so on. One day, it just won't happen again and you're out of the game. The sub-consious psychological damage will eventually harm you.

Bottom line: set the stop BEFORE you enter the trade and never, ever amend it backward. You can always re-enter. The market will always offer opportunities. Why do damage to precious capital for the sake of ego?

Nick

 

[michael_selway]

Re: Technical Analysis vs Fundamental Analysis

Letting a loss run does two damaging things:

(1) It obviously skews the win/loss ratio the wrong way. You must remember that trading is about capital gain, not income growth. You never put your capital at more risk than is acceptable. Your mind will do everything it can to keep you in a bad trade and get you out of a good trade. Discipline is the core ingredient and there is no harm in having another go if prices go back again. But after 20-years of trading you will learn that sometimes prices will never go back. Look at MGW, PPX, PBG, IIN, WYL, PBB etc etc. These are top quality companies that kept diving and diving. I haven't even suggested HIH, ION, SGW, ONE, etc etc. From a trading perspective, holding these beyond reasonable risk will take you out of the game.


Nick

Very well said,

if stocks overshoot, its possible that they may have reached a "point of no return", where even long term wise, they will find it very difficult to ever reach that all time high again.

PS:How long from now do u think MBL will reach $78 again?

Thx

MS

 

[markrmau]

Re: Technical Analysis vs Fundamental Analysis

Your mind will do everything it can to keep you in a bad trade and get you out of a good trade.

Amen.

It's incredibly hard to stop your mind playing tricks on you. You keep thinking back to the company you took a stop loss on, only to see it double in price shortly afterwards due to a takeover bid.

 

[Nick Radge]

Re: Technical Analysis vs Fundamental Analysis

Michael,

"I am sceptical of further strength and and favour a larger decline toward $50.00" The Chartist, 6 December 2005

The price was close to $70.00 at the time. A stock naturally ebbs and flows. Back and forth within larger ebbs and flows. Yes you get freak events like WPL this over the last 6-months or ALL earlier last year, but all in all the majority do ebb and flow. This is why I use EW because its the only way to get a nice handle on that flow and a very specific right/wrong point of being wrong. No other indicator techniques can facilitate decines without prematurely changing the trend.

It may not go that far, but buggered if I'll be long the stock until I'm proven wrong. When I'm wrong, which is more often than not, sure, I'll get in. There are a few stocks that look very poor. LHG comes to mind as an example. Serioues bearish divergence and my experience suggests that divergence is a very good indicator. Same with CBA. I see that CBA "might" go to $36 before it goes to $44. I might be wrong. When I'm proven wrong, well I'll be a buyer again. No harm done.

 

[TheAnalyst]

Re: Technical Analysis vs Fundamental Analysis

It seems that CBA is heading into the same waters as MBL I also noticed that RIO even on a day like today still behaved more positively than MBL after the yearly earning release. Another on I have noticed and even on your own The Chartist which i now happily subscribe to is TOL and fundamentally you seem very much correct as well as it may look cheap because of the massive fall but its P/E at the new lows still seems extremley high and i cant see the stock achieving enough growth in earnings to make the P/E match the share price. Although ANZ became a 5% and over shareholder the other day.

 

[Julia]

Re: Technical Analysis vs Fundamental Analysis

Julia,
I operate several accounts and styles, so I'll address what I tend to do and offer a sugestion for your dilemma.

My superfund is strictly buy and hold. I am an accumulator of quality and my time frame is 20-years+. I focus on a stock and with each salary sacrifice I buy some. If it moves too far in my favour, then I focus on another one. And the process goes on. I tend not to add if they go up sharply unless they show siginificant long term potential. An example is IVC which I started buying at $2.25. Once it got past $2.75 I stopped, then decided the upside was much more. If it dips below $3.50 again then I'll step back up. A key component I look at is the total shareholder return over the last 10-years (although IVC hasn't been around that long). I will only exit a position if the company stops paying a dividend or I think they will go under. PBB was one I exited because I thought/think there may be a risk of them going under.

With trading, I use a different entity and a different game plan. When my stop is hit - I'm out. No second thoughts. No adjustments. No if's or but's. I'm out. I can always re-enter if prices start moving in my direction again. You always have that choice. Letting a loss run does two damaging things:

(1) It obviously skews the win/loss ratio the wrong way. You must remember that trading is about capital gain, not income growth. You never put your capital at more risk than is acceptable. Your mind will do everything it can to keep you in a bad trade and get you out of a good trade. Discipline is the core ingredient and there is no harm in having another go if prices go back again. But after 20-years of trading you will learn that sometimes prices will never go back. Look at MGW, PPX, PBG, IIN, WYL, PBB etc etc. These are top quality companies that kept diving and diving. I haven't even suggested HIH, ION, SGW, ONE, etc etc. From a trading perspective, holding these beyond reasonable risk will take you out of the game.

(2) Allowing a bad trade to go further than your anticipated stop, then seeing it come back will create negative reinforcement. Do it once, and becomes easier the second time and so on. One day, it just won't happen again and you're out of the game. The sub-consious psychological damage will eventually harm you.

Bottom line: set the stop BEFORE you enter the trade and never, ever amend it backward. You can always re-enter. The market will always offer opportunities. Why do damage to precious capital for the sake of ego?

Nick

Nick,

Thank you very much. My situation is as you have described for your super fund above - long term buy and hold. In this situation, I've just not been able to see any sense in jumping in and out of stocks as they vary according to the general trend of the market on any particular day.

You've reinforced the essential differences between longer term investing and short term trading. Thank you for making it so clear.

With best wishes

Julia

 

[TheAnalyst]

Re: Technical Analysis vs Fundamental Analysis

I wonder if you can use tech analysis to estimate how long we are going to live??