Technical Analysis vs. Fundamental Analysis

[skyQuake]

Do you have any estimate on what levels such a strategy may run into significant headwinds in terms of slippage?
I imagine that the effect is progressive and slowly eliminates more potential opportunities as your size outweighs your required liquidity. For a while the trader can potentially move to more thickly traded stocks without losing much in potential return as their focus can only manage a handful of positions anyway - thus the opportunity cost of foregone positions is low. But as size gets to a certain point, the tradeable universe is now so small that the strategy cannot find enough candidates to fill a portfolio, or at best - has a less preferential selection.

Peter2s looks a bit more robust in terms of liq than pav's orig micro cap port. A few hundred $k? Then the real liq problems being. You can still use the same strat on say asx 50, but those trades are gonna suck.
Probably have to look at the US market for better liq or trade more mean reversion strats.

 

[Rainman]

... technical funds don't exist because slippage kills it when trading any large sum of money...

Well, you attribute the fact that there are no managers of large funds who are pure technical analysts to "slippage" - as if, were one to do away with the slippage, we'd suddenly see a proliferation of high-returning funds being managed by guys who base their investment decisions solely on technical analysis.

You don't suppose the fact that there are no pure TA managers of large funds might have something to do with the possibility that the returns of funds managed by guys who base their investment decisions solely on technical analysis are just not very good?

 

[minwa]

You don't suppose the fact that there are no pure TA managers of large funds might have something to do with the possibility that the returns of funds managed by guys who base their investment decisions solely on technical analysis are just not very good?

Anyone with internet can find the answer to that.

 

[tech/a]

Anyhow, getting back on topic



Except there's no figures out there to compare - technical funds don't exist because slippage kills it when trading any large sum of money. It also depends on how narrow you define TA. Bunch of futs trading shops (and individuals) making bank, and they're definitely not FA traders.

I'll use our very own Peter2's momentum book as an example. Its pure TA and he's done very well but that doesnt mean what he's doing now is possible with $100m under management.

Well I'm not trading 100 million
I'm not trying to be a billionair.

But there are a few here who actually know me and have met .
Not slumming it

Have a great trip BOGGO
Must be a South Australian thing.

Off myself for 8 weeks on 12/7
Canada/Alaska/USA
once you've lied down long haul you'll never travel
Another way.

All analysis has it's place.
But few know how to be consistently profitable in either discipline.
I agree that the larger majority of technical traders have no idea
How to turn a profit-----consistently.
What to look for and how to implement their analysis and
Most importantly if the strategy they implement will have any
Chance of being consistently profitable over the long term.

 

[skyQuake]

Well, you attribute the fact that there are no managers of large funds who are pure technical analysts to "slippage" - as if, were one to do away with the slippage, we'd suddenly see a proliferation of high-returning funds being managed by guys who base their investment decisions solely on technical analysis.

You don't suppose the fact that there are no pure TA managers of large funds might have something to do with the possibility that the returns of funds managed by guys who base their investment decisions solely on technical analysis are just not very good?

Have you traded breakouts on sub asx 300 stocks before?

To take an extreme example, everyday there are 5+ news alerts on stocks who merely hint at lithium exposure.
If I was managing a mighty portfolio of $500 I could have made 1000%+ returns in the past few months.

Then there's also those TA guys that backtest instead of squiggly lines. They're called Quants and some of them run pretty darn successful funds. A few of them that I know have no idea how to read a financial statement

Also, found a study that compares pure FA funds to those that use TA

Based on a study of more than 10,000 actively managed equity and balanced funds, including about one-third of which employ technical analysis, the authors compared the investment performance of funds that use technical analysis versus those that do not using five metrics. They found that funds using technical analysis provided a meaningful advantage to their investors.

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2202060

So tell me again why you'd rather have 1 less trick in your toolbox?

 

[Quant]

Have you traded breakouts on sub asx 300 stocks before?

To take an extreme example, everyday there are 5+ news alerts on stocks who merely hint at lithium exposure.
If I was managing a mighty portfolio of $500 I could have made 1000%+ returns in the past few months.

Then there's also those TA guys that backtest instead of squiggly lines. They're called Quants and some of them run pretty darn successful funds. A few of them that I know have no idea how to read a financial statement

Also, found a study that compares pure FA funds to those that use TA

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2202060

So tell me again why you'd rather have 1 less trick in your toolbox?

Too be clear i am not on 1 team , when i traded stocks previously , i used BOTH methods successfully together and i believe anyone who doesnt is behind the curve . Now i am primarily in intraday trader FA is a moot point ....


http://etfhq.com/blog/2013/03/02/top-technical-analysts/

 

[pixel]

A quote by an old sage comes to mind:
“Never attempt to teach a pig to sing; it wastes your time and annoys the pig.”
― Robert A. Heinlein, Time Enough for Love

tech/a, you have certainly taught a lot of profitable lessons to a lot of members - this old tomcat included.
Those of us, who wanted to learn, did so and appreciate the effort you put into your work and the generosity with which it was freely given.

However, the www offers anonymity to all kinds of people with different agendas. Most of these crusaders are easy to identify by the number of repetitive replies where they insist on their opinion being the only truth and/or attack different views. They are best left to bask in their own ignorance and apathy, "don't know, don't care."

 

[explod]

Well I'm not trading 100 million
I'm not trying to be a billionair.

But there are a few here who actually know me and have met .
Not slumming it

Have a great trip BOGGO
Must be a South Australian thing.

Off myself for 8 weeks on 12/7
Canada/Alaska/USA
once you've lied down long haul you'll never travel
Another way.

All analysis has it's place.
But few know how to be consistently profitable in either discipline.
I agree that the larger majority of technical traders have no idea
How to turn a profit-----consistently.
What to look for and how to implement their analysis and
Most importantly if the strategy they implement will have any
Chance of being consistently profitable over the long term.

Well summed up Tech and have a good trip.

Market anaysis for trading improves gradually with experience. In the beginning following the ideas of those who are successful and learning principals of charting is the go.

In the end, in my view, one develops an instinct for it. Charting, fundamentals, but add on, daily currency and market movements together with the product of the company followed and then we have sentiment. When I log on of a morning a perusal of the news (not just financial) gives me a good idea of where the action is going to be.

Now how does one simply lay that out in terms for someone starting out to adopt. You can't, it requires time and EXPERIENCE

 

[tech/a]

A quote by an old sage comes to mind:
“Never attempt to teach a pig to sing; it wastes your time and annoys the pig.”
― Robert A. Heinlein, Time Enough for Love

Cheers

My old man never had an issue with pigs either
He was a butcher!

 

[Rainman]

tomorrow morning I am taking my wife to Europe and the the USA for a month, business class courtesy of TA

... there are a few here who actually know me and have met .
Not slumming it... Off myself for 8 weeks on 12/7
Canada/Alaska/USA
once you've lied down long haul you'll never travel
Another way.
.

You two sound like a couple of gangsta rappers from the projects who have just scored their first record deal.

 

[Rainman]

Anyone with internet can find the answer to that.

Well, it should be easy for you then. And yet you haven't done it.

 

[Rainman]

... If I was managing a mighty portfolio of $500 I could have made 1000%+ returns in the past few months.

Coulda, woulda, shoulda... It's an old story.

 

[Rainman]

... Also, found a study that compares pure FA funds to those that use TA

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2202060

Did you read the paper that you provide the link to above? If so, where in the paper did you get the notion that the study compares "pure FA funds to those that use TA"?

There is no such comparison. The hypothesis that the authors set out to prove in the paper is that "Technical Analysis confers a risk-adjusted performance advantage to funds which use it more intensely".

But the "performance advantage" that the authors refer to is that in relation to established market indices or benchmarks. It is not against the performance of a representative pool of FA fund managers.

 

[Rainman]

Also, found a study that compares pure FA funds to those that use TA

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2202060

After wading further through the pompous verbosity of the paper that you've linked to, the only conclusion that it seems to make directly in relation to FA funds is this on page 20:

"A comparison of the results in Panels A and B reveals that [TA] managers are much better able to beat their benchmarks when the market declines than when it is rising. When the benchmark return is positive, [TA] portfolio managers find it comparatively difficult to keep pace. One possible reason for the enhanced outperformance in negative months is that [TA] managers can increase cash holdings and thus buoy net returns. Even so, both the technical analysis user and nonuser beat the market index. Panel B of Table 8 contains the lone statistically significant result for average performance. On the basis of BAR, managers who consider technical analysis to be very important outperform those who do not use it by an average of 19 basis points per month, which is different from zero at the 5% significance level. Although this result is not confirmed by a nonparametric difference-of-medians test, there is directional consistency. Thus, the data provide some evidence that technical analysis conveys an advantage when market prices decline".

In other words, TA managers, if they outperform FA managers at all, do so only in down markets and do so only as a result of increasing their cash holdings and keeping the returns that they may have already made.

That is a pretty weak endorsement of the superiority of TA over FA.

 

[luutzu]

After wading further through the pompous verbosity of the paper that you've linked to, the only conclusion that it seems to make directly in relation to FA funds is this on page 20:

"A comparison of the results in Panels A and B reveals that [TA] managers are much better able to beat their benchmarks when the market declines than when it is rising. When the benchmark return is positive, [TA] portfolio managers find it comparatively difficult to keep pace. One possible reason for the enhanced outperformance in negative months is that [TA] managers can increase cash holdings and thus buoy net returns. Even so, both the technical analysis user and nonuser beat the market index. Panel B of Table 8 contains the lone statistically significant result for average performance. On the basis of BAR, managers who consider technical analysis to be very important outperform those who do not use it by an average of 19 basis points per month, which is different from zero at the 5% significance level. Although this result is not confirmed by a nonparametric difference-of-medians test, there is directional consistency. Thus, the data provide some evidence that technical analysis conveys an advantage when market prices decline".

In other words, TA managers, if they outperform FA managers at all, do so only in down markets and do so only as a result of increasing their cash holdings and keeping the returns that they may have already made.

That is a pretty weak endorsement of the superiority of TA over FA.

On average, FA managers couldn't beat any major Index. So much for them using FA.

An investor could make just as much money with FA managers as simply buying an index. And they won't have to the pleasure of paying those fees and stationeries.

 

[skyQuake]

Coulda, woulda, shoulda... It's an old story.

You missed the point - its in relation to slippage and liquidity. Made a motza on PLS GXY etc but the small 0.5c lith names? Can't touch them...

Did you read the paper that you provide the link to above? If so, where in the paper did you get the notion that the study compares "pure FA funds to those that use TA"?

There is no such comparison. The hypothesis that the authors set out to prove in the paper is that "Technical Analysis confers a risk-adjusted performance advantage to funds which use it more intensely".

But the "performance advantage" that the authors refer to is that in relation to established market indices or benchmarks. It is not against the performance of a representative pool of FA fund managers.

What??

The contrast appears more salient during down markets, and when performance is measured
relative to a primary benchmark.

Also, did you even look at the comparison graphs?

 

[Rainman]

On average, FA managers couldn't beat any major Index. So much for them using FA.

An investor could make just as much money with FA managers as simply buying an index. And they won't have to the pleasure of paying those fees and stationeries.

This is true. But if the study undertaken by the authors of this paper is anything to go by, the position for TA managers is worse.

 

[Rainman]

Also, did you even look at the comparison graphs?

Unlike you, I have read the whole paper.

You cite this sentence: "The contrast appears more salient during down markets, and when performance is measured relative to a primary benchmark".

But this is precisely the issue. The paper found that TA funds only outperformed FA funds during down markets and only as a result of going to cash and reducing market exposure. When "the benchmark return is positive, [TA] portfolio managers find it comparatively difficult to keep pace...": [p.20].

Where in any of this do you find support for your contention that TA funds consistently outperform FA funds?

 

[skyQuake]

Unlike you, I have read the whole paper.

You cite this sentence: "The contrast appears more salient during down markets, and when performance is measured relative to a primary benchmark".

But this is precisely the issue. The paper found that TA funds only outperformed FA funds during down markets and only as a result of going to cash and reducing market exposure. When "the benchmark return is positive, [TA] portfolio managers find it comparatively difficult to keep pace...": [p.20].

Where in any of this do you find support for your contention that TA funds consistently outperform FA funds?

The whole paper? Or just the bits you like ?

 

[cynic]

Unlike you, I have read the whole paper.

You cite this sentence: "The contrast appears more salient during down markets, and when performance is measured relative to a primary benchmark".

But this is precisely the issue. The paper found that TA funds only outperformed FA funds during down markets and only as a result of going to cash and reducing market exposure. When "the benchmark return is positive, [TA] portfolio managers find it comparatively difficult to keep pace...": [p.20].

Where in any of this do you find support for your contention that TA funds consistently outperform FA funds?

Are you suggesting that the entire paper and its abstract are somehow misaligned?