Technical Analysis vs. Fundamental Analysis

Rainman · 5 June 2016

skyQuake said:
The whole paper? Or just the bits you like ?

View attachment 66991

That graph is not showing in the version that I get when I click on your link and go to the PDF.

But the fact remains that that graph which is Figure 1 follows on from the paragraph that I cited earlier from page 20. Thus, what that graph is showing is the performance of TA funds during down markets versus FA funds.

This is clear when you read the sentence that precedes Figure 1. It says: "Thus, the data provide some evidence that technical analysis conveys an advantage when market prices decline". Figure 1 then follows.

I don't understand the authors to be saying that Figure 1 shows TA fund performance during periods when the benchmarks turn up. Otherwise their claim on page 20 that when "the benchmark return is positive, [TA] portfolio managers find it comparatively difficult to keep pace..," would make no sense.

Trendnomics · 5 June 2016

These type of threads (i.e. TA vs FA or This-Method vs That-Method) always transpires into people trying to convince other people, that their applied trading approach is superior.

If these attempts at conversion were successful on a large scale, then the market would become more neutral (less winners + less losers). Hence, your success at converting people to your trading approach, is inversely correlated to the long term success of your trading approach. So why bother with your zealous conversion attempts? Perhaps a lack of confidence in your own trading approach?

Everyone please keep applying your own individual trading approaches - I'm happy with the current state of things, as my trading approach (TA only), has delivered a large six figure sum in profits over the past three years.

cynic · 5 June 2016

Rainman said:
That graph is not showing in the version that I get when I click on your link and go to the PDF.

But the fact remains that that graph which is Figure 1 follows on from the paragraph that I cited earlier from page 20. Thus, what that graph is showing is the performance of TA funds during down markets versus FA funds.

This is clear when you read the sentence that precedes Figure 1. It says: "Thus, the data provide some evidence that technical analysis conveys an advantage when market prices decline". Figure 1 then follows.

I don't understand the authors to be saying that Figure 1 shows TA fund performance during periods when the benchmarks turn up. Otherwise their claim on page 20 that when "the benchmark return is positive, [TA] portfolio managers find it comparatively difficult to keep pace..," would make no sense.

Have you read the abstract yet?

cynic · 5 June 2016

Trendnomics said:
These type of threads (i.e. TA vs FA or This-Method vs That-Method) always transpires into people trying to convince other people, that their applied trading approach is superior.

If these attempts at conversion were successful on a large scale, then the market would become more neutral (less winners + less losers). Hence, your success at converting people to your trading approach, is inversely correlated to the long term success of your trading approach. So why bother with your zealous conversion attempts? Perhaps a lack of confidence in your own trading approach?

Everyone please keep applying your own individual trading approaches - I'm happy with the current state of things, as my trading approach (TA only), has delivered a large six figure sum in profits over the past three years.

Six figures in three years! Why so long?!You must be doing it wrong! Get with the fundamentals why dontcha!

Rainman · 5 June 2016

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

Well, the last sentence of the abstract says this:

"The most remarkable finding is that portfolios with greater reliance on technical analysis have elevated skewness and kurtosis levels relative to portfolios that do not use technical analysis. Funds using technical analysis appear to have provided a meaningful advantage to their investors, albeit in an unexpected way".

If I have understood the findings in the paper correctly, the reference to the "unexpected way" in which TA funds have provided a "meaningful advantage" is during down markets.

A final point: the fact that the findings supporting this "meaningful advantage" demonstrated "elevated skewness and kurtosis" means that even the outperformance of TA funds during down markets is confined to an extremely limited number of TA funds.

In other words, the outperformance of TA funds during down markets was the exception, not the rule.

Rainman · 5 June 2016

Trendnomics said:
I'm happy with the current state of things, as my trading approach (TA only), has delivered a large six figure sum in profits over the past three years.

What was the amount of your starting equity and what were your annual percentage returns for each of those 3 years?

cynic · 5 June 2016

Rainman said:
Well, the last sentence of the abstract says this:

"The most remarkable finding is that portfolios with greater reliance on technical analysis have elevated skewness and kurtosis levels relative to portfolios that do not use technical analysis. Funds using technical analysis appear to have provided a meaningful advantage to their investors, albeit in an unexpected way".

If I have understood the findings in the paper correctly, the reference to the "unexpected way" in which TA funds have provided a "meaningful advantage" is during down markets.

A final point: the fact that the findings supporting this "meaningful advantage" demonstrated "elevated skewness and kurtosis" means that even the outperformance of TA funds during down markets is confined to an extremely limited number of TA funds.

In other words, the outperformance of TA funds during down markets was the exception, not the rule.

So which rule, exactly, was it an exception to?

Rainman · 5 June 2016

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

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

Something else that is interesting in this paper is the suggestion (and a suggestion is all that it is) that TA funds took greater risks than FA funds to achieve their outperformance during down markets. Thus, on page 21 the authors note that:

"Given the general finding of a higher performance standard deviation for portfolios associated with technical analysis, a question arises about whether the managers take on risk to a level that produces a higher failure risk for the fund. This is not easy to test directly because PSN does not provide a time series of its survey results, so as to link a past usage of technical analysis to subsequent performance... What PSN supplies is a record of whether a portfolio is active in its database or inactive. In our sample, 55% of portfolios for which managers state that technical analysis is not utilized have survived to the present. Portfolios associated with the other four possible responses have survived at a 45-48% rate, with the “technical analysis is very important” category at the top of that range".

So while FA funds have survived at a rate of 55%, TA funds have only survived at a rate of between 47% and 48%. Given that we are talking here about the difference between living on to make money and being completely wiped out, this is a significant difference.

Rainman · 5 June 2016

cynic said:
So which rule, exactly, was it an exception to?

Read the paper. The rule was that most TA managers did not outperform even during down markets. This is evidenced by the "elevated skewness and kurtosis" of the statistical findings. Those TA managers that did were the exception.

Trendnomics · 5 June 2016

Rainman said:
What was the amount of your starting equity and what were your annual percentage returns for each of those 3 years?

I'd prefer not to divulge my exact account sizes - all I can say is that my total profits are well in the six figures.

My return over the past 3 years is ~+50% (~+15% pa) - all trades executed on the ASX.

For more information on my trade approach, please see my thread:

https://www.aussiestockforums.com/forums/showthread.php?t=30641

But please don't convert to my trading approach.

Rainman · 5 June 2016

Trendnomics said:
I'd prefer not to divulge my exact account sizes - all I can say is that my total profits are well in the six figures.

My return over the past 3 years is ~+50% (~+15% pa) - all trades executed on the ASX.

For more information on my trade approach, please see my thread:

https://www.aussiestockforums.com/forums/showthread.php?t=30641

But please don't convert to my trading approach.

So you have managed an annualised 15% return on your equity? That's a decent return. But I know a number of Benjamin Graham style net-net investors who have more than doubled that return on an annualised basis for a longer period: http://www.netnethunter.com/hunter-fund/.

And the net-net approach is one of the simplest quantitative approaches that I know of and which innumerable studies have shown deliver gains of 20% plus annualised: http://www.valuewalk.com/2015/02/ben-graham-net-nets-2/

cynic · 5 June 2016

Rainman said:
Read the paper. The rule was that most TA managers did not outperform even during down markets. This is evidenced by the "elevated skewness and kurtosis" of the statistical findings. Those TA managers that did were the exception.

I read the abstract which is purportedly a summation of the findings of the entire paper! Are you saying that the abstract is wrong?

And if this purported rule of TA manager underperformance is true, then how did the graphs and the abstract end up reporting otherwise?

It sounds like you're discounting TA manger outperformance because they broke a rule (of your own invention) stating TA must always underperform!

Rainman · 5 June 2016

cynic said:
I read the abstract which is purportedly a summation of the findings of the entire paper! Are you saying that the abstract is wrong?

And if this purported rule of TA manager underperformance is true, then how did the graphs and the abstract end up reporting otherwise?

It sounds like you're discounting TA manger outperformance because they broke a rule (of your own invention) stating TA must always underperform!

Do you seriously expect me to enter a discussion with you about this paper when all you have done is read the abstract? Is that how you got through school - by reading summaries of books and articles?

I have quoted entire paragraphs from the paper in my posts above whereas you want to rely exclusively on the abstract. I give you an E for Effort.

When I read a post like yours which proposes (apparently in all seriousness) to pit your understanding of the 100 or so words in the abstract with the 36 pages of the entire paper which you haven't bothered even to read, it really is the dawn of amateur hour.

Value Hunter · 5 June 2016

I have not read the paper but are we discussing gross returns, net pre-tax returns or net after tax returns? Because ill bet you if its net after tax returns a 2-3% p.a. advantage to technical funds which on average trade more will quickly be eaten up in brokerage, slippage and most importantly taxes

cynic · 5 June 2016

Rainman said:
Do you seriously expect me to enter a discussion with you about this paper when all you have done is read the abstract? Is that how you got through school - by reading summaries of books and articles?

I have quoted entire paragraphs from the paper in my posts above whereas you want to rely exclusively on the abstract. I give you an E for Effort.

When I read a post like yours which pits your understanding of the 100 or so words in the abstract with the 36 pages of the entire paper which you haven't bothered even to read, it really is the height of amateur hour.

Anyone can cherry pick sections to quote out of context in support of one's personal ideology.

Rather than me wading through 36 pages, how about you, as somebody who claims to have already done so, answer a direct question, namely:

Are you saying that the abstract is somehow variant to the findings of the paper it summarises?

Rainman · 5 June 2016

cynic said:
... Rather than me wading through 36 pages, how about you, as somebody who claims to have already done so, answer a direct question, namely...

Right, don't put in the effort to learn something that may be of enormous benefit to you. That sounds too much like hard work. Piggy-back off the work of others and accuse them from your total ignorance of the contents of the paper of cherry-picking.

Amateur hour.

cynic · 5 June 2016

Rainman said:
Right, don't put in the effort to learn something that may be of enormous benefit to you. That sounds too much like hard work. Piggy-back off the work of others and accuse them from your total ignorance of the contents of the paper of cherry-picking.

Amateur hour.

Yet more deflective criticism!

Well sometimes the truth is uncomfortable, but that doesn't entitle one continually evade it!

So, when may I expect an answer to the question? Is the abstract a reasonable summation?

Rainman · 5 June 2016

cynic said:
So, when may I expect an answer to the question?

When you read the entire paper for yourself. Is that too much to ask of a TA guy about a comprehensive and scholarly paper dealing with technical analysis?

In passing, I must say that I find it extraordinary that you, who claim to follow technical analysis, are so unwilling to want understand your trading discipline a little bit better. This paper is the most thorough study into the performance of TA funds that I know of - and you have zero interest in reading it.

It is as if you were a member of the flat earth society being asked to read a report about how the earth was round.

cynic · 5 June 2016

Rainman said:
When you read the entire paper for yourself. Is that too much to ask of TA guy about a comprehensive and scholarly paper dealing with technical analysis?

Is that the best excuse you can come up with for your repetitious avoidance of a direct question for which a simple "yes","no" or "I don't know" would suffice?

Rainman · 5 June 2016

cynic said:
Is that the best excuse you can come up with for your repetitious avoidance of a direct question for which a simple "yes","no" or "I don't know" would suffice?

Right, I am avoiding a question about a paper that you haven't even read.

That you can't see the absurdity of this situation is disturbing.

Technical Analysis vs. Fundamental Analysis

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