Technical Trading Suddenly Makes More Sense

[wayneL]

As I read the tales of woe on this board and others, I can't help feeling a bit smug about being a technical trader. I'm sorry about feeling that way, and I do commiserate with those feeling the heat right now, but for people who trade technical systems, it is business as usual, or they are all cash.

This isn't meant as gloating, but for people to consider some technical aspects, even if a fundamental trader. Long termies need not worry, if indeed their view really is long term; even if there is a lot more downside the market will eventually recover.

A well designed long only technical system will have the trader largely or wholly exited from the market right now, and fears of margin calls and suchlike will be the furthest thing from their mind. Swing/day traders will be taking opportunities, whether long or short as they present themselves.

So up for discussion, the good sense of technicals in crappy markets.

Cheers

 

[Timmy]

What's to discuss?

 

[wayneL]

What's to discuss?

err...sorry, not clear.

For people who use fundamentals.

 

[doctorj]

To poke fun at the fundies?

Long termers who are worried aren't long termers or are over leveraged. The natural direction for the market is up.

 

[Timmy]

So up for discussion, the good sense of technicals in crappy markets

Sorry wayne ... I meant that for me there is nothing to discuss, am in full agreement with you. Hmmmm, maybe I would add to use technicals in all markets not just crappy ones.

There is a role for fundamentals, but for me it is economic fundamentals.

I have no problem with a true value investment approach either - and like you and doctorj have said, such investors without excess leverage will have no concerns.

Two words to add to you statement doctorj - "the natural direction for the market is up" - survivorship bias.

 

[Sean K]

Technicals for when you don't understand a company or sector, it's highly speculative, or you are $1 from a margin call.

Fundamentals for when you (think you) see long term value.

Then go to Yogi's horiscope and check the alignment of the stars.

Finally, combine two cups of sugar with some eggs and beat till fluffy. Place in oven at 220 degrees.

Then, cross your fingers and hope the balance of greed and fear is a round abouts.

 

[wayneL]

Technicals for when you don't understand a company or sector, it's highly speculative, or you are $1 from a margin call or if you trade technically

Fundamentals for when you (think you) see long term value.

Then go to Yogi's horiscope and check the alignment of the stars.

Finally, combine two cups of sugar with some eggs and beat till fluffy. Place in oven at 220 degrees.

Then, cross your fingers and hope the balance of greed and fear is a round abouts.

Don't forget eye of newt, toe of frog, wool of bat and tongue of dog.

 

[Sean K]

Don't forget eye of newt, toe of frog, wool of bat and tongue of dog.

How did that bit in red get there?

LOL

Perhaps I'm just no good at technical trading as I've tried both and perceive that I've made larger % gains from picking an undervalued stock and holding it till it gets more correctly rated and then taking profits and moving on (*see note). Those who's funnyamentals I have no idea on (most stocks actually ) I quickly dump if key support is broken. Must be why I'm only holding a handful right now..... Having said that, I've yet to comprehensively compare % gains on tech v funny wins/losses over the past few years so, I could be speaking crap. Must say, selling on technical breakdowns has absolutely saved my bacon a few times.

(Note: perhaps I've been living in a bull market fairyland for the past 4 years too)

 

[tech/a]

I've yet to comprehensively compare % gains on tech v funny wins/losses over the past few years so, I could be speaking crap.

Kenna's

Ducati for 2 yrs attempted to prove that he could make the same compounded gains as The technically traded System I have on "The Chartist".
It was to be a 3 yr test case.
Ducati tried to demonstrate that using a stop was NOT necessary and that holding Undervalued stock would eventually come good and save the day.

After 2 yrs he abandoned the project in fact he has not posted anywhere I know of for over a year.
Duc knew his fundamental stuff and those who knew him will remember reams of fundamental argument and discussion.

His NETT result after 2 yrs was 1.5% profit on capital.
And that was before the correction periods.

That's the only head to head compared Technical/fundamental comparison,Other than realists challenge to myself a year or so ago.
He to seems to have disappeared. Normally a sign of Blowing up your account!

Wayne.
I'm making up a "Top Quotes" I find while looking through some of the technical threads.
While the authors will remain nameless---the end result will tell a lot!

Mind you there are technical and Fundamental Traders and then there are technical and Fundamental traders---you know what I mean.

 

[Sean K]

Kenna's

Ducati tried to demonstrate that using a stop was NOT necessary and that holding Undervalued stock would eventually come good and save the day.

.....

His NETT result after 2 yrs was 1.5% profit on capital.

Hi Tech,

As I alluded to above I use discretion to sell out of 'fundamental' stocks when they break key support. I'm still holding one (KMN) at the moment that I'm off 20% on and has just broken what I consider key support which if confirmed, is going to the dog house. This is where a combination of tech and funny analysis can be used IMO.

In regard to net gains over the past 2 years, I've done a little better than 1.5% using a combination of TA and FA. My discretionary approach seems to have worked reasonably well, but hey, it's a bull market. Perhaps now that Wayne's Four Horseman have arrived, I will only be technical trading, due to all those key support levels being smashed....

 

[tech/a]

Wayne.
I'm making up a "Top Quotes" I find while looking through some of the technical threads.
While the authors will remain nameless---the end result will tell a lot!

Mind you there are Technical and Fundamental Traders and then there are Technical and Fundamental traders---you know what I mean.
Reply With Quote

To early in the morning SHOULD read

Wayne.
I'm making up a Compendium of "Top Quotes" I find while looking through some of the FUNDAMENTAL threads.
While the authors will remain nameless---the end result will tell a lot!

Mind you there are Technical and Fundamental Traders and then there are Technical and Fundamental traders---you know what I mean.
Reply With Quote

 

[Wysiwyg]

Mind you there are Technical and Fundamental Traders and then there are Technical and Fundamental traders---you know what I mean.
Reply With Quote

I have been meaning to say for ages, thankyou tech/a, for offering THE most valuable piece of investment strategy I have ever read.

 

[Trembling Hand]

This game offers much to many (mostly perverse thrills not cash) but the bottom line is that you do it for money and hopefully lots.

With that in mind and given that many will make money from Tech and/or Fund analysis. And the reverse will happen that many will lose using anything they touch.

I would like to see a race between a group of profitable practitioners of both Tech and fund analysis to see who could make the most profit in a set time or the first to 250,000.

Anyone would like to offer a 1 mil first prize to make it interesting??

 

[sam76]

Anyone would like to offer a 1 mil first prize to make it interesting??

I'll put it up.....














as long as i don't have to pay :

 

[tech/a]

Mind you there are technical and Fundamental Traders and then there are technical and Fundamental traders---you know what I mean.

There is no arguement that BOTH styles can produce profit.
To me the arguement is the application of styles.

The above quote has embedded in it my point.
I would argue that this encompasses timeframe.

What I see in MOST Fundamental trading seen on this site is NO regard to risk management.
Post after post of
"Ill continue to hold as I see this stock as UNDERVALUED".
Evidently in the majority of cases there are fundamental traders holding vast numbers of UNDERVALUED stock in definately at prices well below their initial buy.
Not a formula for profit!
This is letting you losses run.

APPLICATION of trading style will determine profit in my view.
NOT the type of analysis employed.

 

[TheRage]

Tech,

I will be honest and say that I have learn't from you and others on this site in terms of loss management. But I don't believe there are actually too many on this site who are true fundamentalist trader's/ investors. I believe most newbies fall into the category of fundamentalists becasue the first thing they do, as I first did was to chase yield and discount to P/E's which doesn't work if you don't actually know how to calculate intrinsic value. I don't believe that it matters whether you are fundamentalist or techie as long as you have rules and don't break them you will make money.

 

[tech/a]

I don't believe that it matters whether you are fundamentalist or techie as long as you have rules and don't break them you will make money.

Just one question.

How do you know that the rules you are applying--be it fundamental or technical will turn you a profit.
Ive seen some god awful rules which do end in absolute disaster.

Ducati's rules were just crazy---but as a fundamental analyst he was/is pretty damned good.

Duc's thread
https://www.aussiestockforums.com/forums/showthread.php?t=2829&highlight=ducati

 

[Julia]

Just one question.

How do you know that the rules you are applying--be it fundamental or technical will turn you a profit.
Ive seen some god awful rules which do end in absolute disaster.

Ducati's rules were just crazy---but as a fundamental analyst he was/is pretty damned good.

Duc's thread
https://www.aussiestockforums.com/forums/showthread.php?t=2829&highlight=ducati

Yes, Duc was probably the most obstinate person I've ever come across in terms of his belief in his rules. It was perfectly obvious from his results that he was failing to achieve a profit, but he refused to reconsider what he was doing.

 

[GreatPig]

Although I basically only use technical myself, I might suggest that the last few years of bull market have favoured technical analysts.

I would imagine few stocks would have seemed fundamentally undervalued during the bull run, and I think the concept of buy undervalued and wait for them to rise is more a long-term strategy - not something you'd expect to perform outstandingly in just two or three years of a strong bull market.

So I'm not sure that it's really a fair comparison. Of more interest would be the comparison after 15 or 20 years, when the market has been through flat periods and bear periods. While I would personally expect a good technical analyst to outperform the value investor, I would also think the technical analyst would have to spend a lot more hours doing so, and a not-so-good technical analyst may well be buried and gone by then.

Cheers,
GP

 

[TheRage]

Just one question.

How do you know that the rules you are applying--be it fundamental or technical will turn you a profit.
https://www.aussiestockforums.com/forums/showthread.php?t=2829&highlight=ducati

I treat my portfolio like a business which I am sure you can appreciate.

Gross Profit = Distributions (Dividends) + Realised Capital Gains

Taxable Income = Gross Profit (50% Capital gains discount applied) - allowable deductions (Brokerage, capital losses) -
Tax Liability = Taxable income applied at marginal rate adding back imputation credits.
Net Profit = Gross Profit minus Tax Liability


However I also have an Absolute net profit calculation including unrealised and realised gains and losses which essentially includes these items into the above calculation. While I conceed that adding realised and unrealised gains and losses into Net Profit is not perfect should I simply ignore the large internal gains that I might have in a few stocks. Moreover one could argue if I have been holding onto a dog, which I haven't, should I ignore this loss until realised. The only difference in our approach Tech is that if you have a share which has been affected by market weakness even if you have a massive gain within you will sell based on your stop loss. I hold if there is no specific stock weakness as the tax on the gain could be greater than the small market correction. If the stock has both fundamental weakness or technical weakness during a bull run I will sell but to sell all my current holding which will probably occur soon for most techies depending on what their % stop losses are would mean I would have a pile of cash and a pile of tax that I owe. Probably not a bad thing you might argue but again in 15 years I might have saved on tax, brokerage and have greater gains (through 1 yr holding rule) within a small number of shares or I might be on the dust heap with Ducatti and Realist. Only time will tell.

I think GP hit the nail on the head also. A 15 year comparison between the two methods would be much more meaningful.