Which one do you use? Technical or fundamental analysis?

[ducati916]

Re: Which one do you use? Technical or fundamental analysis

Michael

I see very few indications in this thread of the importance of the exit, regardless of the entry methodology.

True, but the discussion has thus far centered, as far as I can see on the merits/demerits of the underlying philosophies.

Techies and fundies will disagree on the details of the entry and the exit, but on the necessity of having a pre-planned management and exit strategy BEFORE a trade is entered there is agreement.

I think that is about all we agree on.

No pre-planned exit strategy = inconsistent profits = loss in the long run.

jog on.


jog on
d998

 

[MichaelD]

Re: Which one do you use? Technical or fundamental analysis

A plea to Duc and Tech/A.

Can we please keep the Duc vs TT argument over at Reef. This is a potentially interesting thread and it would be sad to see it go off on a tangent.

 

[ducati916]

Re: Which one do you use? Technical or fundamental analysis

Michael

The results must be accurately reported.
If they are not, then the whole result is nonsense.

The only way that you can evaluate the success or failure of any method, system etc is via relative results.

To achieve tech/a results, you MUST LEVERAGE by the same margin as he used, in this case 2:1.............if you do not, then your results are equivalent to the ASX returns

This is just common sense.
jog on
d998

 

[tech/a]

Re: Which one do you use? Technical or fundamental analysis

Michael.

The posts are relevent.
TT is the only technical method offered up with verifiable results in an effort to show that Bunyips post about the ATAA presenter arent as laughable as Realist and BCD would have people believe.

DUC

Your having a bad day.

The results I gave are NETT void of leverage.
Portfolio went from 220K to 305K

Relativity 1:1

Comparing ONLY to nett portfolio value NOT initial capital.

 

[ducati916]

Re: Which one do you use? Technical or fundamental analysis

tech/a

I will however disclose the methodologies (Systems) parameters.
IE
R/R,expected initial drawdown,position sizing,leverage (I trade margin at 2:1)
Plus anything else seen as relevant. Like universe used to trade.
All relevent as part of "the Business"

Nonsense.

jog on
d998

 

[MichaelD]

Re: Which one do you use? Technical or fundamental analysis

SURELY the more important point here is NOT "my plan is better than your plan". The point is you must have a PLAN. The plan must have entry, exit, risk and money management. Miss any of these points and there will be pain sooner or later.

I would suggest that the majority of market participants here have worked on the following plan over the last couple of years;

Buy and make profit when it goes up. Feel good about self and consider self a market mastermind.

It's a plan that worked...until now.

Now what?

 

[tech/a]

Re: Which one do you use? Technical or fundamental analysis

I have $220K worth of stock and in one year it rises to a value of $305K

Thats a 38% rise.

Whats leverage got to do with it?

Other than allowing you to buy more stock with less initial capital.

Go for another jog!

 

[ducati916]

Re: Which one do you use? Technical or fundamental analysis

tech/a

You seem to have a basic misconception on how to report results.
If you list your results in $won/lost, the results will reflect the leverage.

If you report your results in the %+/- of each positions change in price, you will eliminate the effect of margin.

Therefore TT currently reports 8 open trades.
Take one example,

BIL
Opened 27/05/2004 .......26months and currently open
Average Purchase Price = $5.94
Current Price = $10.68
% Return = 79.7%
Annualised return = 36.8%

SFE [the best one]..........currently open
Opened 6/08/2003
Average Purchase Price = $3.69
Current Price = $16.14
% Return = 337.4%
Annualised = 119%

Therefore to get a true apples against apples, you need to calculate all your trades for the aggregate return. It may well turn out that you *HAVE* outperformed the ASX on that basis, but the method that you have illustrated tells us nothing of value.

jog on
d998

 

[BSD]

Re: Which one do you use? Technical or fundamental analysis

Julia the reason for the delay is I was going to the Casino to play some hands.

There are many strategies available and congrats to those who are happy with the performance of their own strategy.

I start to laugh though when I am told that making money in the market is a simple matter of leveraging 2-1 and buying stocks that have outperformed or have strong momentum. It is the same in a bear market when we hear nothing but Buffett and writing covered calls.

All strategies will have their time in the sun. But beating the market over a few years gives no statistical inference of success. As someone (who was shouted down) said - backtesting these strategies offers no significant outperformance.

Quant teams full of physics and maths gurus who are paid heaps and manage 100s of millions (of house money) have 'outperformance' (over various periods) and 'momentum' in their multi variable models - but the ability of these two (of many) indicators to forecast future outperformance both varies depending on market environment and is never absolute. The models are dynamic and designed to change with the market.

If momentum and past performance were all that was necessary, why do the quants add many more variables to their models?

From time to time, the market rewards factors like mean reversion, value, yield, low beta - these are all not very good for the guys who have riden the recent bull market. Over time however, the market is more random than anybody assumes.

The momentum players had their backsides tanned over the last fortnight. Pity the seminar attendees of May!

Congratulations on making $100K in a year Tech - it looks like such a performance is what you were looking for.

But it doesnt:

a. Mean anything
b. Float my boat enough to want to trade the way you do

It doesnt mean anything because it is:

Not statisically significant. Your excellent returns have come from a bull market. Your strategy needs to be tested over decade of different market before you can say you have cracked any code.

If you had of bought BHP shares on the open June 17 last year at $18.36 you would be up 47.5% now. Geared at 66%, the same trade is up 76%.

Is that proof of the amazing skill of a persons ability? Of course not, it doesn't mean anything.

In my 'trading portfolio' (currently spread across 1 company and 1 options series) I have one stock that has fallen by 40% in a month, but it is still almost 6 times more than where I accumulated it.

This performance (and the subsequent fall) can both be put down to fundamental analysis. But does it prove the acendency or stupidity of such a strategy?

No, not in the slightest. It doesnt mean anything

Some further comments:

A lot of the tech strategies sound great but are not quantifiable. Is the stock going up (?) is a favourite.

At the end of June BHP was 'going up' on the yearly and monthly charts. On the daily and weekly it had started to fall.

It is now going up (sort of) on the daily, but down on the weekly and all others.

Is it going up or down?


Many say the charts dont lie, but this is total rubbish.

Every other day I see some terrible execution of a tiny order where a large spread is crossed or a mechanical stop is set-off in an illiquid stock and the little candlestick stays there for perpetuity for some chartist to draw a trend line from.

The break outs and support failures in micros are often evidence of some poor mug stuffing up on execution to save $100 doing his own trades.

The main thing that grabs me on this site is the interest in complete dross stock with no liquidity or insto interest. You could manipulate such stocks with a 100k and get the graph folk believing all kinds of things.

This leads me to my final point, a lot of the tech strategies do not lend themselves (outside of derivatives) to swing a decent sized line of stock. A lot of the very small margins guys use in their targets ups and stops down is impossible to use if you need to buy a couple of hundred grand in a position.

When you are moving the market by 4% in accumulating your line in a mid/small cap fundamentals become almost the only tool you have.

This is why the sharp bloke like Wayne trade futures.


In any case, in share trading I believe INFORMATION is the key.

Sitting a watching a chart does not tell you who owns the stock, how much the stock is worth, who is buying who is selling and why a stock is doing what it is doing on the chart.

Why dont the seminar gurus talk about fundamentals? Because it isnt conducive to get rich quick dreams not requiring hard work.

Why dont the investment banks just hire a team of chartists with etrade accounts and margin loans?

 

[tech/a]

Re: Which one do you use? Technical or fundamental analysis

Rubbish.
$220,000 worth of stock regardless of leverage or no leverage rose to a value of $305,000 thats a 38% rise.

Leverage in this context has absolutely no bearing.
I'm not comparing it to anything other than a nett initial start value and a final finished value.

If I divide the initial value by 2 and the final value by the same---38%

if I multiply it x 2 same deal.

$110 as against 167.5
440 as against 610

Ive taken the DEFINED period 20/6/05 to 16/6/06 not the whole 4 yrs.
in 20/06/05 the value of the portfolio was $220,000
as at 16/06/06 it is $305,000 rise over that period 38%.
Rise in all Ords over the exact same period 15.7%

No need to annualise anything.

Forget the jog take a nap.

I'm out the door myself for a real jog.

 

[ducati916]

Re: Which one do you use? Technical or fundamental analysis

tech/a

Taking the previous example,

BIL
Opened 27/05/2004 .......26months and currently open
Average Purchase Price = $5.94
Current Price = $10.68
% Return = 79.7%
Annualised return = 36.8%

SFE [the best one]..........currently open
Opened 6/08/2003
Average Purchase Price = $3.69
Current Price = $16.14
% Return = 337.4%
Annualised = 119%

First lets argue that these were the only trades taken, then the aggregate result would be; 77.9%

But if you had taken 10 trades, 8 were stopped out at 10% [your stoploss]
then, we would have the following result;

Aggregate result = 7.5%
Big difference.

Conversely, if only 5 trades taken, and 3 stopped out;
Aggregate result = 25.2%

By reporting the results in $ terms, we cannot see the true results, because that does not take into effect the total # of trades required to generate the $ returns.

If you believe that leverage makes no difference in your results, so be it.
From an alternate view;

If you had of bought BHP shares on the open June 17 last year at $18.36 you would be up 47.5% now. Geared at 66%, the same trade is up 76%.

If you're happy at 38%, I'm happy.
jog on
d998

 

[cuttlefish]

Re: Which one do you use? Technical or fundamental analysis

Many say the charts dont lie, but this is total rubbish.

Every other day I see some terrible execution of a tiny order where a large spread is crossed or a mechanical stop is set-off in an illiquid stock and the little candlestick stays there for perpetuity for some chartist to draw a trend line from.

Though that candle will at least reflect that on that day there was a large spread that could be crossed, and psychologically someone felt eager enough to either buy or sell (even if a small amount) to cross that spread. I think in moderate liquidity stocks it could still be argued as a valid reflection of a psychological situation (which is all charting is trying to study from my viewpoint).

I'm a firm believer in investing based on fundamentals. I'm still interested in understanding the charting viewpoint as well though because I think combining the two could possibly be used to accellerate returns. Its become second nature to me now though to not buy a stock without researching the fundamentals and I won't enter a stock that doesn't match a set of criteria.

I've been mucking about a bit with options the past 9 months trying to understand them better because I'm interested trying to use them to leverage the long term value investing approach and also to capitalise on overbought markets. (again judging overbought markets largely based on fundamentals but for shorting its important to get the timing and strategy reasonably right because hyped markets can jump so much at the end stage).

 

[tech/a]

Re: Which one do you use? Technical or fundamental analysis

Its a very simple mathamatical example made complex by the master himself.
Leverage was not mentioned and is not required in the example.


If you bought anything for $220,000 on 20/6/05 and sold it Friday 16/6/05 for $305,000 then you would have increased its value 38% on the sale.

Hell duc you argue and put forward arguement just to fill up space Im sure of it.

 

[Realist]

Re: Which one do you use? Technical or fundamental analysis

$220,000 worth of stock regardless of leverage or no leverage rose to a value of $305,000 thats a 38% rise.

It is not a 38% rise unless you have taken every possible expense out of the $305,000.

I do not believe you have. (please clarify??)

Have you taken out all of the below?

TAX
Brokerage
Your Accountants fees
Time spent (if it is significant time you could have spent working for other income)
Computer, software, subscriptions, magazines, phone bills, internet, all expenses...

I do not believe you got a 38% after all these expenses have been taken out.

If so well done!

The true beauty of buy and hold is there are no, or virtually none, ongoing expenses whatsoever. That is the one true indisputable advantage of investing over trading.

 

[Realist]

Re: Which one do you use? Technical or fundamental analysis

Im only to happy to play.
Your however missing the whole point of the post.
Doing so is only part of the equation.

I'm fully aware of the point. You are a trader, you can't (or wont) even tell me a stock you think is a good buy now. If this is incorrect - please list one?

I am also aware some traders can make money and it is a genuine occupation for some.

But in terms of investing it is laughable to think you can buy stocks to outperform the market then sell them before they underperform. Traders do do this though I agree.

I am fully aware traders lose on some trades and use stop losses to minimise this. But the original question was about investing - buying a share that outperforms the market and selling it before it underperforms, you have not shown me how this can possibly work in reality unless you are purely trading (not investing). It certainly is not an investment strategy.

An investor buys a good company and waits, A trader buys a stock price and watches. There is no in between in my opinion. You can't be a short term investor, you either invest with longterm goals or you trade/speculate - simple as that.

 

[Realist]

Re: Which one do you use? Technical or fundamental analysis

However, if a stock is simply not performing, i.e. Westfield Group, it will be sold and the funds used to buy something which IS going up. Why? Because I am in the market to make money and I am not making money holding stocks which are standing still or decreasing. This doesn't make me a "trader".

Julia, by my definition and that of many investors you just described yourself as a trader.

It is black and white - investors buy companies, traders buy stock prices.

If you buy a nice house, or investment property and it is revalued 6 months later for less than you bought it for would you sell it and buy a better performing house?

 

[tech/a]

Re: Which one do you use? Technical or fundamental analysis

But in terms of investing it is laughable to think you can buy stocks to outperform the market then sell them before they underperform.

Out of interest how do you think it is done?
How do traders and investors make a $?

I fail to see the humour in the trade below?

But the original question was about investing - buying a share that outperforms the market and selling it before it underperforms, you have not shown me how this can possibly work in reality unless you are purely trading (not investing). It certainly is not an investment strategy.

Hell if you dont call what Im doing longterm Trading/investing what do you call it.
In 4 yrs only about 20 trades (I havent counted them)

 

[NettAssets]

Re: Which one do you use? Technical or fundamental analysis

I don't think TAX can be taken as a cost of trade in your example realist.
the Investor hasn't made a tax free gain - merely deferred paying the tax.
The Investor will also have other costs if they wish to use the profit portion of equity in their holding which the trader is able to access free.
John

 

[Realist]

Re: Which one do you use? Technical or fundamental analysis

So you bought QBE in 2003 and still hold it?

Should you have done this? I thought you said no silly questions.

Well done an excellent purchase obviously.

What exactly does it prove though?

How about you show us one of your losing trades - what would that prove - nothing.

As I said traders love history - Please list a stock you suggest we buy now. DO NOT TELL ME ABOUT THE PAST I, AND EVERYONE ELSE ALREADY KNOWS IT.

TELL ME SOMETHING TO BUY NOW !!

 

[Realist]

Re: Which one do you use? Technical or fundamental analysis

I don't think TAX can be taken as a cost of trade in your example realist.

Okay everyone forget tax, lets just imagine it doesn't exist.

the Investor hasn't made a tax free gain - merely deferred paying the tax.

Correct.

But the investors tax rate is halved AND the investor is making profits on the tax he is deferring.

How much do you think Warren Buffett has paid in tax on his shares, how much does he make off his defferred tax each year?

Billions!!