Technical analysis thread
12-14-2018
, 05:13 PM
Someone needed to start this so it may as well be me. There's a lot of demand for technical analysis discussion and trades - this is the thread for it. It's not a thread for discussion of the merits of technical analysis. It's a safe space for those who believe.
My own contribution, a very rare and important pattern today:
In technical analysis this is known as the "la bourse est morte" pattern. gg 2009-2018. I bought some puts on this pattern and made money, proving that technical analysis works.
Post your technical analysis, ideas, trades, setups, etc.
My own contribution, a very rare and important pattern today:
In technical analysis this is known as the "la bourse est morte" pattern. gg 2009-2018. I bought some puts on this pattern and made money, proving that technical analysis works.
Post your technical analysis, ideas, trades, setups, etc.
12-14-2018
, 05:56 PM
TS actually starting this thread makes me feel...
Spoiler:
12-14-2018
, 06:09 PM
It's too transparent to be a trap it is just another weak trolling attempt. eboro was BFI's most eloquent TA defender. I will leave this thread to his hall of fame post and toothys immature trolling attempts. Who comes off as sounding more intelligent? Warning tldr 
Quote:
Let me preface my comments by saying that I am not strictly a technician, nor am I strictly a fundamentalist. I have, however, studied them both in depth, especially fundamental analysis (business econ undergrad and finance grad at LSE). I have used both fundamental analysis and TA, in separate accounts, and in conjunction, successfully for years.
First let me say that you are correct, with regards to your comments about the future. What you may not know, however, is that the art of successful technical analysis and trading begins with the humility of facing up to the unknown. The successful technician realizes that the future is, for the most part, unknown; and yet the primary goal of most individuals working within financial markets is to predict the future, and to act upon those predictions. It is extremely important to be aware of the fact that any analyst, whether fundamental or technical, is still simply guessing about the future, albeit intelligently. Just because the future cannot be predicted with 100% certainty does not mean that it can't be predicted with an acceptable amount of certainty. No method or technique is full proof. The goal of the pure technician is identifying likely, potential, future scenarios so as to exploit them - all the while realizing that estimations could be incorrect.
Your view on technical analysis is not an uncommon one, especially in the realm of value investment. And I've always found it quite odd that individuals with little experience or knowledge of a certain discipline believe that they can provide poignant, or even interesting, commentary with regards to said discipline. The truth is that most traditional investors, whether value oriented or otherwise, have never studied technical analysis in depth: their comments are simply repetitious rhetoric, which they've usually acquired from other value investors. As such, their analysis of the discipline is often ill informed, and lacks any meaningful substance. Fortunately, the general stigma associated with TA by value investors is what assures it will continue to work. If everyone believed in it, then many attractive setups would become much more efficient, thus reducing the potential for profit.
Statements such as, "technical analysis only tells you one thing - what other investors chose to do in the past; it doesn't tell you anything about what they will do in the future" or "No one knows where prices are going tommorrow. NO ONE", are quite inaccurate. From an empirical standpoint, the statements show a poor understanding of market structure. In aggregate, investor buys and sells of a given asset in the past will affect their buys and sells in the future: this is basic common sense. As such, former sentiment often influences future sentiment. The only true constant in financial markets is the participants. Humans tend to act, react, and overreact similarly in certain situations that are repeated often within markets.
From a more theoretical standpoint, although this has been shown both theoretically and empirically, "the past in the teacher of the future". Understanding history, whether it be history of price or other, has serious implications with regards to the future. The basis of this type of analysis has longstanding roots in the social sciences, specifically, economics. We attempt to understand the present, for the future will inevitably retain compelling aspects of what now exists. The present, however, is profoundly a product of the past. So, as far as economists are concerned, what we will see in the future is partially a product of the past. Only as these are perceived - only as we view the past as regards to prices, and production, employment and unemployment, the distribution of income and wealth, saving, banking and investment, the nature and promise of capitalism and socialism - can the present, and therewith, in some slight measure, the prospect, be understood in any appreciable way. This type of deductive reasoning has been applied to economics for centuries, and yet, when applied to financial markets, it is, for some reason, considered to be esoteric and inaccurate. The evidence, I'm afraid, indicates that technical analysis, and the use of charts, has serious predictive value. In your commentary, after claiming that TA is largely useless, you mention none of the studies with regards to its use. Empirical studies by individuals such as Charles Kirkpatrick, Thomas Bulkowski or even the Federal Reserve have shown, over extremely large sample sizes, that technical analysis has predictive value, and can be used profitably, in various market contexts. In fact, to my knowledge, there is a Federal Reserve working paper regarding support and resistance levels in short-term foreign exchange rates; the study "offers strong evidence that the levels help to predict intraday trend interruptions, although the predictive power of those levels was found to vary across the exchange rates and firms examined." (http://www.ny.frb.org/research/epr/0.../0007osle.html).
I know of almost no value investors, however, that have read any empirical findings. Most, in fact, become victims of the type of heuristic biases they often try to avoid: anchoring bias, cognitive dissonance bias, availability bias etc...
The definition and description of technical analysis based trading is often misunderstood, too. Make no mistake: the primary role of the technician and trader is that of a risk manager. Successful traders and technicians are "skeptics" by nature, always looking over their shoulders, assessing risk objectively, and then focusing on potential reward. Good technicians don't think: "If only we could predict these price movements, we could act upon them and become rich beyond our wildest dreams". Instead, they think: "Given the current state of supply and demand, what is the potential downside in this stock, and how does that relate to potential reward. Given the historical performance of a given pattern or formation in similar situations, what is the probability that the asset will increase or decrease, and do I have an edge in exploiting the setup". The investment game, as described by Michael Mauboussin, is a game of probabilities. Technical Analysis, in truth, allows individuals to approach the markets probabilistically, and objectively. Much like value investing, technical analysis is not about "buying at the bottom and selling at the top". For the technician, the idea is to buy when the probability is greatest that the stock is going to advance, relative to risk. Understanding areas of substantial shifts in the supply and demand in an asset allows one to do just that. The "Margin of Safety" that value investors so often discuss is also present in technical analysis and trading, but it is quantified in a much more visual way. Just remember, the value of technical analysis is not to predict every move, that is impossible. Instead, the idea is to make sense of price movement via market sentiment, and to act when it indicates that a certain scenario offers good expected value and controlled risk. Part of being a good trader is being patient enough to wait for clearly defined situations/setups...and those situations do arise.
Fundamental analysis deals with the information, but it does not tell us the potential extent to which this information has been discounted, and it does not tell us how others are currently interpreting the information. Technical analysis, on the other hand, allows us to view investors interpretation of, and response to, the information. We could say, as John Murphy once did, that "Fundamental analysis deals with the 'cause' and technical analysis deal with the 'effect". In my opinion, understanding both cause and effect is extremely important. No matter what the analysis of the intrinsic value of a company yields, the investment will only yield a profit when others agree with your assertion, and act upon it, thus pushing up price. If, in aggregate, others never agree with your thesis, the stock will stagnate, or even decline, possibly for long periods, even if it is selling far below intrinsic value. Sure, the price which offers the greatest margin of safety, in value investing terms, will likely occur at a moment when the majority disagree with your estimation of intrinsic value; but understanding when the tide is turning can be extremely beneficial. Why not attempt to buy when others are just beginning to agree, when the "trend" is just beginning to turn from down to up, and demand begins to outdo supply. In a field in which opportunity cost is such an important facet of success, I would think that reducing draw-down periods, and periods of stagnation, would be extremely valuable.
So, whilst investors may believe technical analysis to be useless, they cannot provide valid comments unless they study technical analysis in depth and try it. Remember, what works for some, may not work for others, but that doesn't make it useless in aggregate. I hope this explanation has been informative.
P.S. It is often said that "The technical analysis hall of fame consists of an empty room. Where is their Warren Buffet? etc...". When actually examining the forbes list, you'll notice names such as Paul Tudor Jones, Steve Cohen, Bruce Kovner, George Soros, James Simmons or John Arnold, all of which are/were traders that use technical analysis extensively, in addition to macro analysis. In fact, there are multiple interviews, both online and in hard print, in which some of these men discuss their use of TA. Most of these investors have outperformed many of the well known value investors in terms of annualized returns. In fact, over recent years (the past decade), there are very few, if any, that have outperformed John Arnold.
Also, the reason that technical analysis isn't taught at most universities is the same reason trading isn't taught: they are both very much subjective disciplines. Still, you should have looked into this more before making brash statements, because increasingly, schools are incorporating TA based classes. NYU Stern, for instance, has an Applied Technical Analysis course.
eboro
First let me say that you are correct, with regards to your comments about the future. What you may not know, however, is that the art of successful technical analysis and trading begins with the humility of facing up to the unknown. The successful technician realizes that the future is, for the most part, unknown; and yet the primary goal of most individuals working within financial markets is to predict the future, and to act upon those predictions. It is extremely important to be aware of the fact that any analyst, whether fundamental or technical, is still simply guessing about the future, albeit intelligently. Just because the future cannot be predicted with 100% certainty does not mean that it can't be predicted with an acceptable amount of certainty. No method or technique is full proof. The goal of the pure technician is identifying likely, potential, future scenarios so as to exploit them - all the while realizing that estimations could be incorrect.
Your view on technical analysis is not an uncommon one, especially in the realm of value investment. And I've always found it quite odd that individuals with little experience or knowledge of a certain discipline believe that they can provide poignant, or even interesting, commentary with regards to said discipline. The truth is that most traditional investors, whether value oriented or otherwise, have never studied technical analysis in depth: their comments are simply repetitious rhetoric, which they've usually acquired from other value investors. As such, their analysis of the discipline is often ill informed, and lacks any meaningful substance. Fortunately, the general stigma associated with TA by value investors is what assures it will continue to work. If everyone believed in it, then many attractive setups would become much more efficient, thus reducing the potential for profit.
Statements such as, "technical analysis only tells you one thing - what other investors chose to do in the past; it doesn't tell you anything about what they will do in the future" or "No one knows where prices are going tommorrow. NO ONE", are quite inaccurate. From an empirical standpoint, the statements show a poor understanding of market structure. In aggregate, investor buys and sells of a given asset in the past will affect their buys and sells in the future: this is basic common sense. As such, former sentiment often influences future sentiment. The only true constant in financial markets is the participants. Humans tend to act, react, and overreact similarly in certain situations that are repeated often within markets.
From a more theoretical standpoint, although this has been shown both theoretically and empirically, "the past in the teacher of the future". Understanding history, whether it be history of price or other, has serious implications with regards to the future. The basis of this type of analysis has longstanding roots in the social sciences, specifically, economics. We attempt to understand the present, for the future will inevitably retain compelling aspects of what now exists. The present, however, is profoundly a product of the past. So, as far as economists are concerned, what we will see in the future is partially a product of the past. Only as these are perceived - only as we view the past as regards to prices, and production, employment and unemployment, the distribution of income and wealth, saving, banking and investment, the nature and promise of capitalism and socialism - can the present, and therewith, in some slight measure, the prospect, be understood in any appreciable way. This type of deductive reasoning has been applied to economics for centuries, and yet, when applied to financial markets, it is, for some reason, considered to be esoteric and inaccurate. The evidence, I'm afraid, indicates that technical analysis, and the use of charts, has serious predictive value. In your commentary, after claiming that TA is largely useless, you mention none of the studies with regards to its use. Empirical studies by individuals such as Charles Kirkpatrick, Thomas Bulkowski or even the Federal Reserve have shown, over extremely large sample sizes, that technical analysis has predictive value, and can be used profitably, in various market contexts. In fact, to my knowledge, there is a Federal Reserve working paper regarding support and resistance levels in short-term foreign exchange rates; the study "offers strong evidence that the levels help to predict intraday trend interruptions, although the predictive power of those levels was found to vary across the exchange rates and firms examined." (http://www.ny.frb.org/research/epr/0.../0007osle.html).
I know of almost no value investors, however, that have read any empirical findings. Most, in fact, become victims of the type of heuristic biases they often try to avoid: anchoring bias, cognitive dissonance bias, availability bias etc...
The definition and description of technical analysis based trading is often misunderstood, too. Make no mistake: the primary role of the technician and trader is that of a risk manager. Successful traders and technicians are "skeptics" by nature, always looking over their shoulders, assessing risk objectively, and then focusing on potential reward. Good technicians don't think: "If only we could predict these price movements, we could act upon them and become rich beyond our wildest dreams". Instead, they think: "Given the current state of supply and demand, what is the potential downside in this stock, and how does that relate to potential reward. Given the historical performance of a given pattern or formation in similar situations, what is the probability that the asset will increase or decrease, and do I have an edge in exploiting the setup". The investment game, as described by Michael Mauboussin, is a game of probabilities. Technical Analysis, in truth, allows individuals to approach the markets probabilistically, and objectively. Much like value investing, technical analysis is not about "buying at the bottom and selling at the top". For the technician, the idea is to buy when the probability is greatest that the stock is going to advance, relative to risk. Understanding areas of substantial shifts in the supply and demand in an asset allows one to do just that. The "Margin of Safety" that value investors so often discuss is also present in technical analysis and trading, but it is quantified in a much more visual way. Just remember, the value of technical analysis is not to predict every move, that is impossible. Instead, the idea is to make sense of price movement via market sentiment, and to act when it indicates that a certain scenario offers good expected value and controlled risk. Part of being a good trader is being patient enough to wait for clearly defined situations/setups...and those situations do arise.
Fundamental analysis deals with the information, but it does not tell us the potential extent to which this information has been discounted, and it does not tell us how others are currently interpreting the information. Technical analysis, on the other hand, allows us to view investors interpretation of, and response to, the information. We could say, as John Murphy once did, that "Fundamental analysis deals with the 'cause' and technical analysis deal with the 'effect". In my opinion, understanding both cause and effect is extremely important. No matter what the analysis of the intrinsic value of a company yields, the investment will only yield a profit when others agree with your assertion, and act upon it, thus pushing up price. If, in aggregate, others never agree with your thesis, the stock will stagnate, or even decline, possibly for long periods, even if it is selling far below intrinsic value. Sure, the price which offers the greatest margin of safety, in value investing terms, will likely occur at a moment when the majority disagree with your estimation of intrinsic value; but understanding when the tide is turning can be extremely beneficial. Why not attempt to buy when others are just beginning to agree, when the "trend" is just beginning to turn from down to up, and demand begins to outdo supply. In a field in which opportunity cost is such an important facet of success, I would think that reducing draw-down periods, and periods of stagnation, would be extremely valuable.
So, whilst investors may believe technical analysis to be useless, they cannot provide valid comments unless they study technical analysis in depth and try it. Remember, what works for some, may not work for others, but that doesn't make it useless in aggregate. I hope this explanation has been informative.
P.S. It is often said that "The technical analysis hall of fame consists of an empty room. Where is their Warren Buffet? etc...". When actually examining the forbes list, you'll notice names such as Paul Tudor Jones, Steve Cohen, Bruce Kovner, George Soros, James Simmons or John Arnold, all of which are/were traders that use technical analysis extensively, in addition to macro analysis. In fact, there are multiple interviews, both online and in hard print, in which some of these men discuss their use of TA. Most of these investors have outperformed many of the well known value investors in terms of annualized returns. In fact, over recent years (the past decade), there are very few, if any, that have outperformed John Arnold.
Also, the reason that technical analysis isn't taught at most universities is the same reason trading isn't taught: they are both very much subjective disciplines. Still, you should have looked into this more before making brash statements, because increasingly, schools are incorporating TA based classes. NYU Stern, for instance, has an Applied Technical Analysis course.
eboro
12-14-2018
, 06:15 PM
12-14-2018
, 08:01 PM
12-14-2018
, 11:20 PM
12-14-2018
, 11:20 PM
12-15-2018
, 12:11 AM
12-15-2018
, 12:26 AM
12-15-2018
, 12:33 AM
12-15-2018
, 12:43 AM
12-15-2018
, 06:50 AM
Quote:
- How much alpha does technical analysis add to trading vs not using it?
- Do you have any evidence that support and resistance provide any tradable information from which you can extract alpha in US equity markets? (your quote above references a single study about forex, as if forex markets have any relationship to equity markets, lol). How large is the edge? Studies of indicators like support and resistance have shown no predictive ability. The tendency for technical analysts when confronted with this is to say "but it's about risk/reward setups". Sorry, but "predictive ability" encompasses that, so that's just a dodge. How do you answer that charge and that scholarship?
- How do you account for the fact that same technical patterns frequently show in random noise? What noise correction do you use?
- Do you trade technical patterns blind or do you also read market news and try to gain a short term fundamental picture? If it's the latter, like the great fundamental stock picker or news traders who consults the daily horrorscope and swears by it, how do you know it's really TA which is giving your edge?
- What statistical analysis have you done on your setups?
- You've been a commodities trader for a long time. The literature shows there are tradable short term technical patterns in commodities, vs none with an edge that beats retail fees in US stocks. Do you claim you've achieved outsized returns in US equity markets over a decent sample?
- Do you have any evidence that support and resistance provide any tradable information from which you can extract alpha in US equity markets? (your quote above references a single study about forex, as if forex markets have any relationship to equity markets, lol). How large is the edge? Studies of indicators like support and resistance have shown no predictive ability. The tendency for technical analysts when confronted with this is to say "but it's about risk/reward setups". Sorry, but "predictive ability" encompasses that, so that's just a dodge. How do you answer that charge and that scholarship?
- How do you account for the fact that same technical patterns frequently show in random noise? What noise correction do you use?
- Do you trade technical patterns blind or do you also read market news and try to gain a short term fundamental picture? If it's the latter, like the great fundamental stock picker or news traders who consults the daily horrorscope and swears by it, how do you know it's really TA which is giving your edge?
- What statistical analysis have you done on your setups?
- You've been a commodities trader for a long time. The literature shows there are tradable short term technical patterns in commodities, vs none with an edge that beats retail fees in US stocks. Do you claim you've achieved outsized returns in US equity markets over a decent sample?
1. alpha? Not really sure on that one. But more than selling NFLX one year ago $100 lower than it is now
But alpha really isn't a day traders measurement. How much alpha does your read the news and react offer? Read the news and react and read the chart and react are actually pretty similar. Especially if you are following the news while reading the chart.2. Predictive ability of support and resistance? TA isn't really predictive it is reactive. Support/resistance can be used in many ways depending on other factors. They can be fade spots or they can be breakout spots or they can be nothing. It depends on other factors such as trend, volume, volatility, news how to view them at any particular time.
3. Technical patterns in noise? Any technical pattern on its own is useless. Once again in conjunction with other factors is when they can become useful. The only patterns I pay any attention too are one or two bar candlesticks and then only in conjunction with the big picture of all the other factors.
4. Technical patterns blind? No. Technical patterns are not something I generally use other than the aforementioned one or two bar candlesticks. Its all part of the big picture. I always have the news on and am aware of major scheduled news events. These are where most of the good trading opportunities lie. Wednesday is oil inventory report day and it is easily my most profitable time to trade. Then again these days that is mainly the only time I trade much. News events bring in the tradeable volatility that a technical approach can take advantage of.
5. Statistical analysis on setups. I track several setups daily in several different markets. I calculate % of times it is profitable and average winner vs. loser with a set stop limit. If a trade works 50% of the time but pays off at 2:1 or better then it becomes a coin you don't mind flipping.
6. Equities vs. commodities? I spend 99% of my time trading in commodities. I have little doubt that I could use my approach in equities as well (I do use them in stock index commodities) in some of the more active and volatile equities. But the approach would be different from stock to stock because they all have different volatility types and fundamental moves. But commodities are the same there are just fewer of them. Corn trades way different from Crude Oil or Gold or stock indexes or interest rates. They each have their own little niche and reactions. Just like AAPL trades different from GE or T or SPY. Doesn't mean a certain strategy can't be found for each or any of them.
12-15-2018
, 07:44 AM
12-15-2018
, 02:12 PM
12-15-2018
, 05:36 PM
Ok, since this is quickly turning into a TT/TS aids-fest, I'll bite here.
This isn't an approach I've been trading, rather one that I've come up with and am in the eye-balling stage. The idea is picking gap-and-go trades.
Two sets of Bollinger Bands - the blue is two SD, the yellow is one SD. The idea is to only take gaps in the direction of the gap within the yellow bands and that are at least 1 point off the close of prior day. Gaps are only taken within the 1 SD bands on the belief that gaps in potentially overbought/oversold conditions are less likely to gap-and-go. The green arrows are "winners" the purple are "losers". I use quotations there because I based this off of taking a day trade and closing before end of session, however there are some spots where if you don't mind a little drawdown, the losers come back around to winners within the next day or two.
Nearly 2:1 winners to losers from April to current on SPY... thoughts?
This isn't an approach I've been trading, rather one that I've come up with and am in the eye-balling stage. The idea is picking gap-and-go trades.
Two sets of Bollinger Bands - the blue is two SD, the yellow is one SD. The idea is to only take gaps in the direction of the gap within the yellow bands and that are at least 1 point off the close of prior day. Gaps are only taken within the 1 SD bands on the belief that gaps in potentially overbought/oversold conditions are less likely to gap-and-go. The green arrows are "winners" the purple are "losers". I use quotations there because I based this off of taking a day trade and closing before end of session, however there are some spots where if you don't mind a little drawdown, the losers come back around to winners within the next day or two.
Nearly 2:1 winners to losers from April to current on SPY... thoughts?
Last edited by CandyKreep; 12-15-2018 at 05:52 PM.