I read in the CFA texts that Tech. Analysis is really reliable. I also have heard this in a few of my finance courses. I’ve only been in the biz for about 5months, so I’m not really up to speed with many things. Does TA really work? If so. Does it work because it actually explains things or does it appear to explain things. I guess what I mean is that, is TA a self-fulfilling prophecy? Is TA just essentially “smoke and mirrors.” Does it just tell a great story, connecting X event to Y event in a stock by using Z indicator, but at the end of the day it was just all a coincidence. Sorry if my questions are hazy. Thanks.
As is the case w/ many finance models/strategies, it’s much more an art than a science. It helps you to paint a picture of trends, momentum, cycles, etc. Just like fundamental value models, the assumptions and interpretations require a seasoned eye w/ a bit of luck/intuition/experience (or whatever you want to call it) to get from the picture it paints to an actionable strategy
"I read in the CFA texts that Tech. Analysis is really reliable. I also have heard this in a few of my finance courses. " Are you sure you read that correctly? CFA loves to say TA is NOT reliable through all forms of EMH. http://www.analystforum.com/phorums/read.php?1,638044,page=1
if there’s anything i learned about TA from the level 1 curriculum it’s that it’s completely useless
If there is one thing I have learned in finance, it’s that you can make good money with TA. I’ve been around billions made with TA. That trumps anything anyone has learned in L1.
it works…i can talk about it for dayas, but wil spare you. most CFA types are too anal to believe it, thet want to think their fundamental work is the only thing that works, but just keep laughing at them… it worked for me, and it works for tim sykes http://www.wallstrip.com/2008/01/25/1-25-08-wallstrip-chat-timothy-sykes/
I agree. I know a 25 veteran TA devotee who makes a killing and has a huge following
JoeyDVivre Wrote: ------------------------------------------------------- > If there is one thing I have learned in finance, > it’s that you can make good money with TA. I’ve > been around billions made with TA. That trumps > anything anyone has learned in L1. i was refuting the claim that cfai glorifies TA, not TA itself but thanks for the schooling moneybags
TA is: Another valuable tool in the toolbox. Another strategy in the game. Another perspective.
How do one brush up, or gain more insights, on TA? Theres Warren buffet for the fundamentals. Is there a god for TA?
I guess the only way to find out if it is coincidence or not is to find if the net TA gains are less than or equal to the net losses by TA devotees (taking into account a normal profit that is). I have never heard of anybody doing this - most likely because nobody like to admit that they have been creamed using an investment strategy of their own construction. People make money using it so there might be some true merit to it, but without conclusive proof. Kind of like my views in god - I don’t believe it him - but there is no point pissing him off just in case he is there. 
My point of view anyway.
^ If a PhD in stats who worked as a risk manager at a multi-billion dollar hedge fund believes there is some merit to technical analysis…I take that as a decent indicator that technical analysis works.
ancientmtk Wrote: ------------------------------------------------------- > How do one brush up, or gain more insights, on > TA? > > Theres Warren buffet for the fundamentals. Is > there a god for TA? I read, “Technical Analysis For Dummies” and I liked it!
combine fundamental analysis with technical analysis and you’ll get a solid tool to pick stocks. combine that with behavioral finance (analysis of market psychology), then I believe, you’ll have the holy grail.
I’ve seen a lot of people who use it and have made money, but I agree… how do you know the reason the investment worked was because the conclusion you reached through technical analysis? You could say the same thing about fundamental analysis, but if 90% of the market is looking at fundamentals, then it would seem that any discrepancies between price and value will be found and eliminated. I am not sure the market has any self-correcting mechanism for TA. I’m not saying it doesn’t work, but I have no idea how you would evaluate its effectiveness. aussie_jaco Wrote: ------------------------------------------------------- > I guess the only way to find out if it is > coincidence or not is to find if the net TA gains > are less than or equal to the net losses by TA > devotees (taking into account a normal profit that > is). > > I have never heard of anybody doing this - most > likely because nobody like to admit that they have > been creamed using an investment strategy of their > own construction. > > People make money using it so there might be some > true merit to it, but without conclusive proof. > Kind of like my views in god - I don’t believe it > him - but there is no point pissing him off just > in case he is there. > > My point of view anyway.
Aren’t business cycles a technical indicator? Also, if you see two planes crash into the twin towers…how good will your fundamentals from your 10K reports be in predicting short term price movements? “If you looked at a stock price that’s been going up steadily and another stock price that’s going down steadily, which would you rather have. Most of the time, the former has a decent chance of going up and the latter has a decent chance of going down.” (paraphrasing from JoeyDVivre) Assuming you use your earnings reports, etc…who is to say: - that information reflected reality (look how much you can mold financial reporting…I know this even as a mere L2 candidate), - your analysis is correct (there’s much ambiguity in fundamental analysis and there’s a wide range of analyst talent), and - you will take the appropriate investment action (assuming that the previous two points matched everyone else’s, will 1000 analysts make the same investment decision?). There is more technical thinking in fundamental analysis than meets the eye. Furthermore, the degree of subjectivity inherent in fundamental analysis rivals that of technical analysis. There is both an element of art and science in both fundamental and technical analysis.
What makes you think that fundamental analysis works? Do you really believe it does?
ST - TA or FA LT - FA both - BA
Dreary Wrote: ------------------------------------------------------- > What makes you think that fundamental analysis > works? Do you really believe it does? That’s a good way to phrase the question as well.
Yes, sometimes I wonder if fundamental analysis really works, either. Maybe it’s all luck. The point I was trying to make though is that if 70+% of the market (I have read that number before from a credible source) is using one system (i.e., fundamental analysis), then it would seem that you might be able to learn that system and apply it toward successful results through practice and hardwork. Clearly a number of market participants are reacting to news / developments in a particular way, so if you can figure out what that is and predict it with some level of reasonable certainty, then you are in good shape. I am not sure you can say that same about TA if only a handful of people are using the system. How do you know if it is working? If you think the chart is sending you a buy signal and you buy and then the stock goes up, does that mean TA worked? What if you do the same experiement but instead you flip a coin? Is that technical analysis? I’m not arguing against TA, I just don’t know. There is probably some uber-quant method of looking at it, but I have no idea what that might be. Honestly though, I have a couple of years of experience and passed the CFAs exams and I still have only a small idea of what works or doesn’t work. Thus far, my best stock picks have been with companies that are experiencing what seem to be short-term operating issues that disrupt otherwise good businesses with strong cash flow metrics. If the operating issues appear to be reversible (improve fairly quickly), then you might have a good pick in front of you. I can’t prove that is why the stock picks have worked, but I have seen it happen enough times to believe that there is something to it (I know I’m not alone on this, either). Of course the definitions of “good” and “strong” could vary considerably.