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PMT Forum's MOST POPULAR Discussion Boards => Stocks and Stock Trading => Topic started by: TSO on Jan 07, 2012, 01:19 AM

Title: Is Technical Analysis a waste of time? (Article Share!)
Post by: TSO on Jan 07, 2012, 01:19 AM
To all,

Since we're in the stock market, someone from LinkedIn just shared this CBS article to me.

Luranski and tyrone, mahalaga 'to sa inyo. Kayong dalawa ang mga adik sa technical dito eh.

Ferrari_Everest (hindi kita malilimutan pare!), alam ko FOREX ka, so posible naman na hindi sayang sa oras ang technical analysis. Pero ibig din sabihin nun na hindi masyado mabigat ang opinyon mo sa stock market (kagaya rin sa opinyon ko sa FOREX -- balewala rin lolz).

Ngayon, kasi ikaw ang isa sa mga experienced dyan sa technical analysis, sana naman tingnan mo ung papel na naka-link diyan sa article at sabihin mo sa 'min ano nasa isip mo. :D



Is Technical Analysis a Waste of Time (http://www.cbsnews.com/8301-505123_162-37840656/is-technical-analysis-a-waste-of-time/)
Larry Swedroe
26 Oct 2009

There are some investors who believe they can profit by finding patterns in historical stock prices or trading volume. These investors are attempting to profit from technical analysis. Kevin Grogan, my colleague at Buckingham Asset Management, reviewed some evidence on these strategies and found that these investors could probably find a more productive use for their time.

A recent study by finance professors at Massey University in New Zealand (http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1181367) examined more than 5,000 technical trading rules to see if they added value. The authors found "no evidence that the profits to the technical trading rules we consider are greater than those that might be expected due to random data variation."

The major contributions of this paper are:

- The paper looks at more than 5,000 trading rules in 49 developed and emerging markets. Most other studies look at far fewer trading strategies and markets.
- The paper uses statistical methods to adjust for data snooping bias.
- The paper looks at both developed and emerging markets to determine whether technical trading rules add more value in less developed (or efficient) markets. The authors found that technical analysis may work better in emerging markets than developed markets, but it was "not a strong result."

The paper's findings certainly don't cast technical analysis in a great light, especially when you also consider the findings from some other significant studies on technical analysis:

- The study "Market Efficiency and the Returns to Technical Analysis" found that profits from technical trading rules don't exceed reasonable estimates of transaction costs in the U.S. market.
- The study "A Note on the Weak Form Efficiency of Capital Markets" applied technical trading rules to the U.K. market. They found the rules profitable, but again, the profits weren't large enough to overcome transaction costs.

These studies show that looking for patterns and studying historical stock price charts is simply a waste of time. Your time would be much better spent on other endeavors.

TSO's note: all emphases in this citation are mine. The author has boldened different parts of the article.



Who is the author?

Quote
Larry Swedroe is a principal and the director of research for The Buckingham Family of Financial Services, comprised of Buckingham Asset Management (http://www.investmentadvisornow.com/), LLC, BAM Risk Management, LLC and BAM Advisor Services, LLC (and its network of independent registered investment advisor firms). He has authored or co-authored 10 books, including his most recent, The Quest For Alpha
Title: Re: Is Technical Analysis a waste of time? (Article Share!)
Post by: ferrariEverest on Jan 07, 2012, 05:10 AM
naks naman! :D
thanks for sharing & thanks for your recognition. i appreciate it a lot.

i'll try to read it later (5am na sa Pinas!) & hopefully makacomment soon... :D
subukan ko maghanap ng article/paper related to this.

sana hindi nosebleed yung article ha :D

Preface to my possible comment later...
TA works.
it works more & more as i learn, practice, improve, & experience it firsthand.
i've seen it work firsthand in Forex (mostly live trading & monitoring real-time live charts).
nakita ko rin people use it sa futures, commodities, stocks (live & demo trading). all these have charts na pareho lang sa Forex charts.

to be honest, i am now, & have been, at a stage in my trading journey wherein no one can convince me nor dissuade me against TA... i say this because i have experienced it myself -- TA works.
this tells u that i already have a solid foundation. :)
in fact, i would go as far as saying FA & VI works well too.. yun lang, i am more in tune with TA (but i employ FA & VI to a certain extent too).

thanks again, TSO. :D
Title: Re: Is Technical Analysis a waste of time? (Article Share!)
Post by: TSO on Jan 07, 2012, 06:13 AM
to be honest, i am now, & have been, at a stage in my trading journey wherein no one can convince me nor dissuade me against TA... i say this because i have experienced it myself -- TA works.
this tells u that i already have a solid foundation. :)
in fact, i would go as far as saying FA & VI works well too.. yun lang, i am more in tune with TA (but i employ FA & VI to a certain extent too).

This is why I am looking forward to your defenses against the paper. :D

Personally, I also recognize TA (mainly b/c it assesses market emotions), but only the super basic type so I can have a feel for the movement. Momentum indicators, volume, at price movement ung hinahabol ko... though I'm admittedly still a noob.
Title: Re: Is Technical Analysis a waste of time? (Article Share!)
Post by: dinaren on Jan 07, 2012, 07:06 PM
if you have other more important things to do, you have more expertise in other endeavor ( i.e. your world doesnt revolve around the trading world), and you have a continuous and definitive source of income (i.e. you dont depend on trading to put food on the table) then the answer is YES its a waste of time! lol

TA should never be complicated. 2-3 indicators that suit you would be enough. Its "nice to know" other areas of TA, but not absolute necessity to succeed in trading.

My opinion only.
Title: Re: Is Technical Analysis a waste of time? (Article Share!)
Post by: uranium698 on Jan 07, 2012, 08:53 PM
To each his own :)

Find what suits your personality.
Title: Re: Is Technical Analysis a waste of time? (Article Share!)
Post by: Archcavalier on Jan 08, 2012, 03:02 AM
Just my opinion and im still a noob...

that depends on were you want to be, for short term trade i would say that would matter but for long term holding it wouldn't matter at all what would matter would be the financial statement of the company rather than the TA. but that's only if your holding it for 2 or more years.
Title: Re: Is Technical Analysis a waste of time? (Article Share!)
Post by: kaburns on Jan 08, 2012, 12:34 PM
Dancing in the market ...
Let's do chachachart.
Hehe,
Title: Re: Is Technical Analysis a waste of time? (Article Share!)
Post by: trendmazter on Jan 08, 2012, 01:12 PM
Stocks or Forex trading is like predicting typhoons. TA are just like forecasting instruments to measure the probability of its direction and magnitude. But, the reality is nobody knows what will exactly take place. its up to the trader how to use TA for his advantage ( or disadvantage)
Title: Re: Is Technical Analysis a waste of time? (Article Share!)
Post by: tyrone on Jan 08, 2012, 05:25 PM
Di ko na binasa yun mismong study kase mahaba at technical. Haha

Para sakin, profitable ang TA (and consumes time). I can say the same for FA. :p

Mahirap i-argue ang profitability para sakin (kanya kanya kase yan, kahit anung galing pa naten sa analysis).
Isipin mo na lang baket madaming gumagamit ng TA. Yun iba years na nilaan, yun iba yun ang ikinabubuhay. Kung di sila profitable, all this time nagsasayang nga lang sila ng oras. Pero I think it's otherwise. Though I can't disagree na madaming di nagiging profitable. Ang TA di talaga para sa lahat (actually, stock market in general). May character requirements din e. Wahaha

Oh well, let' see. Di pa naman ako ganun katagal sa stock market. Malay mo after ilang months wala na rin ako sa stock market. Haha :D

Wag na tayo magfocus sa comparison ng profitability. Dapat sa safety of capital, right? haha
Title: Re: Is Technical Analysis a waste of time? (Article Share!)
Post by: GoodSteward on Jan 08, 2012, 05:40 PM
Technical analysis is a waste of time. If...

1. you are skeptical about it but still trying to learn it.
2. you learned it and don't apply it.
3. youre learning it even though youre skeptical about it.
4. you are skeptical about it but yet trying to read through stock broker's recommendations via TA

If I may add:
Fundamental analysis or Value Investing is a waste of time if:
1. All the above mentioned. +
2.The raw data and figures you gathered are incomplete/unreliable/doctored/not trustworthy.

In technical analysis, you dont have to worry about the validity  of raw data.
Title: Re: Is Technical Analysis a waste of time? (Article Share!)
Post by: rds on Jan 08, 2012, 05:55 PM
waste of time sya if you're not a trader (especially short term/swing/day trader)...

but if you are an active trader, and you don't know and do technical analysis, waste of money naman sya.
Title: Re: Is Technical Analysis a waste of time? (Article Share!)
Post by: TSO on Jan 08, 2012, 07:08 PM
@ GoodSteward

So how do you know prices in TA aren't being inflated by market manipulators?

:D

Fundamental's not the only one with the problem of misleading data.
Title: Re: Is Technical Analysis a waste of time? (Article Share!)
Post by: GoodSteward on Jan 08, 2012, 07:18 PM
@ GoodSteward

So how do you know prices in TA aren't being inflated by market manipulators?

:D

Fundamental's not the only one with the problem of misleading data.

Over-pricing / underpricing of a stock is not TA's issue, what you see is what you get with the price, whether its being inflated or not, thats why indicators help if a particular is over-sold or over bought.

In TA under price does not necessarily  imply oversold. And over price doesnot automatically mean its overbought.

TA people, correct me if my understanding is worng. FA and VI people, feel free to enlighten me too....:)
Title: Re: Is Technical Analysis a waste of time? (Article Share!)
Post by: Prospera on Jan 08, 2012, 07:24 PM
In forex trading, I find that technical analysis trumps fundamental analysis as a general rule.

That is why I don't even pay a lot of attention to news releases and base my trades mostly on what the charts tell me. Now, if only I can read the charts right every single time...
Title: Re: Is Technical Analysis a waste of time? (Article Share!)
Post by: mikoangelo on Jan 08, 2012, 08:19 PM
Some questions that can be answered when looking at charts

There several questions that you want to ask yourself when you look at a stock chart. Here they are...

.What stage is this stock in?

.Is this stock in and uptrend or a downtrend?

.Is the stock at the beginning, middle, or end of the trend?

.How strong is the trend?

.Where are the trend lines?

.What wave is this stock in?

.What do the moving averages tell me?

.What does volume tell me?

.Was there a breakout recently?

.Is the chart "smooth" or "sloppy"?
   
.Are there any chart patterns?

.Are there wide range candles in the direction of the trend?

.Are there any gaps in the direction of the trend?

.Are traders selling strength or buying weakness?

.Where are the support and resistance areas?

Nanggugulo lang  :hello:

http://www.swing-trade-stocks.com/read-stock-charts.html (http://www.swing-trade-stocks.com/read-stock-charts.html)
Title: Re: Is Technical Analysis a waste of time? (Article Share!)
Post by: gavinogaw on Jan 08, 2012, 08:43 PM
No, TA is not a waste of time. Mas komportable pa ako dito kesa sa fundamentals. On technical analysis, kasama na sa price action ung lahat na ng variables sa trading.

At the end of the day, ang mananalo ay ung sentiment ng nakararami about sa stocks, hindi ung negative or positive news about them. Just my two cents.

 :watchuthink: