A problem with Technical Analysis?

Discussion in 'Technical Analysis' started by BenChi, Jan 20, 2007.

  1. BenChi


    One of the problems I see with using Price to gauge the strength of a market is that it does not give the technician any sense of value. If you put on a position based on the strength of a market as determined by its price, you have no reason to have any confidence in your position as it runs against you. The position running against you means that the market is now acting 'weak' thus eliminating your original reason for putting on the trade.

    If markets reward those who are able to go against the crowd - if they reward those who are able to stick to their guns in the face of adversity - then traders need to have enough confidence in their analysis to hold their positions in the face of adversity and adverse price movements- imho price action alone does not suffice.

    -ben :cool:
  2. It's not a problem with TA but with the technician. A chartist views "value" in a different way than a fundamentalist. If the trader is combining TA and FA, then he will be defining "value" in ways that likely are different from traditional TA and FA definitions. This is not, however, a "problem" with either TA or FA.

  3. Do you have a consistent way of defining "value"? Technical analysis should determine when you enter a trade. Money management should determine when you exit, especially with losers. Don't confuse the two.
  4. BenChi


    part of what i'm saying is that money management is not a good enough reason to give up on a trade (within reason of course)

    there are consistent ways of defining value, and if you have one then you can make the distinction between when to cut a loser and when to double down....
  5. BENCHI----Make up your mind. If you knew when to get out of a loser and when to add-on to it, you're saying that you can precisely forecast the market, it's just that the first trade was wrong but the second trade won't be. Sometimes doing that will work out. Eventually, you'll get steamrolled and regret doing that. Money management prevents that.
  6. BenChi


    "BENCHI----Make up your mind. If you knew when to get out of a loser and when to add-on to it, you're saying that you can precisely forecast the market,"

    I don't see how i'm being inconsistent here - i didn't claim to be able to forecast the market - all i said was that i did not think that price action alone was enough of a basis to make a decision because one would have no basis on which to hold a position that has run against them

    - if one understands enough to have a fair sense of an insturments value - then one can determine when to hold on because it is undervalued, or cut because value has fundamentally changed.
  7. Years ago I thought that if you just did what Goldman Sachs did you would make money. I use to pick a stock and highlight GS on the level 2. See where his buy and sell orders were. Problem is of course he frequently changed them so you couldn't never really piggyback of him. Plus I never keep up with it long enough to learn anything, if there was anything to learn from it.

    For fun, get a few stocks where GS a market maker and observe where his buy and sell orders are. You will find that they are generally at highs and lows of the day so far. Sells highs, buy the lows.

  8. The point of TA is trading on price action, if you are long and suddenly price action turns weak, you just exit or go short, you would not refer to fundamentals or other means of "value" to see if you would hold or do otherwise. Often you'll see people get into a position based on TA, and then rationalize the inability to take the loss with FA or other excuses, not the best way to implement either methodology.
  9. kevinmr


    I do not have an opinion about the topic of your post but I think your statement about "reward" should be restated. I think it should be sated as follows: "markets reward more those who are willing to accept more risk". Going against the crowd is not necessarily taken on more risk and therefore greater rewards should not be expected.
  10. Also, make it a practice to look at stocks that were up big and down big on the day. Check out the news. Learn what news drive these stocks. Some news is fadeable some news is not at least for a day or so.

    Check out the big up and down stocks for news and also put a rsi14 on a 15 minutre chart. You will find that if it gets above 93 to 95 on the first 15 minute bar you can generally fade that. If it only gets to 90 or so, wait 3 or 4 bars and see if it can make a higher high with divergence on the rsi. A lot of times, if not most it is done when it gets to 90 and you never get a chance to get in.

    The objective is missing out on the train wrecks. It's ok to lose, just don't get slaughtered.

    #10     Jan 20, 2007