Financial Times article: Technical Analysis is Rubbish

counter · Jul 6, 2008

what is tape reading

IndexSwing · Jul 6, 2008

Proper TA is not about predicting the future it is about understanding the current condition of the market. A trader or investor who is not interested in the current condition of the market is like a doctor who is not interested in his or her patients temperature and heart rate.

oraclewizard77 · Jul 6, 2008

Of course its about predicting the future. However, one can not predict the future with a 100% win ratio, so most will say that TA does not work.

IndexSwing · Jul 6, 2008

I believe that proper TA is about the relationship between the present and the past. The chart does not extend into the future. It shows the present and the past. Just like weather you can make some limited assumtions about the future based on the present. For example, if I say that it is sunny and warm outside, there is a good chance that it will aslo be sunny and warm in 1 hour.

Arnie · Jul 6, 2008

I think the writer has demonstrated his ignorance on quite a few market related subjects. No one else caught that?

jack hershey · Jul 6, 2008

Quote from ByLoSellHi:

http://www.ft.com/cms/s/0/930127b0-44a7-11dd-b151-0000779fd2ac.html?nclick_check=1

The heresies and swamis that can hurt your portfolio

By John Train

Published: June 28 2008 04:25 | Last updated: June 28 2008 04:25

There are several heresies in the investment business that can harm you if you believe them. One is astrology. Probably almost no Financial Times reader will be troubled by that one, but you would be surprised how many readers of fashion magazines and the like give it attention.

Another is âtechnical analysisâ â the idea that by studying the shape of the marketâs wiggly lines you can predict the future. Famous âswamisâ have arisen, such as Joe Granville and James Dines whose pronouncements would move markets. Yet it has been only a matter of time before they crash and burn.

A further heresy is the efficient market theory â the notion that since everything is known about the stock market, shares are at all times priced to reflect that knowledge, so there is no need to bother about the facts â just go with the flow. You cannot predict who or what will do better long term. In a public debate with the most famous proponent of this theory, I pointed out there were consistently better investors, like consistently better chess players. Consider Warren Buffett, who was the first chapter in the first book I wrote on great investors. The famous proponent replied that it was easy for Buffett, because he wielded so much capital that he bought whole companies, a capacity denied to most of us. Nonsense! Buffet himself often pointed out what an easy time he had putting smaller amounts to work when that was all he had. In fact, he has declared that he approves of the professors who espouse the efficient market theory, because they create more opportunities for him.

Still another heresy that can cost you money is modern portfolio theory. It holds that rather than trying to understand companies and what they are worth, you should determine in advance what the market is going to do, and then buy the companies that will go up when what you have determined comes about. You establish coefficients for the companies within each category, so that if, for instance, the car sector is ready for a kick, the most volatile car stocks will be the ones to buy. But the most volatile companies are often the most weakly financed, so if business turns bad or the market heads south, they may be shot right off the board. Thus, a heresy, although still quite popular in certain theoretical circles.

Yet another is the traditional desire for liquidity in all parts of an endowment portfolio, even though the principal of the portfolio will never be needed â only a 5 per cent a year draw, say. A handful of the greatest contemporary investors discovered this truth some years back and began with success putting endowment money into real estate, private equity and other illiquid assets. Jaws dropped on Wall Street when it was learned that Harvard, one of the most successful endowments, had put 8 per cent into timber, including forests. Forests! They are highly illiquid, but have charming long-term investment characteristics.

A few years ago there was a bad heresy, which I will call the âMac Bundy conceptionâ. That remarkably clever man, then head of the Ford Foundation, let it be known that since the market had been rising steadily, foundations and endowments should assume this would continue, and spend more capital annually â more than the increase in the dividends they received. Under some circumstances there could have been merit in this notion, but by the time it was over the Ford Foundation had lost three-quarters of its capital, and many institutions had taken a terrible bath. Never assume that a portfolio will increase faster than the underlying earnings.

Todayâs heresy â which I find particularly annoying because it is so lazy intellectually â is claiming that volatility equals risk. What rubbish! Risk is when a company goes belly-up, a currency goes against you, or a country turns sour, such as Cuba; that is, the possibility of permanent loss of capital â which has nothing to do with inevitable fluctuations of the market.

Here is an example. Suppose you like living in your house, hope to live in it for 20 years, and do not want to sell it. It will get more valuable over time, and is thus a good investment. But suppose you constantly priced it in a thin market, and one year it was up, and another down. Does that make it risky? No. As Buffett says, better a lumpy 14 per cent than a smooth 12 per cent.

So what should you do? Buy a stock that, like your house, you know all about and would happily own at that price, in the absence of any market.

The writer is chairman of Montrose Group, investment counsel in New York. He is the author of âMoney Masters of Our Timeâ, âThe Craft of Investingâ, and other books. jtrain@montroseny.com

Copyright The Financial Times Limited 2008
More...

I attached an over write for the heck of it.

Rtrader2525 · Jul 7, 2008

Quote from counter:

what is tape reading
More...

watching the order books seening what is bouvght and sold. It's very time consuming and takes years to fully grasp

gnome · Jul 7, 2008

Quote from oraclewizard77:

Of course its about predicting the future. However, one can not predict the future with a 100% win ratio, so most will say that TA does not work.
More...

One of the dumbest things I ever heard on CN-BS (and to be dumb-EST, it's really got to be SOMETHING).... "... You can't predict every high and low in the market with TA, therefore technical analysis doesn't work..."

A lot of IFs in that statement...

bighog · Jul 7, 2008

As a young lad i thouight sex was overrated until i got the first jump. Just the opposite for trading though. In the beginning i assume every trader unless mentored by someone that knows better starts out with the fundamentals and gradually swings over the railing and uses technicals.

Today technicals are ONLY used. A trader becomes a pure technical trader when he/she has "ZERO" bias of direction outside of what the charts are showing. -AND- if the trader is not trading noise. Knowing the difference between trading NOISE and your GOLD signals is what seperates the men from the boys and gals of class from bimbos.

many a priest has been down the same road. Many defrocked after tasting the fruits of the other sex.

Cutten · Jul 8, 2008

Quote from counter:

what is tape reading
More...

Watching prices of various stocks and markets in real-time over a period of time, and trading off what you observe.

Log in or Sign up

Financial Times article: Technical Analysis is Rubbish

counter

IndexSwing

oraclewizard77

IndexSwing

Arnie

jack hershey

article over write.doc

Rtrader2525

gnome

bighog Guest

Cutten