"Your business is with the tape" J. L. Livermore Price and volume action is someone acting ahead of fundamentals that are not in the public domain. Most people crave explanations and won't act without one. If you can act without the reassurance of an explanation you are ahead of the crowd. Explanations come at best when the low risk entry is long gone, at worst as an aid to dumping the stock on the suckers. Insiders accumulate in silence and sell into a wildly cranking newsflow machine.
I appreciate all the feedback here. It's really, truly helpful. I'm quite glad I signed up on these forums. I'm just finishing chapter 10 of 'The Investor's Guide to Technical Trading' by Curt Renz. It feels like a good primer on the basics of Technical Analysis, and although I know it just covers the basics, it is pretty easy to follow and appears to drive home the most critical points. What other books on TA would everyone recommend? TIA.
Hey, good to have you on the boards, hope we all can help you out. If you want my opinion, here it is. (Most will not agree) The ability to apply technical/quant analysis will only get you as far as how fast/effective you can compute calculations. I would suggest learning some math that is related to the type of technical analysis you are doing. I think the best way to learn TA is to study one aspect(indicator) of it and test it out over and over again. Learn that indicator, and test it out as much as you can, then move on to the next indicator. Hope this helps. -Kastro
Reread the responses in this thread . . . TA is Price, Volume and Time (Chart increment) analysis. Indicators are NOT the foundation to TA. Neither is quantitative analysis (MATH). Both are after-thoughts but when QA is used incorrectly, (or without many years of experience) it is more harm than help. The problem with 95% of the traders out here, (coincidentally that is the failure rate) they expect to pick up a small stack of books, inhaling them over evening TV, spending a small wad of cash on a computer, ineffective software, a cheap datafeed and covering wrong trades and then expect that in no more than 6 months to turn into the be-all-end-all-trader-extraordinaire. Learning this environment takes patience, focus, determination and about 3 years of screen time. Now is where I get, "you're crazy!!" Well, maybe I am but 95% of the individuals that try to learn this environment fail and there is a reason for it and the reasons are listed above. I personally wish that every trader that ventured into this environment succeeded in one form or another but the truth plays out each day. The problem is that no one wants the truth they want people to blow smoke up their butts and to tell them how easy this is. This field takes sacrifice and it is a rare individual that has the balls to weather through that sacrifice to learn this wonderful environment. Good luck to you and may all the good fortune in the world be in your favor. My word of advice . . . eliminate the variable from your trading environment! If it doesn't make common sense then it isn't.
if fundamentals change drastically then the change will first be seen in charts. and TA indicators will pick it up. look at Enron, Worldcom. any TA idiot would have seen these stocks go below their 200 day MA before management decided that the companies where bankrupt. The problem with FA on stocks is that accountants tend to manipulate the numbers on their books to make FA look a little more enticing to institutional investors. Profits can be inflated, debt can be hidden off balance sheet these can all be done legally. i tend to work on the assumption that a change in FA will result in a change in TA given enough time. In regards to QA i love it. i have a strong maths background in statistics and i find that QA works a complete treat if you can spend the time researching. However u need to learn the limitations of any type of analysis and understand that in the end it is risk managementm risk management AND risk management that will ensure ur a successful trader. no matter how good ur TA,FA,QA analysis if you dont cut your losers before they morph into bank breaking margin calls. P.S i trade a Math based contrarian strategy in futures. Risk management is key to me, mathematics is fallible (LTCM) and contrarian strategies can go terribly wrong (Victor Neiderhoffer). No matter which method u eventually use, get a very good book on risk management and read it at least 3 times. Also use index CFDs to begin with and trade with an amount that wont hurt if you lose. i started trading with a $3000 on Index CFDs on the SPI200. The tick value was $1 per tick. i could afford to lose basically half the index and no get a margin call. Build confidence in yourself and your strategy before you venture out to full blown contracts. A blackjack card counter plays the lowest limit tables before he hits the $100 tables and trading is no different. start with small contracts, u can always scale up once your successful
I'm sorry, but I'm not following exactly. Are you saying that Technical Analysis is not, in and of itself, a reliable indicia of any given stock's likely direction?
No, it is but it takes dedication to learn to not only understand it but to learn to use it. There are a lot of distractions along the path to learning it and it takes a strong individual to stay on that path. Sorry I wasn't that clear. I agree with SPIder as well.
I think Bill O'Neill and his CANSLIM method brings FA and TA together in way that understood very easy. He explains how the stock market works in the real world. How reading and understanding the charts gives you constant clues as to what is going to happen with that stock price. Increasing revenue and increasing profits, quarter over quarter, is the key. Revenue hard to screw with. Profits a little more deceptive sometimes. I am now aware of a "trader" who has done better than he has over the years. SteveD
This is an excellent point. You need to observe the markets (screen time) and THEN you find an indicator that helps you pinpoint a specific market behavior that you have observed. 99% of traders approach it in the exact opposite way, looking for some magic indicator. I traded with a very successful trader who used MACD only. If you took that indicator away from him and gave him RSI or any other momentum indicator, he would be up and running in short order. You need to know WHAT you are trying to do before applying an indicator. The indicator is just an aid in trading a pattern/condition/setup you have already identified as your edge.