Hi, I'm interested to know how economists or fundamental analysists feel technical traders fit into the greater scheme of things. Very often a technical trader will be going against the overall fundamental picture. If enough traders are trading this way is it enough to halt a natural fundamental move? I believe markets are there to meet the needs of fundmental decisions. Such as U.S increasing interest rates the FX market is there to allow people to transfer their savings into dollars to make the most of the increased yield. The thought that people only use an exchange to put squiggily lines on makes it seem a little bit pointless having a market, im not arguing whether it "works" or not im just saying how is it any different to a strategy to use in vegas? I dont mean this to sound like a traditional "which is best technical analysis or fundamental". My question is to those of you more experienced economists, has their been a negative impact on fundamental trading since the rise of technical traders? Or in your opinion do they compliment each other? If in your opinion they dont compliment each other where does this leave the world of economics if more and more people make financial decisions not based on sound reason but computerised algorithms? I'd appreciate the insights of somebody clever enough to see the markets from an economic standpoint
Many market technicians do not use squiggly lines but I do understand your point. They all can compliment each other or you may not know what you're doing and the result is that they don't compliment each other. Just remember this, many of the best market technicians also use economics/fundamentals. Yet, arguably some folks prefer to see them as economists or fundamentalists that use technical analysis. Also, world economies are decided by people making economic decisions and fundamental decisions and political decisions...not decided by technical analysis.
You can have a fundamental, economic view but IMO, technicals tell you when to act on that view or whether that view is gonna materialize at all.
Technical traders provide liquidity to the markets. Beyond that they rarely act in concert against some "natural" fundamental move. Technical traders disagree with each other as often as economists disagree. I'm a trend follower, which means I can only do what the market is already doing. It is no coincidence that trend following is the most successful form of technical trading. We don't try to predict trends or reversals or catch them right at their beginning. Only when a trend is underway can we act, and predicting that something will continue doing what it is already doing is the easiest prediction of all to be successful at.
The Dangerous Mathematical Con of Hedge Funds and Financial Advisers http://www.psmag.com/business-econo...ical-con-hedge-funds-financial-advisers-79212
I thought it was common knowledge that there is a disconnect between financial markets and the real economy. For instance, low rates will typically inflate the stock market, but it may not reflect a recovery in the real economy. I believe technical traders influence the daily price fluctuations rather than the long-term evaluation or trend if you will. All economic theory says that if prices are overvalued, informed players will come in and sell, bringing prices back to (perceived) equlibrium. You don't need to state your personal beliefs. The fact is that markets serve different functions. However, for the stock markets, the main function is to provide funding for corporations. The value (or future value) of those corporations are supposed to be reflected in stock prices, but we all know that's not true, at least a lot of the time. In futures markets, the main function is hedging risk. In currency markets, you buy and sell money.
What a joke. The author calls "elliott wave" math jargon. Perhaps ryan should stick to crime reporting -- Ryan Jacobs is a magazine journalist who tracks crime, intrigue, and science, especially when they collide. Also: the eccentric and the esoteric. Bonus points if they all converge at once.
Fortunately the article is not about Elliott Waves. Of course I'll concede his reason to reject them as "too gaudy" shows a fundamental misunderstanding for why they should be rejected. The question is whether the author's mathematical illiteracy extends to his exposition of the main topic (overfitting) to a degree of passing on misinformation to the readers. I confess I've never heard before that you can have too many data points (or "trials" as he calls them). Too many parameters, sure. Too many data points? That's a new one for me. Overfitting is a serious problem that needs to be addressed.
Let's say today is the day that the Fed decides to raise or not raise interest rates and they plan to release a report to the public. The report says that they will raise interest rates. For the most part a higher rate equates to a stronger dollar. So this will cause the price of the EUR/USD to fall. Technically, this can be traded different ways. Some traders and computers use news services to try to get a jump on the report. Price falling will cause a breakout trade. Also, many times this information is already in the price as certain insiders have access to the reports and have already started to place their orders creating a trend. As a TA trader I try to keep the overall picture in my head when trading so that you can have one extra confirmation when you see a setup. TA trading that works is based on statistically analysis not on using non working indicators like MA crossovers. Some people who don't agree with TA really don't understand that there are many different ways to use TA and we are not all using non working indicators to make trades.
Technical traders are basically irrelevant other than adding some cash to the system. 1. HFT is built upon the random walk hypothesis 2. HFT is the majority volume provider in the market as well as the most successful trading tactic ever implemented. 3. Therefore technical patterns are irrelevant as the primary volume creator is designed with the random walk as its core idea. surf