TA - Self-fulfilling prophesy?

OddTrader · Dec 1, 2003

Quote from rodden:

TA Feedback may eventually make the system so complicated that it becomes incomprehensible - and ripe for collapse.
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Worry about it later, not today - at least!

OddTrader · Dec 1, 2003

Quote from rodden:

My main point is that TA Feedback is stressing the system and may lead to strange market developments.
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Complex feedback systems:

http://www.albany.edu/cpr/sds/

harrytrader · Dec 1, 2003

TA has always been predominant in the past also:

In 1994 a paper untitled "Why diversification doesn't work" a hedge fund manager reminds that financial thoughts split between three schools: Fundamental, Technical and Quant. He remarked : "Until the early 1970s, the fundamental and technical schools supplied the ideas and methods that sophisticated investors used to make decisions. But recently, the Quant school has captured the Bulk of academic and professional attention."

And it is not only self-fulfilling prophecy because my model is based on RATIONAL model NOT OF THE CROWD but of THE "INVISIBLE HAND" so the crowd just follow. This is a DUAL REALITY and you only see one facette (in fact you only see the SHADOW of the other so that's it is FUZZY) the other is yes INVISIBLE to you that's why it is so funny for me : I have only applied my model to present (see "how the 1st day of the month of November packed information for half of the month" http://www.elitetrader.com/vb/showthread.php?s=&threadid=24706 & http://tinyurl.com/x6hj) and not to so far past yet .
BTW my problem would be to see if my model worked the same in the 1950/1920 . I'm still looking for datas that are reliable: yahoo is bugged for that I don't trust them.

Quote from rodden:

Once upon a time TA was simple - and it worked. When TA traders referred to simple consolidation patterns, multiple tops/bottoms, volume-trend patterns and other such unsophisticated chart phenomena they had a definite advantage over the general - and generally disorganized - investing population.

Today, almost all transactions are guided by TA considerations (eg.: what fund is managed by the TA-ignorant?) and, for practical purposes, the trading population has distilled down to funds managers and professional 'day-traders'.

Today we have hundreds (thousands?) of TA terms in the trading lexicon; one requires the equivalent to a Ph.D. to comprehend it all.

Proposition: Today's market action is increasingly distorted by way of a feedback loop between the markets and TA application. The markets collective is in a state of transition from what it was to what it will be; what it will be is literally anybody's guess. I'm talking a change in the identity of the system here - and if you're acquainted with Chaos Theory 101, you know that that means danger!

The original basic psychology behind TA has been replaced by a still admittedly inchoate but ever-increasingly organized body of recondite theory; the markets are tending to become a balloon ungrounded in reality.

For example: The Fibonacci series is a pretty little progression, but why on earth should it be applicable to market action? What has it to do with market psychology? If it does work, it's because it indicates that the market is becoming more and more an internally-referencing mathematical phenomenon and less and less a function of grass-roots investor perceptions.

No wonder RSP season is losing its impact.
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rodden · Dec 1, 2003

Quote from formikatrading:

Okay, I think I may now understand your point a little bit better. For example, people used to buy stocks with a major focus on dividends. From that standpoint, fundamentals mattered. Now it is just generally accepted that everyone should invest in the stock market because it always goes up in the long-run, and with 401k's, IRA's, etc., a much larger part of the population is "in the market" now in comparision to pre-1980's/1990's bull market. I could go on and on about this, but I just want to see if I'm getting closer to your point.
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Yes, you are.

And how about those derivatives? Who knows how they'll play out long term?

rodden · Dec 1, 2003

Quote from OddTrader:

Worry about it later, not today - at least!
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Sounds like you're not finding things overwhelming yet.

rodden · Dec 1, 2003

Quote from OddTrader:

Complex feedback systems:

http://www.albany.edu/cpr/sds/

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Thanks.

Just added this site to my favorites. I'll check it out it in detail later.

OddTrader · Dec 1, 2003

Quote from rodden:

Sounds like you're not finding things overwhelming yet.
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No, the things I found are not overwelming!

PS: They are actually better.

rodden · Dec 1, 2003

Quote from harrytrader:

TA has always been predominant in the past also:

In 1994 a paper untitled "Why diversification doesn't work" a hedge fund manager reminds that financial thoughts split between three schools: Fundamental, Technical and Quant. He remarked : "Until the early 1970s, the fundamental and technical schools supplied the ideas and methods that sophisticated investors used to make decisions. But recently, the Quant school has captured the Bulk of academic and professional attention."

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OK, Harry - TA has been around for a long time, but like all technical phenomena, it develops at an exponential rate. The TA of 1970 would seem pretty naive by today's standards. Soon today's TA environment will be 'the good old days when things were so simple'.

My argument is that TA will eventually become so complex (and I know complexity/simplicity is one of your interests) that it will be unmanageable.

When TA gets to this level of difficulty, it will be handed over to computers; then we'll be in real danger.

rodden · Dec 1, 2003

Quote from OddTrader:

No, the things I found are not overwhelming!

PS: They are actually better.

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So the complexity hasn't bothered you yet - but keep an eye on how the investing public views what's going on. I think they are less enthusiastic about the market than they would be if it were more comprehensible. The U.S. economic fundamentals are fantastic, but let's see how this RSP season goes.

oddiduro · Dec 1, 2003

Quote from rodden:

I think that our ponderings might be more applicable than mere philosophical rambling. If you accept the notion that the whole market collective is drifting away from fundamentals (and it appears that you do) you won't be as inclined as those who take the current market rationale seriously to be taken by surprise by seemingly irrational future developments.

Sooner or later fundamentals prevail over theory.
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Drifting away from reality is when I bought some RMBS at 480 and sold it at 520, in one day. That stock had 30 point daily ranges back then.:eek:

But you are right, fundi's do win out in the end. But TA can make an awful lot of money before that

I don't care too much why it works, sad to say, I just want to know what other traders watch, and act accordingly.

Regards
Oddi