Technical Analysis Stocks

[robertbanking]

Hello you wonderful and intelligent people that make up this forum. I sincerely hope you are having a nice weekend and doing well.

I was reading a book recently that put alot of emphasis on Technical Analysis, looking for chart patterns in bull markets to know when to buy a stock. As it mentioned that even stocks with strong fundamentals and growing earnings, can act unpredictably, such as falling. It made me wonder why do we research companies so much, the stock market seems to move depending more on the economy, bull market cycles and the volume in a stock. Do you think it would be important to put more emphasis on the Technical Analysis side of things please? I would be forever grateful and thankful for your support with this it would mean the world to me.

It got me wondering when i am researching companies and buying stocks with growing earnings, good business models, but the share price falls and does not act rationally, why not just focus on the Technical Side. The economy, unemployment levels, chart patterns, are we in a bull market etc this side of the market.

Sending you lots of good wishes and thanks to all the amazing people on this forum who are wonderful. Hope you have an amazing life and all the best to you as always.

[mc2fool]

There is a Technical Analysis board on The Lemon Fool, although the lack of activity on it I guess kinda indicates the level of interest in TA here.

There are undoubtedly a large number of factors that affect the stock price of a company, although actually they all end up boiling down to just one -- sentiment. Of course, there are lots of factors that affect sentiment.

Whether it's predictable, at all or to any degree, by staring at charts is something that is much argued about and disputed, and certainly well beyond my pay grade.....!

[LooseCannon101]

'Technical Analysis' is complete bunkum! It is used by people who like to fool themselves and the investing public that there is rhyme and reason to market moves. The latter is more often than not caused by sentiment which changes by the hour.

Just because a stock has doubled in value, why should it continue to go higher? Earnings growth i.e. Fundamental Analysis' is the only way to value a stock, especially if you are holding it for a year or more. Mr. Market can be irrational at times, but inevitably 'mean reversion' will kick in.

[Dicky99]

'Technical Analysis' is complete bunkum! .

Surely not entirely bunkum since algorithm trading is certainly a thing and the buy / sell algorithms must be based on something.

[GoSeigen]

'Technical Analysis' is complete bunkum! It is used by people who like to fool themselves and the investing public that there is rhyme and reason to market moves. The latter is more often than not caused by sentiment which changes by the hour.

Just because a stock has doubled in value, why should it continue to go higher? Earnings growth i.e. Fundamental Analysis' is the only way to value a stock, especially if you are holding it for a year or more. Mr. Market can be irrational at times, but inevitably 'mean reversion' will kick in.

And this is also illogical bunkum. First it claims that there is no "rhyme and reason to market moves". then three sentences later claims that "inevitably 'mean reversion' will kick in."

If you can find any pattern in human behaviour (of which setting stock prices is an example, and remember it only takes two people to set the price) then TA has some merit.


GS

[vand]

TA certainly isn't "bunkum", however I am not convinced that the more complexity you apply the more useful it is. Simple TA rules such as respecting the 200dma or patterns of higher highs and higher lows/lower highs and lower lows to firmly establish trend are probably the most useful.

[mc2fool]

'Technical Analysis' is complete bunkum! It is used by people who like to fool themselves and the investing public that there is rhyme and reason to market moves. The latter is more often than not caused by sentiment which changes by the hour.

Just because a stock has doubled in value, why should it continue to go higher? Earnings growth i.e. Fundamental Analysis' is the only way to value a stock, especially if you are holding it for a year or more. Mr. Market can be irrational at times, but inevitably 'mean reversion' will kick in.

And this is also illogical bunkum. First it claims that there is no "rhyme and reason to market moves". then three sentences later claims that "inevitably 'mean reversion' will kick in."

Yes, that is a bit ironic, isn't it! And what is the supposed "mean"? A mean is an arithmetic average, so is this referring to the 100 day moving average? 200 day? 1 year? 5 year? Or does one just print off a chart and try and draw a best-fit line through it?

[Lootman]

TA certainly isn't "bunkum", however I am not convinced that the more complexity you apply the more useful it is. Simple TA rules such as respecting the 200dma or patterns of higher highs and higher lows/lower highs and lower lows to firmly establish trend are probably the most useful.

I do not use TA to determine what to buy or sell, but I do always look at a chart to determine my entry and exit points. There are often long periods of time where a given security has support and resistance levels, and they can be useful for choosing strike prices for call and put options, where to set limit or stop orders etc.

One can take the view that the price action can reveal underlying factors that are not public yet, such as insider buying/selling. If a share is moving down each day whilst the market is going up, then that is a negative even if the fundamental reasons for that are not known yet. A chart can be the first indicator most market participants get that there is something material going on behind the scenes. For much the same reason many traders look at unusual volumes of options buying.

[LooseCannon101]

'Technical Analysis' is complete bunkum! .

Surely not entirely bunkum since algorithm trading is certainly a thing and the buy / sell algorithms must be based on something.

Is algorithm trading another term for 'front running' where information is made available to a trader and/or program before the general public?

I would say that the only way to consistently win as a day trader is to cheat.

[LooseCannon101]

Here is a You Tube video debunking Technical Analysis -

https://www.youtube.com/watch?v=egjfIuvy6Uw

Warren Buffett also thinks that it is a complete waste of time. He quotes Benjamin Graham's book 'The Intelligent Investor' - especially Chapter 8 (The Investor and Market Fluctuations). I have read and re-read this book many times and totally agree with the following conclusion -

'The most realistic distinction between the investor and the speculator is found in their attitude toward stock-market movements. The speculator's primary interest lies in anticipating and profiting from market fluctuations. The investor's primary interest lies in acquiring and holding suitable securities at suitable prices.'

[Lootman]

Surely not entirely bunkum since algorithm trading is certainly a thing and the buy / sell algorithms must be based on something.

Is algorithm trading another term for 'front running' where information is made available to a trader and/or program before the general public?

No, algorithm trading is computerised trading based on historical patterns of price movements, typically involving very small moves over short periods of time. It can be momentum trading but not always. The fact that much of the daily trading volume is algorithm trading should tell you that it can work.

What you are thinking of there is insider trading. Which again is different from front running, which is placing a small trade in a security before you place a much larger trade in the same security. I used to know a fund manager who got done for that.

[scrumpyjack]

Was it Buffet who said in the short term the market is a voting machine, in the long run it is a weighing machine.

The private investor will virtually always know much much less about a company than the market and not fully understand why the market has arrived at the current share price. It is a mugs' game to try and second guess the market.

Just buy good companies at a sensible price and leave it alone for 5 or 10 years (at least).

[tjh290633]

Long ago I spent a lot of time constructing point and figure charts for the shares which I then held. Instructive and good for the soul. I don't think that I could find a computer program to do it for me (probably a BBC model B at the time).

It did tell me quite a lot about share price movements.

TJH

[GoSeigen]

The investor's primary interest lies in acquiring and holding suitable securities at suitable prices.'

This is exactly what many investors who use TA do.

GS

[GoSeigen]

Here is a You Tube video debunking Technical Analysis -

https://www.youtube.com/watch?v=egjfIuvy6Uw

It's a rubbish video trying to debunk TA. I only managed to watch two and a half minutes. Here are my thoughts on the points he made so far:

1. "TA's believe prices are not random" They are right -- PRICES ARE NOT RANDOM!!!
2. "TA's are lazy and want to make money with no work." Straw man and ad hominem as well as being BS.
3. "TA's don't research fundamentals, don't try to understand the market dynamic." False and straw man. That is his own characterisation of a small segment of TAs.
4. "All they care about is one indicator" BS and straw man.

The dude's a serial killer. Or at least shows signs of an abusive/bullying personality. The thrust of the video is to big himself up while abusing the stereotyped group he has invented. Summed up by his comment "Maybe they're too dumb, maybe they're incompetent."

Dude needs to grow up and learn about the people he is criticising.


GS

[mc2fool]

And just for balance: https://set-and-forget.com/oil-and-gas-stocks-course-debunking-fundamental-analysis/ (But it'll cost you € 87 to do so.)

[vand]

Here is a You Tube video debunking Technical Analysis -

https://www.youtube.com/watch?v=egjfIuvy6Uw

Warren Buffett also thinks that it is a complete waste of time. He quotes Benjamin Graham's book 'The Intelligent Investor' - especially Chapter 8 (The Investor and Market Fluctuations). I have read and re-read this book many times and totally agree with the following conclusion -

'The most realistic distinction between the investor and the speculator is found in their attitude toward stock-market movements. The speculator's primary interest lies in anticipating and profiting from market fluctuations. The investor's primary interest lies in acquiring and holding suitable securities at suitable prices.'

On the other hand, Marty Schwartz:

“I always laugh at people who say “I’ve never met a rich technician” I love that! Its such an arrogant, nonsensical response. I used fundamentals for 9 years and got rich as a technician”

The thing that any sensible investor should wisely consider is that Fundamentals and Technicals don't have to be mutually exclusive. You can use both!