Hi! I just started looking into the stock market, and I've been playing some dummy trading games in order to learn the ropes before going in with real money. I'm really interested in indicators and technical analysis in general, and I've been getting good results so far. But I'm not sure how to use them correctly, and when not to trust them. What indicators give the best results? And is there a specific time frame that they work best? Would they work for long term investments, or are they best for day trading? Thank you!
Here is a demonstration of what is possible with TA. [video=youtube;dXjg9jCQWTU]http://www.youtube.com/watch?v=dXjg9jCQWTU[/video]
Does the video really not have sound? Other youtube videos load fine for me. Nonetheless, it's a very informative video. Are there software you can use to plot these trend lines? I will be trading in an emerging market and I haven't seen a website offering technical analysis on this market. I do have the raw data of the market though.
I'd stick to fundamentals and not worry about technicals for now. Even as an advanced investor, you'll eventually find that technicals always get trumped by fundamentals in the grand scheme of things. I've been investing for over 20 years.
By grand scheme of things, do you mean long term investing? Or do you think it is more effective in general?
I think that's this is a good parallel between sports and investment - Sometimes all that technical stuff just gets in the way and it's good fundamentals that gets you to your goal.
Thank you everyone for all the tips. About fundamental analysis, do you usually focus on disclosures or external news?
For your consideration. I understand the thoughts on Technical, and I mean no disrespect, but I believe the perspective may come from a lack of understanding as far as Technical is concerned. Here is an article I wrote at the beginning of the summer pertaining to both TA and Fundamental. For what it is worth, my interest in the markets started at an early age. I started learning Fundamentals in high school, and it wasn't until the end of University that I started looking in to TA. I too have been doing this a long time, over 20 years, and have a decent knowledge of both Fundamental and Technical. Again, I don't mean any disrespect, however I think you do yourself (and others) a disservice by not looking at both. TA isn't complicated, and using just common supports and resistances you can tell a fair bit about what to expect from the market. Consider my comparison below, take note of the flaws that can be found with Fundamentals. Note that I do recommend both. Technical vs. Fundamental Jul 4, 2014Fundamental Technical Analysis (TA) sometimes gets a bum rap; especially from those who are Fundamentalists. Personally I think some of the negative attitude stems from a lack of understanding and experience with TA. If deniers of TA took a little time to learn and use it, I think they would have a different opinion. It is not my intent to “rag” on Fundamentalism, as I believe it has uses, especially in a MACRO context. However, there are a few problems with it that have steered me towards Technical Analysis over the years. Information is a big factor. First of all, there is an overload of news and information. Digesting it all, and then trying to decipher what it will mean to the market can be a daunting, if not an impossible task. Then there is the nature of the information itself – how accurate is it? Most information put out by corporations, and even governments, is really nothing more than their best PR spin. ShadowStats.com and other independent researchers demonstrate just how far off, and potentially misleading, some of the information can be. That’s if they give you the information at all. As of 2006 the US government has stopped giving out the M3. (1) Then there are The Revisions. This year we can see countless companies quietly posting revisions to their original earnings several months later. It has got to suck if the company you invested in, because they had positive earnings, gets revised to negative. (While it’s doubtful that a positive earnings announcement was the only reason you would choose to invest; a negative or less than expected earnings announcement may have had you skip over the investment for something more positive). Any one of the points above start to call in to question the usefulness and accuracy of Fundamental analysis. This isn’t even looking at any fundamental models used for projections. At this point we are just talking about the information that will be used for them. If we take a look at the Fundamental models, we find the majority of them are based on statistical formulas and theory. In statistics, theoretical distributions are applied to determine the significance of a test statistic. However, Sir R. A. Fisher, the founder of statistical hypothesis testing, asserted that theoretical distributions against which observed effects are tested have no objective reality “being exclusively products of the statistician’s imagination through the hypothesis which he has decided to test.” (Fisher, 1956, p.81). (2) The father of Fractal mathematics, Benoit Mandelbrot, in his book The (Mis)Behaviour of Markets, demonstrates through research & math, that the results of statistical analysis are not reality, but rather represent what we want to be reality. The Bell Curve does not exist in nature (or the markets). (3) He goes on to discuss how this impacts everything from analyzing investments to building portfolios; from valuating options to managing risk. All are based off a flawed and made up premise. Technical Analysis Let’s now take a look at the nature of information used with technical analysis. All technical Analysis is based off the price/time chart. This is a result of the actual price & time of a security when it is traded in the market. No spin. No revisions. No exclusions. Regardless of the technical method or tool being used, they are derived from, or use the data from, the price / time chart. While I can’t go through and defend every available tool and method (too many), I can demonstrate the use of one of the more popular tools/methods being employed today. As I said at the beginning, I believe that technical analysis is misunderstood by naysayers. A large part of this is unrealistic expectations. My example will be of Fibonacci ratios, so let me explain “unrealistic expectations” in relation to these. If you are expecting the market to respect Fib ratios in a certain order of retracement / extension levels; or that the market should hit these to the penny every single time, then your expectations are set too high. These expectations are similar to expecting a fundamental analyst to predict the price of IBM on Tuesday January 5th, 2016 at 3:30pm … to the penny. Let’s take a look at a chart with a Fibonacci retracement tool added and see what we can expect. Chart 1 shows the GBP/USD and how it is (or isn’t) respecting Fibonacci ratios. Note the highlighted blue line A: this is the 50% retracement level. If you look across the chart you can see places where the market has respected the level (1 & 3), as well as ignored it (2 & 4). The market is again coming up to this level. It is unknown if the Fib ratio will be respected or not. However there are clear examples where it has respected it in the past, so there is potential it could occur again. As it did at 1, and 3. The three “touches” at 1, and the pattern at 3 do not necessarily reach the level or stop on it to the penny. However there is clearly support and resistance in these areas. Chart 2 below is the same chart with another Fib tool added (red). The addition of the second Fib tool captures more market reactions and clarifies the market levels even more. I have marked 13 places where we can see the market reacting and bouncing between the Fibonacci levels. No it is not exact all the time, but the market is clearly moving around between the levels. As already stated, it is unknown which levels will be respect and which ones won’t. They offer guidance and market levels to be aware of for potential reaction when they are reached. Given that the market can be seen bouncing between the levels, they can also be looked at as potential targets for the market to move to as well. Conclusion It should be noted that I started my market education with fundamental analysis. Over time, I also taught myself technical analysis; and this has progressed to where I now have a purely technical strategy. As I initially stated, it was not my intent to put down fundamental analysis. It does though have some serious flaws and these should be recognized, especially by those who have the notion it is superior to technical analysis. Technical analysis is not perfect either. While I was able to identify the significant market levels (past & future) with the placement of just two tools (and in about 20 seconds), there is no guarantee these levels will or will not be respected again. It is unknown if the market will ignore, consolidate or reverse off any of the Fib ratios (or any other technical tool for that matter). However they do provide guidance and a clear picture to watch. The example given used just one tool or method (Fibonacci). Each tool and technical method places the market in a slightly different perspective, measuring different things. Consider using several different methods and seeing what the total sum tells you. I find the MACRO level of fundamentals to be very important. It is however highly complex. Go take a look at Gordon’s’ site and his method of abstraction and synthesis. ( http://www.gordontlong.com/ ) Rather than having to choose one camp, I suggest that both can be used together. The technicals tell a story and the fundamentals help to put it in to context. Andrew J.D. Long, MFTA This article can be found in the Free Public Edition of TRIGGER$ http://www.triggers.ca/mag/free-public-edition/ Article posted at: http://www.triggers.ca/mag/free-public-edition/public-edition-traders-mentor/ 1) Wikipedia http://en.wikipedia.org/wiki/Money_supply (2) Mathematical Reality: An Inquiry into the Existence of Theoretical Distributions and its Implication for Psychological Researchers; Dr. Chong Ho (Alex) Yu http://www.creative-wisdom.com/computer/sas/math_reality.html (3) The (Mis)Behaviour of Markets; Benoit Mandelbrot http://www.amazon.com/The-Misbehavior-Markets-Financial-Turbulence/dp/0465043577
I would trust more in fundamentals than technical analysis. In order to succeed in investing you just need to learn making decisions by yourself and not via TA.
