How effective is technical analysis, really?

Discussion in 'Stock Market Education' started by vennybunny, Oct 5, 2014.

  1. caparica007

    caparica007 Well-Known Member

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    Yep, we need to investigate the market, know what to buy, when to buy and know when to sell, these are the basics.
     
  2. GoldenPhi

    GoldenPhi Member

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    WHEN TO BUY & SELL
    Someone want to show / tell me how to do with Fundamentals?

    Published call, April 2014

    [​IMG]


    As of Oct 9, 2014

    [​IMG]
    Note that the buys and sells (targets) come in at significant technical levels. As they are broken, you can follow the market to the next one.
    Pretty clear and almost obvious?
    Show me how you do this with Fundamentals... anyone....
    .
     
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  3. JR Ewing

    JR Ewing Super Moderator Staff Member

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    For investing, I buy when it's cheap or growing (or both) and start to sell when it's no longer so cheap or growing so fast. Or if there is a compelling fundamental reason to buy such as new or improved and innovative products or services. I may sell out entirely eventually.

    If the fundamentals start to really deteriorate or the stock appears ridiculously overvalued, I may take a small short or put position as a bet against a stock at some point. I also use puts as insurance against more volatile long positions. Sears and JC Penny have been deteriorating for quite a while. Some think they're slowly going to come back, but I'm inclined to disagree.

    Also, a chart pattern on an investment may look "bearish", but if the fundamentals of the company are such that they blow away earnings estimates, get FDA approval or positive clinical trials on a drug, or get a buyout offer from another company for a 25, 50, or 100% premium, the stock is going to go up a great deal overnight regardless of what the chart says. :D

    On the odd short term day trade or swing trade I'll do here and there with a limited amount of my money, I'll usually look at the tick by tick chart pattern and volume indicator for an idea of when to get in and out quickly, and hopefully with a substantial profit. But that's just a small piece of more advanced speculative lagniappe that is a very small part of my overall investment strategies.
     
  4. GoldenPhi

    GoldenPhi Member

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    Heya J.R., thx for the reply.
    Obviously you have found something for yourself that is working, have put in the time and done your due diligence on all your investments. I think that's awesome and it isn't my intent to try and change that.

    I do however think the addition of a chart would open your eyes even more on where your markets are moving to.

    I also need to respond to this comment:
    Also, a chart pattern on an investment may look "bearish", but if the fundamentals of the company are such that they blow away earnings estimates, get FDA approval or positive clinical trials on a drug, or get a buyout offer from another company for a 25, 50, or 100% premium, the stock is going to go up a great deal overnight regardless of what the chart says. :D

    This is no different with fundamental data. You have never heard news (data, event, whatever) about a market that should mean one thing, but then the market does the opposite? Good news dumps the market and bad news lifts it? Happens all the time.

    What about those earnings that are quietly revised 3 months later to negative? Again, happens all the time. How do you know if the earnings announcement today will be the "final" and true numbers?

    Consider my article above and the flaws of Fundamental analysis.

    If you note the charts in my 3min video above, the direction is not called. When the market breaks a significant technical support / resistance (s/r), it then moves to the next, Up OR Down. Targets are given above and below the market. When significant s/r's are moved through, you can follow the market to the next s/r as it makes its way to a target.. up or down... as opposed to guessing which way it will move.

    So whatever the news event that you think will move the market, and regardless of how the market reacts to that news, you don't need to guess what that will be, but rather you follow the break when it does move, following along with it to the next market levels (up or down).

    Also consider the US$ chart above and the near perfect ellipse that allowed me to pick targets, in both price and time. You think this was a news / fundamental driven event? What am I psychic? The news and events happened to come in right at the perfect times to drive the ellipse pattern that had been predicted months in advanced? The news all lined up and had the perfect effect to do this?
    I'm not trying to be a goof here, I am seriously asking you to consider the question.
    I say it proves there is something else that is also driving the markets. I have hundreds of charts and calls like the US$ and what can be seen in the video above that also add to the point and begs the question.

    Regardless, as I initially stated, I think that if you added your fundamental analysis, thoughts and targets, to a chart that showed you the next market levels you would have a greater perspective and understanding of your market, for trading and investing.
     
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  5. JR Ewing

    JR Ewing Super Moderator Staff Member

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    I just mainly stick looking at companies, products, services, trends, earnings, revenue, growth & accelerations, values, margins, industries and sectors, management / management changes, activist shareholder activity, etc, etc. Some of this can be somewhat speculative, much of it not so much.


    Sometimes earnings miss on a stock I already own. If that happens, hopefully I had a put option that made me money if the decline was significant.


    I read the earnings report and determine whether I want to get out completely (hopefully with a substantial profit), get out partially, or perhaps even add more at the new lower price. Short term market reactions / overreactions to either the up or downside are often good times to buy, take profits, or perhaps even carefully go short.

    I'm always careful with any actual short stock position because of the theoretical possibility of the stock going up an unlimited amount.

    I should also note that I keep the short term speculative investing / trading to roughly 5-10% of my money. Most of my investments are longer term than just a quick day or swing trade or a hold of a week or 2 or month or 2. But at the same time, I don't ever fall in love with a stock - I will sell even a big core holding that I've owned for many years if the fundamentals dictate it.

    Hard to give a detailed description of my investment philosophies in a single post. I'm probably 60% in the Ben Graham bottom-up camp, 30% in the Dalio mold, and 10% in the activist / speculative camp. I'd be much more "activist" if I had billions of dollars. :D

    At the end of the day, it's all about results over the long haul. Keeping my money and growing my money over time. Not losing too much money during bad times, but not getting too obsessed with the short term fluctuations.

    I've averaged 15% over nearly 21 years. Lost about 25% from Q4 of '07 through Q1 of '09, which was less than half what the broad markets lost during that time.

    I'm not quite on the level of Buffett or Ichan (and certainly nowhere near as wealthy within tens of bilions) in terms of performance or experience, but I'm not doing bad. I think a track record one can reference over a reasonable timeframe speaks loudly for one's methods - particularly how one performs during bear markets.
     
  6. Investor

    Investor Well-Known Member

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    Interesting points guys, really good analysis and discussion, what I do is to look at the market and examine trends, for example, if a law is going to be passed to ban smoking, and I invested in a tobacco company then naturally the value of my stock is going to depreciate, so I now have to determine whether I am going to keep the stock or dispose of it, of course, to my benefit. Stocks fluctuate naturally, so a small decline and a small increase of a stock is neither here nor there, close examination of the market and reports from the markets and the news will aid you in making decisions,games won't do a thing. Start reading and researching.
     
  7. daveM

    daveM Member

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    I do not use fundamentals as they can not be incorporated into automated systems which are short term. I quite agree that for the long haul you have to use the fundamentals.
     
  8. owesem75

    owesem75 Well-Known Member

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    This is a very classic advice. Fundamental has it all. Companies with sound fundamentals are managed well and will sure bring profits (all things normal). Technical analysis will just confuse you.. yes it does to me. I do not even know how to read Candlestick analysis!!!!!
     
  9. Peninha

    Peninha Senior Investor

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    Well said, why go to something more complicated or technical if we can just stick with the basics and get good results even so?
     
  10. My401K

    My401K Well-Known Member

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    I don't know, I have always felt that technical investing is nothing more then a fancy way for guys to say "see I was right" after the fact. Looking for trends is not a bad idea, but it is not the end all either. I get a kick out of these programs like Vectorvest that make all they claims on being able to predict the market. Regression analysis- like they say hind sight is always 20/20. Could you imagine trying that with the lottery? People do! Do your research and take your best guess, because in the end that's what it really is, just a guess.
     

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