Technical analysis - success stories??

mcirl2

Hi,

I am currently studying technical analysis. I have got John J Murphy's book and researching some stuff online.

I would be interested to hear if anyone trades / knows someone who trades using technical analysis?

Also I am leaning towards trading purely through charting / technicals and ignoring the fundamentals completely. Is this crazy??

I have heard lots of criticisms about TA. Is it just good for short term? I think if you can spot a long term trend it's easy enough to get reasonable return.

Any info/advice would be great!!

Thanks,

Mike

A Random Walk

I would say that book royalties are the main source of income for successful technical investors.

Richard Crossley was one in NCB and he was regarded as pretty good I think.

His reports are on the NCB website.

TheBazman

Lots of people trade off technical analysis, with different people having favourite charting patterns etc to look at

Probably best to start with something like the basis candlestick formations as they can work quite well (I fine "doji's "work quite well). Also Head and Shoulder patterns, double tops/bottoms etc.

The important thing is to know your trading time frame (ie) if you expect to hold a position for a day/couple of days there is no point looking at a daily/weekly chart (best to look at say a chart with 10 min/1hourly intervals), and if you are interested in holding a position for several months then longer intervals are best.

Also set your stops before you trade, and stick to them!

mcirl2

I know this might sound stupid but my long term goal is to trade online with technical analysis.

I will do a job until I feel I am good enough to do this full time. I think it could be quite risky but with the right strategy (manging your risk) it could work quite nicely.

Also it means I could live anywhere in the world and just need an internet connection. I like this idea because I really want to live in different places.

I am just wondering have you heard of anyone who does this / has this lifestyle and what would the odds be that it could work out?

any advice would be great!!

Mike

Again, read the calls by Richard Crossely, then maybe study how often he was right, and by what margins. He was rated no.1 in Europe a few years ago.

AmarilloFats

Newbie to this sort of thing - just started in a capital managemnet co.

Are tech analysis and trend analysis the same thing

Reading
"trend analysis " by michael covel
and the way of the turtle

What online resources are you using??

mcirl2

they are quite closely related i think.

Chart/trend analysis is concentrating more on chart trends while technical analysis is concentrating more on actual the trading systems and their results.

I think this is it. Though most people use both the charts and the numbers / systems.

What do you do in the capital mgt company? Are you just out of college or experienced.

In final year and want to find a job that will improve my financial / investment skills.

Thanks,

Mike

dunkamania

I know alot of fundamental traders use technical analysis to make decisions about entry/exit points.

ChartTrader

Probably best to start with something like the basis candlestick formations as they can work quite well (I fine "doji's "work quite well).

I like candle charts but don't have much faith in the patterns - academic studies have shown that dojis, hammers, engulfing candles etc, are pretty useless on their own.

The important thing is to know your trading time frame (ie) if you expect to hold a position for a day/couple of days there is no point looking at a daily/weekly chart (best to look at say a chart with 10 min/1hourly intervals), and if you are interested in holding a position for several months then longer intervals are best.

I would always keep an eye on the daily chart, even for day trades - a stock might be trending down all day and then bounce if it hits a key point on the daily (eg, 50-day average,etc).

Also set your stops before you trade, and stick to them!

I second that.

Also it means I could live anywhere in the world and just need an internet connection. I like this idea because I really want to live in different places.

Who doesn't?

I am just wondering have you heard of anyone who does this / has this lifestyle and what would the odds be that it could work out?

The odds are tiny. You should trade if you are good at it and are fascinated by it, not because of the supposed possibilities it offers. See what Brett Steenbarger, psychologist and futures trader, says on the subject. "There are many Doll Face traders. They're mesmerized by the images of success, trading for a living, trading to win, wealth, freedom...the images recede, but they push toward those images...and they push...and they push, until...

The great traders express themselves through their trading as artists express themselves through painting or dance. They are immersed in markets, statistics, patterns, information; figuring things out is who they are. They'd be doing it if they were rich or poor, young or old.

The Doll Face traders are smitten with an image; there's no substance, no immersion. They trade, not as an expression of who they are, but in the vain hope of remaking themselves and their lives."

See http://traderfeed.blogspot.com/2007/11/doll-face-trader.html

Are tech analysis and trend analysis the same thing

Reading
"trend analysis " by michael covel
and the way of the turtle

Covel's books are about trend-following, which is technical in nature, but not the same as technical analysis. A technical trader may seek to profit by buying breakouts or by fading breakouts or by buying the dips or buying the bottoms - it depends. In my book, TA is a pretty loose term used to describe the practice of using charts to make trading decisions.

What online resources are you using??

Trader Mike's key posts (www.tradermike.net) have a lot of good info.

PDelux

The reason people fail using it or people who don't "believe" in it is simply because they dont understand how the market works IMO. At its most basic you have price and volume data which shows you what is going on in the market. This is real data.
Every technical indicator is a funcion of this price/volume data and just
represents it in a different way.

The best thing that you can do if you are going to use any indicators is to
educate yourself as to what is going on behind the scenes. From my
experience there is plenty of superficial information on the internet about this but its difficult to find more indept information to explain what's going on.

The doji candle was mentioned earlier and yes it could be very useful but depending on the context. If you look at what price data it represents it
shows the price, during a certain time period that you chose, fluctuated between a high and a low but closed at or near the opening price. This
indicates that the number of people willing to buy and sell was about equal - there was no conviction as to the price going up or down .. which shows uncertainty but doesn't mean much on its own. However in the context of a series of "red" candles or a series of "green" candles it shows a change of momentum. Adding to this picture the volume information gives more clues as to the momentum.
To satisfy the sceptics i would add that there is no 100% certainty that there
will be a sudden change of direction in the price. But with technical analysis
you are dealing with probabilities and when the momentum changes the probability that price will change direction is high and a small amount can be risked with a stop loss just below the doji low.
Of course the momentum could slow and look like it will change but then
continue on, this is the risk you have because of a volatile market or unexpected news events. This is also why you may see better results for certain indicators in trending markets.
Here is an article which also describes context:
http://www.investopedia.com/articles/trading/07/location.asp

It is the same as a value investor "thinks" that a stock is good value, they would argue that the probability that the P/E will come back to fair value is high and it's worth the risk. Of course there are plenty of examples of great companies where the stock price hasnt budged in years - the market doesnt always do what you think it *should* do
This is why i would argue that it's best to see what the market *is* doing by reading the price/volume data on the charts.

If you want to test how well certain indicators or strategies would work, you
can use backtesting software.
As dunkamania says i think many investors who would not call themselves "technical analysts" do use it(price/volume data) whether they know it or not.