Technical Analysis

RiverRider · #1 03-25-2007, 01:32 AM

Im new to stock investing and I try to improve my knowledge in that area. I listen sometimes to a tv program where a guy who is supposely a technical analysis professionnal says he can predict the future evolution of a stock by ONLY looking at the stock graph of that company and by looking at the graph of others similar companies in the same area.

I must say that im sceptical about this method and I would like to know what you guys think about this.

mikeczyz · #2 03-25-2007, 03:45 AM

if that's all there was to stock picking...(pick any number of suffixes to complete the sentence)

kimchi · #3 03-25-2007, 03:51 AM

Nobody can predict prices. TA uses prices or derivatives of prices to paint a picture of the current opinions of market participants. The prices represent the current consensus of these people who in turn are influenced by their emotions.

A price graph leaves behind the footprints of these people and can be used to make informed decidions based on the probability of the price being higher or lower in the next hour/day/week/month or whatever timeframe the trading is trading within.

TA is neither an art nor a science - it's more of an arty science. Fundamental analysis uses company data to make investment decisions, whereas TA uses the one piece of data that can't be manipulated, massaged, or fraudulently changed - the price.

Who cares if a crappy company's stock price is increasing? If a price is likely to rise or is rising, we want to be long.

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In a shopping centre, a fundamental analyst would go to each shop, study the product that was being sold, and then decide whether to buy it or not. By contrast, a technical analyst would sit on a bench in the shopping centre and watch people go into the shops. Disregarding the intrinsic value of the products in the shops, his or her decision would be based on the patterns or activity of people going into each one.

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DesertCat · #4 03-25-2007, 04:07 AM

[ QUOTE ]
Im new to stock investing and I try to improve my knowledge in that area. I listen sometimes to a tv program where a guy who is supposely a technical analysis professionnal says he can predict the future evolution of a stock by ONLY looking at the stock graph of that company and by looking at the graph of others similar companies in the same area.

I must say that im sceptical about this method and I would like to know what you guys think about this.

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There is a simple test of this specific skill. Take a bunch of stock graphs and cut them in half, and ask the TA expert to predict the second half of each chart by viewing the first. This test has been proferred to many TA experts, and they either decline to take it or fail miserably at it.

gull · #5 03-25-2007, 05:32 AM

Don't bother with technical analysis.

Mr. Now · #6 03-25-2007, 08:29 AM

Efforts to predict are futile. Focus on probability, and trade with the odds. Size bets properly such that you can tease your edge out of your system.

A system with positive expectancy fails long-run if you execute with suboptimal (typically "too large") size.

RiverRider · #7 03-25-2007, 10:19 AM

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Efforts to predict are futile. Focus on probability, and trade with the odds.

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This is probably trivial for you but since Im new I don't understand what you mean concretely about probability and odds of a stock. On what points should I focus to determine the probability and odds of a stock going up or down?

RiverRider · #8 03-25-2007, 10:24 AM

[ QUOTE ]
There is a simple test of this specific skill. Take a bunch of stock graphs and cut them in half, and ask the TA expert to predict the second half of each chart by viewing the first. This test has been proferred to many TA experts, and they either decline to take it or fail miserably at it.

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If what you're saying is true than I won't listen to this Technical Analysis tv show anymore since it looks like a fortune teller thing more than rational&studied decisions...

solucky · #9 03-25-2007, 11:45 AM

I do well in analyse the fundamentals und use the technical for the timing. Its possible that a stock is "cheap" for ever.

DesertCat · #10 03-25-2007, 12:30 PM

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I do well in analyse the fundamentals und use the technical for the timing. Its possible that a stock is "cheap" for ever.

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It is. You need catalysts that drive the market to recognize the value in your cheap stocks. No catalyst, no buy. Examples of catalysts include stock buybacks, dividends, mergers, or a business that grows it's intrinsic value over time.