Why are value investor types so rigidly opposed to TA?

[David Sklansky]

And the problem with big successful funds like Renaissance is that no one really knows what they do. There are many trading strategies such as statistical arbitrage, pairs trading, other arbitrages, etc that have little to do with TA as most people define it, but they are quick to include the successful practitioners as evidence of TA's success."

I was wondering if they have discovered stuff such as, "when a one hundered dollar stock is up 75 cents in the middle of the day, the expected value of where it will be this time tomorrow is $100.45. Because there is a good chance the 75 cent rise was a statistical blip." Roughly speaking. If so, a company with their resources can grab some of that 25 cents sitting there. If I am right it means that they are using pure price movements to help them make money. It wouldn't help any of us though.

[ImBetterAtGolf]

That is a very very crude description of classical statistical arbitrage. In that form, it doesn't work so great, anymore. Yes, RenTech has done plenty of that over the years, but they may be going just a bit beyond.

[ArturiusX]

[ QUOTE ]

If short term market movements are random (as they have proven to be) it wouldn't matter whether you used TA to time your entry or not, it just wouldn't add any value.

[/ QUOTE ]

traderx.blogspot.com

[pig4bill]

[ QUOTE ]
I was wondering if they have discovered stuff such as, "when a one hundered dollar stock is up 75 cents in the middle of the day, the expected value of where it will be this time tomorrow is $100.45. Because there is a good chance the 75 cent rise was a statistical blip." Roughly speaking. If so, a company with their resources can grab some of that 25 cents sitting there. If I am right it means that they are using pure price movements to help them make money. It wouldn't help any of us though.

[/ QUOTE ]

No offense, but that was fairly nonsensical.

Besides, if you think a 25 cent move doesn't help anyone, you're mistaken. A few 25 cent moves per day captured adds up to a very comfortable living.

[Ps3tn0NcYk]

I think the crux of the issue is the definition of TA.

If in citing TA one means trend line breaks, bounces off support, MACD crossovers, doji stars, filling gaps, etc., then I would argue that TA is a basically a coin flip proposition.

However, I have found that a statistic-based approach to TA (i.e. 1700 of the last 2000 times MACD has crossed at X point, price has moved higher) provides a demonstrative advantage. Or at least it has for my net-worth.

That said, I have also found that FA provides a greater degree of success but with a higher degree of opportunity cost (i.e. -- #'s for demo purposes only -- 80% of companies selling at 90% of their liquidation value while decreasing losses by 60% per quarter eventually double in value from the current market cap).

The "eventually" part is important as it sometimes can take years before the company is discovered and the stock price better reflect a "fairer" valuation, increasing the opportunity cost of assets allocated into a opportunity waiting for the market to become "rational" or "efficient".

From a trading perspective, TA is superior to FA. FA can take years to "work" while TA can be scaled to minute by minute gyrations. From an investing perspective, FA is superior to TA. FA provides a higher degree of reliability while TA is a coin toss or relatively trivial.

[DcifrThs]

[ QUOTE ]
I think the crux of the issue is the definition of TA.

If in citing TA one means trend line breaks, bounces off support, MACD crossovers, doji stars, filling gaps, etc., then I would argue that TA is a basically a coin flip proposition.

However, I have found that a statistic-based approach to TA (i.e. 1700 of the last 2000 times MACD has crossed at X point, price has moved higher) provides a demonstrative advantage. Or at least it has for my net-worth.

That said, I have also found that FA provides a greater degree of success but with a higher degree of opportunity cost (i.e. -- #'s for demo purposes only -- 80% of companies selling at 90% of their liquidation value while decreasing losses by 60% per quarter eventually double in value from the current market cap).

The "eventually" part is important as it sometimes can take years before the company is discovered and the stock price better reflect a "fairer" valuation, increasing the opportunity cost of assets allocated into a opportunity waiting for the market to become "rational" or "efficient".

From a trading perspective, TA is superior to FA. FA can take years to "work" while TA can be scaled to minute by minute gyrations. From an investing perspective, FA is superior to TA. FA provides a higher degree of reliability while TA is a coin toss or relatively trivial.

[/ QUOTE ]

for those not interested in the bulk of this thread, i think the quoted post above provides the best summar i've read.

very nice post.

Barron

[kimchi]

[ QUOTE ]
However, I have found that a statistic-based approach to TA (i.e. 1700 of the last 2000 times MACD has crossed at X point, price has moved higher) provides a demonstrative advantage. Or at least it has for my net-worth.

[/ QUOTE ]

This is (another thing) I've been interested in and stuggling with recently. Looking for observed relationships between markets or between prices and price derivatives (such as the MACD you mentioned).

A lot of these ideas have been extensively written about in various texts (such as the probability of a reaction after a price derivative's divergence from the price or a particular candlestick formation, or the likely behaviour of Asian markets given the overnight action on the NYSE).

I'm worse at statistics than I am at poker, but apparently statistically significant events need not have a rational explanation to a technical analysist. If the action is tradeable then it can be profitable.

Can you give a specific example of statistically significant behaviour of price that you were able to exploit and trade? I think many exist, but since the markets are so complex, I suspect that the robustness of many of these observations will degrade over time which may suggest curve-fitting.

[Ps3tn0NcYk]

[ QUOTE ]
Can you give a specific example of statistically significant behaviour of price that you were able to exploit and trade?

[/ QUOTE ]

Yeah, buy when they're crying, sell when they're yelling.

In all seriousness, erase everything you have read or the base system that comes installed with your software and put a 5 year old in front of a chart and ask "where is it going now and why?"

You would be amazed at the money people are leaving on the table while in search of overly complex strategies and .. if you are the thinking type .. the seemingly infinite amount of explorable paths the most very very basic concepts provide.

[Macce]

If you read the "Market Wizards"-series of books by Jack Schwager, he interviews the most successul traders of the 80´s and 90´s. When asked about their strategies, about 70% of them contribute their success to TA. I take that as a proof that TA works very well, if you know how to use it.

But as someone pointed out, it may be hard to day-trade with a $80 billion account since you would move every market except forex.

[chisness]

This thread makes me very skeptical about TA. Also, many have mentioned that TA is more exciting than FA, but I'd find it a lot more interesting doing FA and really getting an understanding of how companies work and trying to predict future events. TA is definitely more of a thrill, but as Desert said, we all have poker if we want some short term excitement.