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What do banks think about technical analysis? Do they trade based on it, or just stick to fundamentals? If I talk about technical analysis in an application or interview will they think I'm crazy?

Comments (25)

  • devin's picture

    hm gee I don't know, what would you say if I started babbling like a fuckin nut about how past numbers form pretty geometric patterns through which we can extrapolate future ones

  • gossard13's picture

    any trader worth his salt uses TA; any that don't won't last long

  • devin's picture

    i would really hope that the traders at the elite financial institutions have far better means of analyzing financial time series than the shit found in books anyone can buy from amazon

  • fifty2aces's picture

    Devin - do you mind if I ask about your background? Do you work in a bank? As a trader? No offence meant, but TA seems to be a very touchy subject, and I was hoping some people who have worked in trading roles would be able to give an opinion.

    For the record, I am a believer in TA, although I think the majority who use it don't really "get it" - as you say, they "read some shit in a book from amazon", probably written by someone who doesn't know their arse from their elbow.

    I think the best way to trade is to combine TA and FA, however obviously people have got rich doing exclusively one or the other - different strokes for different folks.

    The thing that matters at the end of the day is P/L - no matter how you get there.

  • devin's picture

    fifty2aces, without giving away too much I will be working this summer at a BB (or close to it) prop desk in singapore, but I've developed my interest in trading through my various involvements here at school.

    i'm not saying things don't trend but thinking that prices trend in the ways that these books talk about (head and shoulders, etc) is stupid as all hell

  • fifty2aces's picture

    So what about people who have made millions trading based on price patterns? Just down to luck?

  • JJ1980's picture

    it's used a lot more than you think in certain markets.

  • structure's picture

    I am incredibly dubious of technical analysis in the traditional sense.

    The black box trading strategies developed by PhD math/stat/physics, I believe probably work in the short term though.

  • Jimbo's picture

    'The black box trading strategies developed by PhD math/stat/physics, I believe probably work in the short term though.

    especially if you're jim simons

  • Ivan's picture

    TA might answer a question "when to buy (sell)?".
    FA answers a question "what to buy (sell)?"

  • trade4size's picture

    The following extract is from New Market Wizards by Jack Schwager published in 1992 and is a portion of an interview conducted by William Eckhartd a mathematician and Futures trader.  Sorry if im opening a can of worms someone brought up the subject tonight so I figured I would post this influential material.
    Jack Schwager- A good part of the academic community insists that the random nature of price behavior means that its impossible to develop trading systems that can beat the market over the long run.  Whats your responce? 
    Bill - the evidence against the random walk theory of market action is staggering.  Hundreds of traders and managers have profited from price based mechanical systems. 
    Jack Schwager- What about the argument that if you have enough people trading some of them are going to do well even if just because of chance? 
    Bill - That may be true, but the probability of experiencing that kind of sucess that we have had and continue to have by chance alone has to be near zero.  The systemed worked for us year after year.  We taught some of these systems to others, and it worked for them.  THey they managed other peoples money and it worked again.  Theres always the possibility that it all could have happened by luck, but the probability would be infinitessimally small.
    bill- There has actually been a dramatic shift in the academic view on this subject.  When i first started in this business, mechanical trading was considered crackpot stuff.  Since then there have been a steadily increasing number of papers providing evidence that the random walk theory is false.  System trading has gone from a fringe idea to being a new king of orthodoxy.  I dont think this could have happened if there werent something to it.  HoweverI have to admit that i find it unsettling that what began as a renegade idea has become an element of the conventional wisdom
    Jack Schwager- Of course you cant actually prove that price behavior is random
    Bill- thats right your up against the problem of trying to prove a negative proposition. although the contention that the markets are random is an affirdmative proposition, in fact your trying to prove a negative  Your trying to prove that theres no systematic component in the price.  Any negative proposition is very difficult to confirm because your trying to prove that something doesnt exist.  For example consider the negative proposition that there are no chocolate cakes orbiting jupiter.

    "Oh the ladies ever tell you that you look like a fucking optical illusion" - Frank Slaughtery 25th Hour.

  • Batrick Pateman's picture

    if you think traders dont use TA, ur a damn idiot, and made it clear to us that ur probably an amateur/uni student/ignorant newb/moron.
    I just cant believe what your saying.
    What does it matter if it sells on amazon if 99.9% of ppl cannot apply it because they are too undisciplined/emotional.
    Advanced Calculus books are also sold on amazon!!!
    And what do you think prop traders use? Even if they are complex programs, they got a technical base. I have seen too many guys consitently do well on TA.
    The only thing that differenciates them is discipline. I know it, i see my own bankroll increase, and i risk very little on my trades.
    Read those books

  • aachimp's picture

    sure, traders use TA, but which traders are referring to?  if you go to Goldman and tell them your edge is TA, they will laugh and send you packing.  You'll find technicians at the lesser banks, but not at the top shops.

  • Revsly's picture

    I think it should also be said that some products work better with TA than others IMO.

    Jack: They’re all former investment bankers who were laid off from that economic crisis that Nancy Pelosi caused. They have zero real world skills, but God they work hard.
    -30 Rock

  • aachimp's picture

    this is true as well.  you'll find TA is very common in FX.

  • marcellus_wallace's picture

    commodities and TA go hand in hand.

  • trade4size's picture

    Batrick I now realize you can neither read nor know anything about me.  I also realize you did not read my post and immediately jumped to conclusions.  Shame on you.  That excerpt to makes it a no brainer on what side i take.  Bill Eckhardt is one of the greatest traders ever.  Since you did not take the time to read my post i will summarize it. 
    If technical analysis were a sham then it would not be possible to have been so consistent over the years, taught others to use it, and then had them use it with OPM.  That refutes that fact that this occured merely by a chance.  The problem with disproving the random walk is because it has the disadvantage of being a negative proposition something that is extremely hard to prove something DOESNT exist.

    "Oh the ladies ever tell you that you look like a fucking optical illusion" - Frank Slaughtery 25th Hour.

  • devin's picture

    mm looking back at this thread post internship, yes I suppose i did speak a little prematurely about technical analysis.. oh well you live and learn right? still not my cup of tea

  • trade4size's picture

    Actually Devin it would be nice if you could explain how things changed for you on the subject.  Sounds like you gained some exposure to it and saw potential uses.  From your posts you seemed REALLY heated on the subject being psychobabble.  If you could what desk did you work on.  If you would rather not say atleast tell the liquidity factor.

    "Oh the ladies ever tell you that you look like a fucking optical illusion" - Frank Slaughtery 25th Hour.

  • devin's picture

    basically where you would expect..  traders taking prop positions on the fx and futures markets used it heavily for example

  • LondonE11's picture

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  • In reply to LondonE11
    trade4size's picture

    "Oh the ladies ever tell you that you look like a fucking optical illusion" - Frank Slaughtery 25th Hour.

  • trade4size's picture

    "Oh the ladies ever tell you that you look like a fucking optical illusion" - Frank Slaughtery 25th Hour.