When Friends Think TA is God But Refuse to Listen ...
Do any of you have annoying friends who works a non financial job but trade and think indicators and flashing lights are the main driver of the markets.
I try to explain to the, most funds don't use any of that, if you brought up any of that in a morning meeting you would get laughed at and its almost random daily fluctuations. I say why would a fund wanting to buy 500,000 shares of ABC with daily vol of 500,000 wait for a line/indicator on a chart to say so. I explain each trade takes days if not weeks to get fully executed with out making any noise and the best value.
They also love to use Stop loss orders from what i hear what is insane, they seem to buy something at say $25 because they think its a good price, then when drops to 20 suddenly they want out, instead of buying more. Even though earnings has not changed or projections have not changed, this to me is mental.
After a quick search most of the information online for people like this seems to be outright false, many of the so called trading gurus use this technical method and offer to teach you, for a fee of course.
Everyone seems to be getting scammed
I'm not a huge proponent of technical analysis, but in Jack Schwager's Market Wizards, a lot of the top traders he interviews use it in some form, so there may be something there.
In Market Wizards there is a big emphasis with stop losses. Most of the traders interviewed talk so highly about it like its the gold standard
Though a nuance to the stop loss strategy seen often in Market Wizards is that they are mental stops rather than stop loss orders, so that they don't get knocked out by a weird intraday blip. It's more of a self discipline thing that forces them to admit when a trade idea is wrong.
Because most traders are playing momentum or trying to call short term turning points, they aren't investing. Completely different set of rules, completely different time horizon and objective.
Technical analysis is good for execution indicators when getting into and out of positions. You're right that there are never new positions done in one trade, but if you're going to scale into a trade, you might want to have some idea where you might run into some resistance or market execution issues.
TA should be used in junction with fundamentals and economic analysis etc. It's just a supplement for research, nothing more nothing less.
To make it simple, there are 2 types of Technical Analysis:
1- Garbage Technical Analysis for Retail Noob Traders:
Moving Averages, Fibonacci, Candlestick patterns, Trend Line Geometric Drawings, Bollinger Bands, Hakuna Matata candles, etc...
Seriously just check out the name of some of these indicators:
Aroon, Awesome Oscillator, Know Sure Thing Indicator, Balance of Power, Chaikin Money Flow, Chop Zone, Detrended Price Oscillator, Donchian Channels, Elders Force Index, Fisher Transform, Ichimoku Cloud, Stochastic Relativity Strength Indicator, TRIX, Williams Alligator, Williams Fractals
I mean you must be a complete retard to risk your money based on indicators that have such names and deserve whatever happens to your capital, just take a moment its so obvious that they are complete crap....
2- Real Technical Analysis employed by Professionals:
Depth of Market, Commitment of Traders, Order Flow analysis, Statistical Analysis and Asset Correlations.
Unfortunately, both of these categories fall under Technical Analysis, when Market Wizards talk about how important TA is, they are referring to the second part, which is extremely hard to master unlike 1st category where you go long when prices hits 18 day EMA for example (lmao).
Mastering Order Flow (Futures) and DOM (equity markets) is a very very tough thing to do and this is actual technical analysis that is used for execution, and execution only!
Fundamentals are for idea generation and TA (2nd category) for a smooth execution.
They should absolutely rename the 2nd category to something other than TA..
Traditional TA is useless. However, volume profile fits beneath that umbrella, but the difference is traders using that tool (and ones like it) are analyzing the fundamentals of how money is coming into the market as opposed to why it's coming into the market. That being said, I've never met a hedgie or retail trader that could trade their way out of a wet paper bag.
the most successful (aka...profitable) hedge fund of all time (Renaissance - Medallion) by a factor of about $15 billion, is a pure quant (read, technical analysis) fund. Go stick that up your pipe and smoke it..
Renaissance's strategies are as close to what is traditionally defined as technical analysis as Seth Curry is to his brother Steph Curry as a basketball player.
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