Technical Analysis in this Eurocrisis-obsessed market
Some people like technical analysis more than others. I am wondering if you guys think technical analysis is MORE or LESS accurate/useful in this market where everything is driven by macro events in Europe combined with investors' mood from one day to the next. Does this make technical indicators more reliable, since price movement in securities (equities for example) has little to do with the strength of the underlying company but everything to do with how many people are buying or selling?
For example, I've been looking at the RSI indicator for some securities, and it seems like without fail when the RSI says it's oversold, the price goes up.
What do you guys think?
Not a trader at all, but I'd imagine it becomes less useful for the long term. Any comment by anyone can just throw off the market.
Agree with the person above me Forget technicals at this point even fundamental analysis is skewed right now simply becasue no one knows what will happen and everyone is looking for an answer at the same place/people (FR, ECB, etc)
Agree with the person above me Forget technicals at this point even fundamental analysis is skewed right now simply becasue no one knows what will happen and everyone is looking for an answer at the same place/people (FR, ECB, etc)
It's a sideways market so those contrarian indicators "seem" to be working. But in reality are they just chance events or real patterns that you can exploit for profit?
In a trending market trading off the RSI would rip your face off. Some technical analysis has its merits (evaluating strength, weakness, historical price relationships, etc.) but I'm not a fan trading off indicators, oscillators, patterns or just general esoteric signals.
I wouldn't use it as a trend tool at this point in time, but its great to identify reversals in the market on a short term basis... on a longer time scale technical analysis actually works quite well if you use the right indicators and study the different cycles, candlestick bodies and the patterns. for now... the uncertainty is just killing everyone and fund managers are pissed off because they've lost a lot of alpha. the only thing that i would use in these markets is fib...
Anyone who denies the existence of support and resistance is either a mutual fund manager or broke (but maybe both!)
Support/resistance levels were made to be broken. Victor Niederhoffer tested a lot of the simple TA tools such as support and resistance levels and trading off those levels gives a result you would expect by chance.
For an interesting experiment simulate a heads/tails simulation in Excel (let's say that's our Brownian motion). Check out the graph and you will think that there are significant levels of support/resistance too.
TA's problem is that it's largely subjective. In hindsight we're saying that RSI is working. Then again it's a sideways market so of course we expect a contrarian indicator to give profitable entries. If the market started trending for a month in either direction and you traded when the RSI reached the reversal threshold then you would lose. Again RSI signal success is pointing out a sideways market. If you think we're going to remain range bound you might as well become a writer of bear/bull spread options. It will give you more bang for the buck... just hope you don't get burned by tail risk if going naked.
RSI's tend to work in year's like 2011 when many markets have had trouble making and sustaining breakouts...ie in mean-reverting markets. In 2008 using RSIs to try to buy dips in risk assets may have ended your career. SO technical analysis is good, and I use it, but you have to be aware of the bigger picture and the limitations of each indicator.
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