The Economist on Charting

[yakers]

I have never seen the sense in Charting but it does not offend me the way say bad annuities do. I figure it will work sometimes until it doesn't, like a lot of systems. But the shot from The Economist is more compellingly negative than most things I have read:

http://tinyurl.com/z4lfl

Don't know if a subscription is required for that specific site but the essense is ".... chartists defend their territory with an almost religious zeal. But their arguments are often anecdotal: “If technical analysis doesn't work, how come so-and-so is a multi-millionaire?”. This “survivorship bias” ignores the many traders whose losses from using charts drive them out of the market."

The article is about Fibonacci numbers and why they do not apply to the market.

 

[lifeisgood]

Seems to be a premium service page at the Economist.

Caharting is an easy topic to ignore. Not that I have done any of it, but there seems to be lots of research disproving charting/technical analysis.

Still, I do love to buy the day the market has dropped sharply, even if the asset I'm buying is to be held for 20 years. But that's about the extent of my market timing.

 

[yakers]

buying an asset you want to hold for 2 years the day after the market drops sounds like my kind of market timing. Just good value investing.

 

[FinanceDude]

I have never seen the sense in Charting but it does not offend me the way say bad annuities do. I figure it will work sometimes until it doesn't, like a lot of systems. But the shot from The Economist is more compellingly negative than most things I have read:

http://tinyurl.com/z4lfl

Don't know if a subscription is required for that specific site but the essense is ".... chartists defend their territory with an almost religious zeal. But their arguments are often anecdotal: “If technical analysis doesn't work, how come so-and-so is a multi-millionaire?”. This “survivorship bias” ignores the many traders whose losses from using charts drive them out of the market."

The article is about Fibonacci numbers and why they do not apply to the market.

They trot this same stuff out every couple years to appear intelligent. Bottom line for me? Charts tell you WHERE YOU HAVE BEEN, and good fundamental analysis gives you a clue as to where THE MARKET MAY BE GOING..............I'd rather embrace the latter........

I know VERY FEW technicians that have made much money for their clients..............

 

[magellan_nh]

Although I'd never invest any money based on technical analysis, there is solid research that a "momentum" factor exists that's significant in predicting short term market or stock movements. We're talking about statistical decimal points of probability, but just like any other risk arbitrage it doesn't take much to make a killing.

The research shows that if a stock has been going up, then at any given point in time, there's a statistically significant likelihood that it will continue the trend rather than turn around. The same with the other direction. Now of course we all know that the trend will continue until it doesn't anymore, and that's where the losses set in. However, I wouldn't rule out somebody having a way to make some risk adjusted excess profit off this or other anomalies, just like some did with value investing. Of course it only works until the rest of the world learns the system and the extra profit goes away.

As with most schemes for beating the market, there's a sound basis for a part of the it that's used to create the illusion of a sure-fire system. I wouldn't doubt that there are some real market inefficiencies that can be reliably identified and exploited, for a while at least.

For my money, I just don't have faith that I could ever make any money out of it. Even if a system once was real, by the time I can get in it's probably already been made useless by arbitrage.

Jim

 

[FinanceDude]

Although I'd never invest any money based on technical analysis, there is solid research that a "momentum" factor exists that's significant in predicting short term market or stock movements. We're talking about statistical decimal points of probability, but just like any other risk arbitrage it doesn't take much to make a killing.

The research shows that if a stock has been going up, then at any given point in time, there's a statistically significant likelihood that it will continue the trend rather than turn around. The same with the other direction. Now of course we all know that the trend will continue until it doesn't anymore, and that's where the losses set in. However, I wouldn't rule out somebody having a way to make some risk adjusted excess profit off this or other anomalies, just like some did with value investing. Of course it only works until the rest of the world learns the system and the extra profit goes away.

As with most schemes for beating the market, there's a sound basis for a part of the it that's used to create the illusion of a sure-fire system. I wouldn't doubt that there are some real market inefficiencies that can be reliably identified and exploited, for a while at least.

For my money, I just don't have faith that I could ever make any money out of it. Even if a system once was real, by the time I can get in it's probably already been made useless by arbitrage.

Jim

Unless you're brewer, and have the "inside scoop"...............