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Technical Analysis Fact and Fiction

  
  Education
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“Technical analysis, I think, has a great deal that is right and a great deal that is mumbo jumbo…

“There is a great deal of hype attached to technical analysis by some technicians who claim that it predicts the future. Technical analysis tracks the past; it does not predict the future. You have to use your own intelligence to draw conclusions about what the past activity of some traders may say about the future activity of other traders.

“For me, technical analysis is like a thermometer. Fundamentalists who say they are not going to pay any attention to the charts are like a doctor who says he’s not going to take a patient’s temperature. But, of course, that would be sheer folly. If you are a responsible participant in the market, you always want to know where the market is — whether it is hot and excitable, or cold and stagnant. You want to know everything you can about the market to give you an edge.

“Technical analysis reflects the vote of the entire marketplace and, therefore, does pick up unusual behaviors. By definition, anything that creates a new chart pattern is something unusual. It is very important for me to study the details of price action to see if I can observe something about how everybody is voting. Studying the charts is absolutely crucial and alerts me to existing disequilibria and potential changes.”

– Bruce Kovner, Market Wizards

Bruce Kovner pulled billions out of the markets, over multiple decades, before handing the reins of his fund, Caxton Associates, to the next generation of traders.

As an academic in a past life, Kovner was known for his deep dive fundamental analysis — but he also used charts extensively, as the Market Wizards excerpt shows. (more…)

6 Points For Traders

  
  Education
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1.  Consistently profitable trading is not about discovering some magic way to find profitable trades.
2.  Consistently successful trading is founded on solid risk management.
3.  Successful trading is a process of doing certain things over and over again with discipline and patience.
4.  The human element of trading is enormously important and has been ignored by other authors for years.  Recognizing and managing the emotions of fear and greed are central to consistently successful speculation.
5.  It is possible to be profitable over time even though the majority of trading events will be losers.  “Process” will trump the results of any given trade or series of trades.
6.  Charting principles are not magic, but simply provide a structure for a trading process.

Strategy

  
  Education
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  • Adaptable- a strategy must be able to adapt to a changing market.  It must also be able to adapt to your internal changes.  If nothing changes there would be limited chances for profit. Every trader must root for changes but it does not matter if you cannot adapt.
  • Definable- there are times when you need to override your strategy but that happens for less frequently than we think.  A majority of your trades you should have a definite reason for a action.
  • Quickly explainable– if you can’t explain your strategy or reason for a trade in a minute or less it is probably too complicated.  Until you fully understand your strategy a majority of your “indicators” are just putting a band-aid over a gaping wound that is your lack of understanding.
  • Personal- You are an input into the way you execute.  You cannot be something you are not.  Do not get me wrong there are things about yourself that you need to bend to trading but strategy should not be that one.  It is hard to fake being tall and expensive to be a type of trader you are not.
I am not saying a trading plan will make you a successful trader, there are other factors.  It is a necessary first step.  You need a trading plan to consistently and confidently execute.  Your trading rules should answer whatever questions the market asks you.  Originally I made the mistake of planning out my trades, for example.  If the market does x I am going to do y.  Well when I was creating that plan that was what was working.  When I started to apply that plan the market had changed. That is why many probably scrap their plans or do not work on them in the first place.

You are either a system trader or a discretionary trader.  Each has it’s own equity curve and set of responsibilities. Below are some videos that you will find helpful.

 

5 Trading Lessons-Must Read

  
  Education
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  • Most of the time, markets are very close to efficient (in the academic sense of the word.) This means that most of the time, price movement is random and we have no reason, from a technical perspective, to be involved in those markets.five--
  • There are, however, repeatable patterns in prices. This is the good news; it means we can make money using technical tools to trade.
  • The biases and statistical edges provided by these patterns are very, very small. This is the bad news; it means that it is exceedingly difficult to make money trading. We must be able to identify those points where markets are something a little “less than random” and where there might be a statistical edge present, and then put on trades in very competitive markets.
  • Technical trading is nothing more than a statistical game. The parallels to gambling and other games of chance are very, very close. A technical trader simply identifies the patterns where an edge might be present, takes the correct position at the correct time, and manages the risk in the trade. This is, of course, a very simplified summary of the trading process, but it is useful to see things from this perspective. This is the essence of trading: find the pattern, put on the trade, manage the risk, and take profits.
  • Because all we are doing is playing the small edges as they occur in the markets, it is important to be utterly consistent in every aspect of our trading. Many markets have gotten harder (i.e. more efficient, more of the time) over the past decade and things that once worked no longer work. Iron discipline is a key component of successful trading. If you are not disciplined every time, every moment of your interaction with the market, do not say you are disciplined.

Latest Jim Rogers video interview on Bloomberg

  
Analysis, Education, Video
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Jim Rogers, chairman of Rogers Holdings, talks with Bloomberg’s Haslinda Amin about China’s yuan policy and calls for the mainland to allow the currency to appreciate. Speaking from Singapore, Rogers also discusses the outlook for global economies, currencies and the commodities market. Bloomberg’s Paul Gordon and Patricia Lui also speak.

Technical Analyst & Fundamental Analyst -Chat

  
  Education
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“A technical analyst and a fundamental analyst are chatting about the markets in the kitchen. Accidentally one of them knocks a kitchen knife off the table landing right in the fundamental analyst’s foot! The fundamental analyst yells at the technician, asking him why he didn’t catch the knife? “You know technicians don’t catch falling knives!,” the technician responded. He in turn asks the fundamental analyst why he didn’t move his foot out of the way? The fundamental analyst responds, “ I didn’t think it could go that low.” 

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