Stock Picking - The Flaws of Technical Analysis

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Old Dec 16, 2016, 2:00pm   #1
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Stock Picking - The Flaws of Technical Analysis

We've just published a new T2W article called "Stock Picking - The Flaws of Technical Analysis" by Russell Wayne.

Quick Summary: Russell Wayne discusses why he views technical analysis of stocks as a flawed approach to future price movement.

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Old Dec 16, 2016, 2:42pm   #2
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I'm not going to be lectured by someone who makes a living from managing other people's money as to why an individual can't manage their own, whether by TA or any other means. Obviously, if we all did this, Russell would be out of a job, so he certainly isn't an impartial commentator.
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Old Dec 16, 2016, 2:57pm   #3
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It is "opinion" and more about how fundamental analysis has given more consistent returns when applied specifically to stocks as opposed to other instruments. Either way we all know that more than 80% of people who use TA to trade lose over an extended period of time which is not the case for long term traders who use FA.
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Old Dec 16, 2016, 3:14pm   #4
 
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It is "opinion" and more about how fundamental analysis has given more consistent returns when applied specifically to stocks as opposed to other instruments. Either way we all know that more than 80% of people who use TA to trade lose over an extended period of time which is not the case for long term traders who use FA.
However, this is an assertion that can't be made unless one is clear with regard to exactly what "fundamental" and "technical" analyses are. If one defines technical analysis incorrectly -- "all kinds of lines, shapes, and other graphic devices in a comprehensive attempt to convince the reader that charts of prior price action foretell the future" -- as a foundation for claiming that it "doesn't work", the ensuing argument falls apart. Interestingly enough, the author stumbles across the meaning of traditional technical analysis in his last two paragraphs and decides that it does after all have practical and demonstrable worth.
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Old Dec 16, 2016, 3:37pm   #5
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Yes fair points and maybe the issue is defining what TA is as there seems to be a lot of everything that is not FA bundled into being classed as TA.
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Old Dec 16, 2016, 3:51pm   #6
 
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Yes fair points and maybe the issue is defining what TA is as there seems to be a lot of everything that is not FA bundled into being classed as TA.
Fundamental analysis addresses the value of a company, generally based on revenues, earnings, book value, etc.

Technical analysis addresses the value of the company's stock, i.e., what buyers are willing to pay for it.

Everything else is just mud in the water.
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Old Dec 16, 2016, 5:21pm   #7
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It is "opinion" and more about how fundamental analysis has given more consistent returns when applied specifically to stocks as opposed to other instruments. Either way we all know that more than 80% of people who use TA to trade lose over an extended period of time which is not the case for long term traders who use FA.

I don't see evidence that it was an inherent result of the use of TA rather than fundamentals which caused the majority of traders to fail.

Although there's no evidence for this either, I suggest its equally or more likely that the mentality, ambitions, research efforts, available capital, attitudes to and use of leverage, previous experience with more conventional investment, plus the preference for daytrading that sabotages the majority of traders. These are factors arising from the individual, not from their use or even abuse of TA. The two groups, newbie TA traders and newbie FA traders are not alike and their outcomes should not be compared directly.

I continue to argue that the elimination of daytrading alone as a style of trading would eliminate many losing traders before they had a chance to blow up: of course, if daytrading were unavailable, many would-be traders would simply move on to seek other opportunities in other fields.
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Old Dec 16, 2016, 5:45pm   #8
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I continue to argue that the elimination of daytrading alone as a style of trading would eliminate many losing traders before they had a chance to blow up: of course, if daytrading were unavailable, many would-be traders would simply move on to seek other opportunities in other fields.
I agree.
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