Technical Analysis

[RMorgan]

Hello all,

This is my first post. I have been lurking and reading for a couple of weeks now. I'm learning a lot already, but am completely inexperienced. I have a question about technical analysis of stocks, futures, and commodities.

I think at least in the beginning I'd like to concentrate on learning technical analysis of stocks with the goal of being able to identify 1-3 month trends, break outs and break downs. So my questions are as follows:

Is that a good place to start?
If not, where should I start?
What are good resources to learn more?
Should I always do my own technical analysis or are there good services that successful traders use?

My feeling is that I should probably do my own analysis, but if there is another valid method I'm open.

Thanks in advance for your replies. I'm hoping to learn a lot here and to one day be able to actually make a living trading and make a contribution to the website.

Thanks,

 

[Jason101]

How long do you want to hold for?

 

[kingcontraryman]

Hey RMorgan,

I am in the same process at the moment, learning how TA works etc. My suggestion would be get some books and read as much as possibly on TA (Technical Analysis for Dummies was my first and it's really quite good if you are really new to TA), apply your knowledge on some demo accounts and read other TAs to see what the pros are doing.

I usually compare my findings to the ones on dailyfx.com, they also have nice write ups on where the markets are going.


kingcontraryman

 

[RMorgan]

How long do you want to hold for?

I'm looking to start paper trading and to eventually develop several strategies that work together. The first and most simple model involves going long on calls.

In the case of a positive trend I'm looking to go long on calls. The purpose of the technical analysis would be to determine the strike price and the exercise month on American style options that I would wish to purchase.

Since I'm a beginner and would have to learn much more about hedging I am looking to stay away from shorting calls.

I would first like to get good at identifying trends and then through a process of testing and re-testing develop first a model for going long on calls and then after that developing a model that will allow me to go long on puts and then to learn enough about hedging to go short on calls and puts.

That's just one part of what I hope develops in to a good trading plan that can eventually be done of a living.

 

[RMorgan]

Hey RMorgan,

I am in the same process at the moment, learning how TA works etc. My suggestion would be get some books and read as much as possibly on TA (Technical Analysis for Dummies was my first and it's really quite good if you are really new to TA), apply your knowledge on some demo accounts and read other TAs to see what the pros are doing.

I usually compare my findings to the ones on dailyfx.com, they also have nice write ups on where the markets are going.


kingcontraryman

Thank you! I'll start there.

 

[Stirf]

To those who are new to trading, I trade futures (mostly currency). Read the attachment, I trust that will give you a good view on TA. When using TA, you see what you want to see...

 

[enragedcow]

To those who are new to trading, I trade futures (mostly currency). Read the attachment, I trust that will give you a good view on TA. When using TA, you see what you want to see...

did you completely ignore the work done by Lo and MacKinlay in Stock markets do not follow random walks: Evidence from a simple specification test, Review of Fincancial Studies 1988

seriously that PDF is just populanomics (read: wrongonomics) and "common sense" (both of which are nonsensical)

with questions such as "who's on the opposite side of the transaction?" your assumption is that information is symmetric which is a valid assumption if asymmetric information would make your data unusable but for asset pricing information asymmetries are necessary.

plus you missed a fundamental point, markets are made of people (so is soylent green btw) technical analysis takes all those psychological variables which do move markets and allows you to assess what ON BALANCE OF PROBABILITIES will happen.

it's more akin to meteorology then "predicting stock prices"

that attachment will not give you a good view on TA it instead makes a mockery of what is a fascinating extension to mathematics and economics.

i have no desire to ever take a walk down wall street with you, your markets are simply too efficient it would be too random and my head and shoulders might fall off.

and now to the original poster:

1) start with a few textbooks if it fits your learning style. if textbooks disgust you there's a lot of info ojn the interwebs but it's not organised and sometimes is downright wrong
2) trade demo to learn what buttons to push and when
3) trade small on live
4) trade larger when you feel confident

 

[Stirf]

did you completely ignore the work done by Lo and MacKinlay in Stock markets do not follow random walks: Evidence from a simple specification test, Review of Fincancial Studies 1988

seriously that PDF is just populanomics (read: wrongonomics) and "common sense" (both of which are nonsensical)

with questions such as "who's on the opposite side of the transaction?" your assumption is that information is symmetric which is a valid assumption if asymmetric information would make your data unusable but for asset pricing information asymmetries are necessary.

plus you missed a fundamental point, markets are made of people (so is soylent green btw) technical analysis takes all those psychological variables which do move markets and allows you to assess what ON BALANCE OF PROBABILITIES will happen.

it's more akin to meteorology then "predicting stock prices"

that attachment will not give you a good view on TA it instead makes a mockery of what is a fascinating extension to mathematics and economics.

i have no desire to ever take a walk down wall street with you, your markets are simply too efficient it would be too random and my head and shoulders might fall off.

and now to the original poster:

1) start with a few textbooks if it fits your learning style. if textbooks disgust you there's a lot of info ojn the interwebs but it's not organised and sometimes is downright wrong
2) trade demo to learn what buttons to push and when
3) trade small on live
4) trade larger when you feel confident

Hi Cow,

Thanks for taking the time to read the attachment. What is written in there are just facts. You can start yapping away about wrongonomics, symetries, asymetries, mathematics, etc. but that doesn't change the facts. TA is lagging data, it's history, past perfect tense, etc. And besides that everybody sees something different and people see what they want to see.

Nevertheless it is typical TA behaviour to draw the attention away from the facts and start talking about other "non tangible" stuff. I blaim this on the insecurity of TA traders. It's perfectly normal to need something to hold on to. But what happens to a trader if the one thing he holds on to in his trading (a bunch of lines) turns out to be nothing more than vaporware!? But no worries mate, if you think it is interesting to see what the price did in the past, then use your magical indicators. It's actually hilarious and therefor has a lot of entertainment value to me :cheesy:! Technical analysts are nothing more than charlatans with a great marketing unit behind them.

I'm sharing info on this thread and everybody has to decide for themselves what to do with it. You can agree or not, I don't care. I just think it's good for starters to read this before they get entagled in the web of TA. I rest my case.

Trade well!

 

[barjon]

.................TA is lagging data, it's history, past perfect tense, etc.............

Sure it is. Mind you, when I drive to the shops I take a route built up from the historical data I've got stored in my mind - lo and behold I arrive at my intended destination

Whilst I'd agree with you that TA does not "predict" the future, it does give you reasons for taking action based on what happened in the past in similar circumstances. If people (ie: the market) react in the same way as they have done before then you rub your hands, if they don't you soon know and depart quickly.

jon

 

[Stirf]

Sure it is. Mind you, when I drive to the shops I take a route built up from the historical data I've got stored in my mind - lo and behold I arrive at my intended destination

Whilst I'd agree with you that TA does not "predict" the future, it does give you reasons for taking action based on what happened in the past in similar circumstances. If people (ie: the market) react in the same way as they have done before then you rub your hands, if they don't you soon know and depart quickly.

jon

Sure mate, but I don't think the route you take to the store changes overnight.

 

[JahDave]

I will throw my two cents in here. I only trade technical and I am happy with the results and would not trade any other way. I only entered the trading competition here on week 7 through the current contest, week #13/14. Go look at my results. No one can convince me technical analysis does not work if you learn it well. That is the key, like anything in life. You have to take the time to work hard and learn your skills you want to have well. I think most people think technical analysis does not work because they don't put in the work to learn it well enough. I know that all of the big money firms use it regularly. Anyway, start reading books and if I can answer any questions for you then I will be glad to.

Good trading,
JahDave

Hi Cow,

Thanks for taking the time to read the attachment. What is written in there are just facts. You can start yapping away about wrongonomics, symetries, asymetries, mathematics, etc. but that doesn't change the facts. TA is lagging data, it's history, past perfect tense, etc. And besides that everybody sees something different and people see what they want to see.

Nevertheless it is typical TA behaviour to draw the attention away from the facts and start talking about other "non tangible" stuff. I blaim this on the insecurity of TA traders. It's perfectly normal to need something to hold on to. But what happens to a trader if the one thing he holds on to in his trading (a bunch of lines) turns out to be nothing more than vaporware!? But no worries mate, if you think it is interesting to see what the price did in the past, then use your magical indicators. It's actually hilarious and therefor has a lot of entertainment value to me :cheesy:! Technical analysts are nothing more than charlatans with a great marketing unit behind them.

I'm sharing info on this thread and everybody has to decide for themselves what to do with it. You can agree or not, I don't care. I just think it's good for starters to read this before they get entagled in the web of TA. I rest my case.

Trade well!