Technical Analysis for the value investor

[yadayada]

I think that with technical analysis, you have to also know where you use it. There is a reason that stuff worked so much better 30-40 years ago. Markets were more driven by emotion, and that made them more predictable, and that made reading charts more effective. If you use it with some stock that is daytraded by housewifes, then I can imagine it working quite well, but if hedgefunds trade in or out, then it should be much more random right?

 

But what works best for me is have enough good idea's and a more strict valuation requirement of getting in. So let's say I have 20% of my portfolio in cash, then having 5 or 10 decent idea's I could get into instead of just 2 helps a lot. The probability that out of those 10, 1 or 2 go  lower to reach a very attractive valuation is good enough that I can wait and not be afraid of missing an opportunnity.

 

Doing it my way requires more work searching for idea's, but that is imo better time spent then studying charts.

[Palantir]

But why dismiss TA? Isn't there evidence that momentum based strategies can outperform the market? Plus, there's a number of good trend following funds that do well.

[LC]

But why dismiss TA? Isn't there evidence that momentum based strategies can outperform the market? Plus, there's a number of good trend following funds that do well.

Momentum, to me, seems like it generates capital until it loses a bunch of capital. Value seems to preserve capital.

[frommi]

For newer investors, don't waste any part of your life on technical analysis!  Cheers!

 

I agree with you. Its easy to get on the wrong path by using it, regardless of whether it works or not.

[PatientCheetah]

I absolutely agree, TA is just another tool and should never be used in isolation. I primarily use it to improve my timeliness and average cost, and to avoid value traps. In a way, it is another form of copycat investing, therefore it relies on the collective wisdom of other investors. As a result, It probably works best with mid and large cap stocks.

[SharperDingaan]

Just remind yourself that there is a hierarchy to these things, & you gain by moving against the flow ...

 

Technical analysis is frequently a substitute to doing 'real analysis'; usually because the investor wants the glamour, but doesn't have the patience, or horse power of a formal investment training. Money is made by selling punters on the pseudo-science; & as with all mania - the more you can convince, the better it seems to work.

    ..... but punters have to not realize that they are trading against the algorhythm's programed in house computers.

 

Fundamental analysis is primarily 'marketing analysis'; to drive activity in XYZ. Buy and hold until the next great idea next quarter - or earlier, if trading revenue is sagging. Money is made by selling funds that they have to act on your report, or miss out on the rise & lose future business to competitors. And the bigger your production house - the more effective the 'persuasion'

..... but funds have to not realize that they are trading against the derivative off-sets lurking in the production house dark-pools.

 

Such finely oiled machines are not very robust .. so every now & then - throw some pebbles in.

And keep the gains when the machines burp.

 

SD