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From: | Travis Morien <travismorien@yahoo.com> |
Date: | Tue, 25 Feb 2003 13:41:27 -0800 (PST) |
--- "tennyson@caverock.net.nz" <tennyson@caverock.net.nz> > >I say bah humbug to the all knowing insider. > > > > > Except when the insider is buying? There is this belief among TAs that insider activity can be clearly seen on charts. In reality, most genuine insiders do their major buying and selling off market. It is true that when a company executive buys his company's stock this is a bullish sign, but the opposite is not necessarily true because sell orders could be for a wide variety of personal reasons. I will point out at this stage that Hulbert Financial Digest in the US, whose raison d'etre is to analyse the results of other investment newsletters, has found that newsletters specialising in tracking the buying and selling of stock executives and other "insiders" do not appear to deliver above average returns. I other words, the evidence supporting the great wisdom of insiders is scant. > > Maybe, but I don't see anyone on this forum making > the claim that > they can program a computer to trade automatically. But there is a claim that psychology leaves an unambiguous imprint in OHLCV data, which is easily visible when that data is plotted on a price vs time axis. If the signal is there it should be a very simple matter to train a neural net to pick it up. There are working neural net programs out there but they cost tens of millions of dollars to develop and feed into incredibly detailed economic databases containing every possible piece of information. (If interested, do a Google search on "The Prediction Company"). Why would the developers go to such expense if the patterns were there in simple OHLCV data and they were obvious to anyone with a copy of Metastock. > > By the same token, I don't see any fundamental > investor here claiming > they can pick shares by using automated fundamental > analysis. Dimensional Fund Advisors pretty much do that with their index funds. In 2002 the Dimensional Fund Advisors Australian Value Trust (buying the bottom 30% of Australian stocks by price to book ratio) outperformed all but one fund in Australia. The only manager to beat them, Tyndall, did so by the slimmest of margins. So provided I could diversify cheaply I'd be more than happy to unleash my computer onto the market to buy on the basis of fundamentals. I'd incorporate a regression to the mean rule into forecasting future growth from past growth and buy the 30% of stocks with the highest expected returns according to my valuation models. I don't actually do that in practice of course, but I can't afford to buy 30% of the market. > > The second aspect is the limitation of losses. So > > called "risk management". These basically involve > > stop losses of various sorts including fixed stops > or > > trailing stops. Once again it has nothing to do > with > > technical analysis because it is based on your > trade > > equity, not the price of the stock. > > > > > > Please explain how you can 'fixed stop' or 'trailing > stop' that is > not based on the price of a stock. It is a function of the trade size and other things as well as the price. What I meant to say, and I admit I screwed it up, was that stop loss orders are designed to automatically terminate a trade as soon as a loss exceeds a preset amount. It doesn't depend on any TA concept such as support/resistance or trendline breaks or whatever. > >If someone here has any credible > >evidence whatsoever I'd love to hear it. I'm sure > you > >all do because no rational thinking human being > would > >follow an investment strategy without first > >determining whether or not it works, would they? > > > > > > > Well, I'm not so sure. Plenty of people buy any > property because > "property always goes up". They still teach > budding fund managers > 'efficient market theory' at university. Efficient market theory is taught but generally not taken entirely seriously. Efficiency is of only academic interest. What is more important is how to exploit these inefficiencies and spot them ahead of time. Easier said than done, especially when hindsight is involved. But seriously, members of this group blasted me with their contempt for my 'stupidity' at not understanding TA. Suggestions were made that I'm just an angry and disgruntled failed trader. Perhaps these are the people best qualified to provide the evidence I have requested that TA outperforms coin flipping. Negative replies to my original posts came in thick and fast, but I note that my critics have been strangely quiet when I asked them to provide their proof. I've listed a variety of studies and researchers to back up my claims. the best I've seen come back the other way have been comments made with hindsight regarding individual stocks that appeared after the fact to adhere to a trading system quite well. That level of "proof" is as valid as testimonials that a few weeks after your horoscope said you would encounter financial loss that you go a speeding ticket. Absence of conflicting testimonials doesn't mean this one is valid, its just that people don't bother listing the number of times their fortune teller predicted something that never happened just as chartists choose to ignore stocks that didn't adhere to their trading system or display the phenomenon of support and resistance. My insistance that if support and resistance is real and reliable and, more importantly, tradeable, is an entirely reasonable expectation. Support and resistance is not an obscure subjective phenomenon, it is obvious in hindsight. All I ask is for evidence that it is obvious with foresight as well. Maybe someone has this evidence framed on their wall next to the framed copy someone mentioned they had made of Phaedrus's original devastating countertattack that certainly showed me who was the boss. And yeah, I'd like to hear this from an actual trader rather than a dedicated non-trader who doesn't use the techniques himself. Travis www.travismorien.com __________________________________________________ Do you Yahoo!? Yahoo! Tax Center - forms, calculators, tips, more http://taxes.yahoo.com/ ---------------------------------------------------------------------------- To remove yourself from this list, please use the form at http://www.sharechat.co.nz/chat/forum/
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