Confessions of a Non-Technical Trader:

[TiCKed]

Since I’ve become intrigued by this “Technical Analysis” thing and the associated verbiage that gets thrown around here, I bought a book this weekend: “Technical Analysis for Dummies”.

(I admitted to being a Dummy long ago with my purchase of “Guitar for Dummies”, so it no longer hurts to buy the funky yellow-and-black books. Mutual Funds, Wine, Coin Collecting…I’ve got a *bleeping* Dummy library.)

I haven’t read much beyond the introduction and basic discussion of what Technical Analysis is, so I don’t have a full book report for you. That may follow.

Also, I’m really not planning to spend hours per day charting stocks and markets, looking for trends, and earning my Technical Analysis merit badge. That isn’t how I want to spend my free time! My goal is just to understand the concepts so that I know when one of you guys has something profound to report….or alternately, determine if I really believe there is anything to technical analysis at all. The book appears to have what I’m looking for: The basic tools and lingo, along with some discussion of methodology. The author is obviously a proponent, but one would expect that!

I have been encouraged so far that the author tends to pooh-pooh some of the more mystical theories. Some may recall my outburst a week or so ago where I tried to make a case for market movement NOT being magically connected to the movement of the cosmos. I’m open to the possibility that there’s useful information in all of that data…I just don’t believe anything is destined to occur based on a random shape of a plot. I’m just an annoying skeptic like that.

I may find more to like, and even believe, than I expected. A full report will follow if there are other self-admitted Dummies who are interested.

 

[mikelong]

I'm a new member here, but I have been investing for lots longer. I really don't do any technical analysis where it concerns any of the TSP funds, but I have studied it some while investing a little bit of savings.

Probably every investor should be at least familiar with technical analysis. Some of it does hold water, along with investor psychology, or sentiment.

Personally, I tend to watch from the sidelines. Right this minute, I am 50/50 S and I and have been for a long time. I am aware that the sentiment may be about to turn negative, or bearish, since so many people are positive right now and lots of multi year highs are being reached. Some air is bound to go out.

I've ridden out the worst corrections in the stock market but have not missed a rally in some time .

longmike

 

[TiCKed]

Well, I'm ready for my book report:

The "For Dummies" book is fairly good for learning about what technical analysis is, the concepts, the terminology, the charts, the lines, etc.

But if I had the desire to actually PARTICIPATE in technical analysis and trading, it's sorely lacking.

It's sort of like teaching you what the pedals and guages in a stock car do, then turning you loose at the Daytona 500. Chances are you're aren't going to finish on the lead lap, and the walls in turn 1 would be in great danger.

Anyway, for my purposes, it was fine. I feel that I understand some of the mystery now, and may even be able to comprehend some of Tom's charts now.

One thing I found quite interesting, that I hadn't considered, was the influence of the "self fullfilling prophesy". Essentially, if a well known Technical Trading event occurs, (crossing a resistance line, moving averages crossing, etc.), there's a good chance the expected technical analysis result will occur. Why? Because it was a well known event!! If all of the technical traders see it, they will act in the appropriate manner, and the appropriate drop/raise in price will occur.

For that reason alone, it probably behooves one to know what the easy to identify events really are, and what they mean.

But while reading the book, I kept wondering if Tech Analysis really applies to an index, like the S&P500. If trading a single security, like Microsoft, I can see where investor sentiment could be devined from trading activity, and decisions can be directly tied to what you see.

But who really TRADES the S&P500? It's an indicator of a broader market, and the only real money tied to the S&P is in Mutual funds. Mutual funds in general do NOT allow active trading, (TSP being an exception). Ok...some of the events and indicators might still be valid indirectly, but I have a feeling that some sentiment and trading activity gets lost in the averaging of multiple sectors and stocks.

Just a thought.

So....If you want to get a handle on the concepts of Technical Analysis, it's a useful reference, and a quick read. If you really want to perform in depth Technical Analysis, better find another book.

Tom

 

[jdubya]

Thanks for the report.

I bought the book a few months ago, but have just looked at a few sections so far.

 

[Spaf]

Closer to home

Ticked, Thanks for the book report.
Closer to what we do is: Trading for Dummies, by Michael Griffis and Lita Epstein, Wiley Publishing, 2004.
A newer edition may be out.
Spaf

 

[robo]

February 02, 2007

Confessions of a Newsletter Man
by Bill Bonner



There is no right way to invest.

Investment gurus are an original bunch. They come up with all sorts of systems, ideas and approaches. Almost all of them are successful - sometimes. There are a lot of different ways to invest and to make money. And often one that works spectacularly well in one period may collapse completely when the market changes course. So too, an approach that often works poorly under certain market conditions will work poorly in other conditions.

But generally, an investment advisor who works hard to develop and refine a system...and who sticks with it...can do reasonably well, sometimes. He can be a technical analyst...a chartist...a Graham and Dodd follower...even an astrologer. Almost any disciplined approach, pursued intelligently and steadily, can pay off.

We have a theory that explains why this is so. Investing is, when you get down to the basement of it, a competitive undertaking. If you do what everyone else does, you will get the same returns as everyone else. In order to get better returns, you have to do things differently. Investment gurus seem to be favored, in this regard, by their own originality and quirky self-reliance. "Sometimes right, Sometimes Wrong," they say. "But never in Doubt." Taken together, they are probably the most independent and contrary professional class in the world. And this contrariness, alone, seems to put them at odds with the great mass of lumpen investors, allowing them to make more - or, often less - than the common results.

By contrast, what seems to doom the average investor is the same mushy quality that seems to be ruining the whole country. He will wait in line - without a word of protest - while guards frisk girl scouts and old ladies for dangerous weapons. If the mob is large enough, he can't wait to be a part of it...and fears being isolated from it. And he will believe any line of guff - no matter how fantastic - as long as everyone else falls for it also. Dow 36,000? House prices always go up? I.O. Neg Am mortgage?

A man who follows a newsletter guru has no guarantee of making money; but a man who follows this great mass of conventional investors is practically guaranteed that he will not.

Regards,

Talk Back

Bill Bonner
The Daily Reckoning

http://www.safehaven.com/article-6828.htm

 

[Birchtree]

Now that read is what I call fun. Good information and fun to read.

 

[The_Technician]

U know, its been satisfying to see the board members get more technical even since I've been here. Its an education you can't do without if you want true knowledge of the financial world....and very satisfying when you climb aboard with some success.

I think the important thing about tech analysis is to keep in mind that for the majority of the time, data is a resultant of real world events, world wide, down to the company of concern. Company reports are like a rudder on a sailboat. So, if you know the direction, you just steer through the waves as they come.

So good luck with learning TA.

 

[mailmanusa]

TA is good for newbys to study and see how things work. After you have been around for a while all that TA study begins to become instinct and you just act. The TA is still there but it flashes through your brain so fast you dont really notice it. I think its a good idea not to get caught up with.....TMI. Instinct is loaded with analysis. You just dont realize it.

 

[Griffin]

On several occassions, I have dived into the charts and TA when I really felt I already knew what I was going to see, only to be suprised. Sometimes, things are better or worse then they seem when your trusting your instincts.

A recent tid bit I stumbled on is Multicollinearity: In short, it is the bias that is introduced into a study when you accidently place emphasis on Momentum, Trend or Volume by looking at similar indicators.

Multicollinearity definition and table of indicators at stockcharts.com

As a result I am adjusting my indicators, I'm keeping the MACD and Slo Sto, but dropping out RSI in favor of On Balance Volume (OBV).

TA is good for newbys to study and see how things work. After you have been around for a while all that TA study begins to become instinct and you just act. The TA is still there but it flashes through your brain so fast you dont really notice it. I think its a good idea not to get caught up with.....TMI. Instinct is loaded with analysis. You just dont realize it.

 

[wht00ss]

A good book to get started with is written by Thomas Bulkowski called "Getting started in Chart Patterns". Several other by him are "Encyclopedia of chart Patterns" and "Trading classic chart patterns" but the must read is "Visual index of chart patterns".

The only way to learn it is to do it.

 

[GGal]

A good book to get started with is written by Thomas Bulkowski called "Getting started in Chart Patterns". Several other by him are "Encyclopedia of chart Patterns" and "Trading classic chart patterns" but the must read is "Visual index of chart patterns".

The only way to learn it is to do it.

I don't understand ya'lls charts......I prefer my own brand of voo doo......

GA