Technical vs fundamental trading

[Iron]

True, but I don't see how that makes it any easier for them to beat the market without tremendous skill. It's a bit like someone using their horseracing knowledge to find value lays on Betfair. It can be done, but you need to be bloody skillful.

And I would argue that technical analysis is probably only effective to the extent that it utilises trend following principles. Why should something as chaotic as a market attach any special significance to a head and shoulders formation or Fibonacci ratios, for example?

Also, if you're using technical or fundamental analysis, how do you know you have an edge? Trend following's effectiveness has been proven beyond reasonable doubt, over tens of thousands of trades spanning decades. It may be that someone has stats showing that flags, pennants and dojis also produce a profit over thousands of trades - I keep an open mind - but I've yet to see or hear of such evidence...

Jeff

[superfrank]

Trend following is technical analysis!

[Zenyatta]

Trend following without fundamental knowledge is the fastest way to do your bollocks in Jeff.

[Iron]

That's debatable.

Let's say you have a simple system where you buy when the 10 period moving average cross over the 20 period moving average, and vice versa. There's not much analysis there!

But let's say, for argument's sake, someone uses mechanical trend following combined with fundamental analysis, and only enters the market when the two agree. Unless the person's fundamental analysis actually works against them, it can't hurt. But they will have to be exceptional IMHO to derive any extra profit from the fundamental analysis part of the process.

Jeff

Trend following is technical analysis!

[Iron]

Try telling that to the guys who have made hundreds of millions of dollars doing precisely that.

Or this guy: http://www.dailymail.co.uk/news/article ... -year.html

Jeff

Trend following without fundamental knowledge is the fastest way to do your bollocks in Jeff.

[superfrank]

That's debatable.

Let's say you have a simple system where you buy when the 10 period moving average cross over the 20 period moving average, and vice versa. There's not much analysis there!

But let's say, for argument's sake, someone uses mechanical trend following combined with fundamental analysis, and only enters the market when the two agree. Unless the person's fundamental analysis actually works against them, it can't hurt. But they will have to be exceptional IMHO to derive any extra profit from the fundamental analysis part of the process.

Jeff

Trend following is technical analysis!

What's a moving average if it's not a technical indicator?!

[Iron]

It is, but in my mind technical analysis conjures up shooting stars, dojis, haramis, support and resistance levels, etc.

But we're getting into semantics here. My original point was that you need to be exceptional to make a profit from fundamental analysis. And whether you combine said fundamental analysis with trend following, astrology, or anything else, I still feel that's the case!

Jeff

What's a moving average if it's not a technical indicator?!

[superfrank]

I don't agree Jeff.

I think you've been reading too many books.

[Iron]

I think you've been reading too many books.

That almost sounds like a compliment!

You can never read too many books, as long as they're the right books!

Jeff

[superfrank]

You can never read too many books, as long as they're the right books!

A fundamental decision...

[Iron]

Absolutely. And yes, that decision is not without irony...

If you invest without knowing you have an edge, you're gambling. Many people think they have an edge, and it's easy to talk yourself into thinking you know more than you do. Your average bookmaking establishment is full of such people.

How many people can point to a body of evidence that says that, long term, they are extremely unlikely to lose money using their investment method? I'm not talking about anecdotal evidence. I'm talking about the kind of evidence where a statistician would say 'You're more likely to bump into Lord Lucan riding Shergar than lose money long term with this approach!' Trend followers can. Can you?

Jeff

You can never read too many books, as long as they're the right books!

A fundamental decision...

[superfrank]

I can on horse racing but on financials my sample size is too small atm to satisfy a statistician.

What kind of trends/markets are you talking about - long-term investing in stocks?

[Iron]

Yes. Trend following stats normally relate to the 1 day+ timeframe.

There are some stats in the link in this thread you may find interesting - viewtopic.php?f=35&t=4620

Jeff

What kind of trends/markets are you talking about - long-term investing in stocks?

[superfrank]

The most successful investors (e.g. Buffet) use fundamental analysis of stocks to look for value and try to buy on dark days (and then close their eyes and hope that governments will keep it all propped by borrowing from the future when things look dodgy).

The problem with that approach is that you need a big bank to start with (in order to make enough to live on), and also that many of those investments will be correlated (relying on ever increasing economic growth - which is a fundamental call).

[Iron]

The most successful investors (e.g. Buffet) use fundamental analysis of stocks to look for value.

There are trend following traders with similar records to Buffet's in terms of average annual account growth in percentage terms over a number of years.

And some of these guys have made a bob or two in the process - See the 'Trend Following Fortunes' section at http://www.trendfollowing.com/perf.html

The problem with that approach is that you need a big bank to start with

If, using a small bank, you can generate seriously impressive returns over a few years and lots of trades, I bet you'd find people who'd want you to invest their money for them. If not, it could lead to a City career, if you wanted to go down that path...

Jeff