Technical Analysis for the value investor

[SpecOps]

I wanted to start a discussion on Technical Analysis and if/how people on here use it to supplement their investing.

 

Personally I know little about it beyond spotting resistance levels, and I like to try and buy when there is a strong resistance level 'supporting up' my buy price. I know some proper technical traders (that claim to make money consistently) and they usually call me crazy for buying where I do :p

 

So what do other people do with TA, ignore it or use it?

[frommi]

I use Elliottwave analysis and resistance/support levels for entries and exits. EW is very good to find turnaround spots, you just have to remind yourself from time to time that it works on probabilities. It won`t work every time, but from my experience you can roughly time the market in 60-70% of all cases. But don`t believe me, everybody will tell you the opposite. :)

My single best pattern in that regard is an ABC-correction (Zigzag) where the length of wave C is roughly the length of wave A. When there is a support near the end of wave C you have the perfect entry point where it is very likely to get a reaction upwards.

 

[muscleman]

I use Elliottwave analysis and resistance/support levels for entries and exits. EW is very good to find turnaround spots, you just have to remind yourself from time to time that it works on probabilities. It won`t work every time, but from my experience you can roughly time the market in 60-70% of all cases. But don`t believe me, everybody will tell you the opposite. :)

My single best pattern in that regard is an ABC-correction (Zigzag) where the length of wave C is roughly the length of wave A. When there is a support near the end of wave C you have the perfect entry point where it is very likely to get a reaction upwards.

 

Do you think MBI has completed a A-B-C pattern starting from May 10th 2013?

[frommi]

Do you think MBI has completed a A-B-C pattern starting from May 10th 2013?

 

Yes. BBBY is a good example, too. But that`s only for the short term, in the long term the fundamentals have to work.

[SpecOps]

I use Elliottwave analysis and resistance/support levels for entries and exits. EW is very good to find turnaround spots, you just have to remind yourself from time to time that it works on probabilities. It won`t work every time, but from my experience you can roughly time the market in 60-70% of all cases. But don`t believe me, everybody will tell you the opposite. :)

My single best pattern in that regard is an ABC-correction (Zigzag) where the length of wave C is roughly the length of wave A. When there is a support near the end of wave C you have the perfect entry point where it is very likely to get a reaction upwards.

 

Interesting Ill look into EWP.

 

How do you use support levels? I could never figure out whether it was good to buy just above a support, or bad, because if it drops below you get the 'breakout'.

[frommi]

Interesting Ill look into EWP.

 

How do you use support levels? I could never figure out whether it was good to buy just above a support, or bad, because if it drops below you get the 'breakout'.

 

Breakouts are in my experience often false breaks, so i ignore them. And when you are a value investor breaks to the bottom are not really important because the value will "protect" your downside. But they are often turning points because a lot of big limit orders are waiting at these points and soak up the sell orders.

[stahleyp]

I personally don't use with technical analysis. Burry used it a bit though. Buffett once used it but he later said "I realized that technical analysis didn't work when I turned the chart upside down and didn't get a different answer."

[randomep]

Buffett once used it but he later said "I realized that technical analysis didn't work when I turned the chart upside down and didn't get a different answer."

LMAO, i didn't know that

[frommi]

Buffett once used it but he later said "I realized that technical analysis didn't work when I turned the chart upside down and didn't get a different answer."

LMAO, i didn't know that

 

Invert, always invert. :D

[Straddle]

I personally don't use with technical analysis. Burry used it a bit though. Buffett once used it but he later said "I realized that technical analysis didn't work when I turned the chart upside down and didn't get a different answer."

 

I used to trade based on technicals. Mostly moving averages cross over systems and also based on the MACD indicator. It always looks good in hindsight, but I doubt if anyone can make money using technical analysis over a period of 10 years.

 

[thefatbaboon]

Never do any technical analysis except that I will check where 200 and 50 day moving averages are and if my buy price is within 5% of a moving average I have been known to adjust my buy price up or down to get near it.  Otherwise nothing.

 

For example,  if I were looking to buy IBM at $180 and the 200MA was at $184 I might increase my limit and start buying at $184.

[randomep]

Interesting Ill look into EWP.

 

How do you use support levels? I could never figure out whether it was good to buy just above a support, or bad, because if it drops below you get the 'breakout'.

 

Breakouts are in my experience often false breaks, so i ignore them. And when you are a value investor breaks to the bottom are not really important because the value will "protect" your downside. But they are often turning points because a lot of big limit orders are waiting at these points and soak up the sell orders.

 

Ok, I have a question: WHO IN THIS THREAD IS SERIOUS?

[PatientCheetah]

I am a serious proponent of TA. Just because you don't use it, doesn't mean that it's not viable. I look for beaten down stocks that are close to major resistance. I keep everything simple and stupid - just trends/resistances, no moving averages, fibonacci ratios or any other indicators. This is how I got in close to the lows in GS, JPM, AAPL, etc. I think too many people misuse TA and invent too many indicators, resulting in curve fitting.

[randomep]

I am a serious proponent of TA. Just because you don't use it, doesn't mean that it's not viable. I look for beaten down stocks that are close to major resistance. I keep everything simple and stupid - just trends/resistances, no moving averages, fibonacci ratios or any other indicators. This is how I got in close to the lows in GS, JPM, AAPL, etc. I think too many people misuse TA and invent too many indicators, resulting in curve fitting.

 

Well, good to know PatientCheetah. I was seriously asking of the 10 posts which is a joke and which is not, so I can digest them properly. I still don't know the answer but plz everyone forget I asked.

 

[bmichaud]

For some reason I only read Investor's Business Daily in airports, but from what I've read it seems to have decent TA for individual stocks. They do a lot of volume and accumulation analysis in order to confirm breakouts and washouts. I believe the IBD 50 is growth-oriented, but one may be able to pick up some interesting TA tips just by reading the analysis of their focus names.

[PatientCheetah]

I am a serious proponent of TA. Just because you don't use it, doesn't mean that it's not viable. I look for beaten down stocks that are close to major resistance. I keep everything simple and stupid - just trends/resistances, no moving averages, fibonacci ratios or any other indicators. This is how I got in close to the lows in GS, JPM, AAPL, etc. I think too many people misuse TA and invent too many indicators, resulting in curve fitting.

 

Well, good to know PatientCheetah. I was seriously asking of the 10 posts which is a joke and which is not, so I can digest them properly. I still don't know the answer but plz everyone forget I asked.

 

Oops, I misread the tone. On the internet, words in caps = yelling.

[frommi]

Ok, I have a question: WHO IN THIS THREAD IS SERIOUS?

 

I am. And i think that everything that works in TA has to do with human weaknesses/psychology. The anchor effect for example is a simple explanation why support/resistance levels work.

[randomep]

I am a serious proponent of TA. Just because you don't use it, doesn't mean that it's not viable. I look for beaten down stocks that are close to major resistance. I keep everything simple and stupid - just trends/resistances, no moving averages, fibonacci ratios or any other indicators. This is how I got in close to the lows in GS, JPM, AAPL, etc. I think too many people misuse TA and invent too many indicators, resulting in curve fitting.

 

Well, good to know PatientCheetah. I was seriously asking of the 10 posts which is a joke and which is not, so I can digest them properly. I still don't know the answer but plz everyone forget I asked.

 

Oops, I misread the tone. On the internet, words in caps = yelling.

 

It's all good.

[Fat Pitch]

Not one for technical analysis. I do see some validity in volume levels when it comes adding/reducing holdings.

[SharperDingaan]

We use it for hedging purposes. Mostly trends, 50 day EMA & RSI. We also find that when markets close in on cross-over points, the probability of a cross-over tends to rise. That extra 5-10% for noise is essentially the same as a dividend.

 

SD

 

[Palantir]

Is this a Queer Eye for the Straight Guy type of thing? I like it.

[peter1234]

Let's not forget that the master himself studied TA.

;D

[Liberty]

I've never used TA, but thought this blog post was kind of interesting since it's written from the perspective of someone coming from a place similar to many here:

 

http://investingsidekick.com/technical-analysis-value-investor/

[cobafdek]

I've never used TA, but thought this blog post was kind of interesting since it's written from the perspective of someone coming from a place similar to many here:

 

http://investingsidekick.com/technical-analysis-value-investor/

 

Well-written blog post, but still not persuasive to me because I would summarize it as "support/resistance levels work, until they don't."

 

Nevertheless, there are successful practitioners of TA, but I would attribute those successes to TA somehow being a weird proxy for value investing.  Or maybe value investing is a proxy for TA.  In fact, the mechanical application of quantitative value investing methods (such as the blind selection of stocks from a screen and nothing more) will probably be no more successful than a blind and mindless application of TA methods.  Some of the best legendary value investors say their on-base percentage is about 60%, so that a TA practitioner could argue that value investing doesn't work all the time either.

 

I found Jack Schwager's interviews in his Market Wizards books very interesting and insightful (except when the top traders delve into the specific technicalities of how they use TA).  Their philosophical/psychological insights and perspectives sound very much like the best value investors discussing decision-making principles.  I think both camps bring something more to their stock-picking work than his own preferred dogma.

[Parsad]

I am a serious proponent of TA. Just because you don't use it, doesn't mean that it's not viable. I look for beaten down stocks that are close to major resistance. I keep everything simple and stupid - just trends/resistances, no moving averages, fibonacci ratios or any other indicators. This is how I got in close to the lows in GS, JPM, AAPL, etc. I think too many people misuse TA and invent too many indicators, resulting in curve fitting.

 

Respectfully, Pppphhhhhhtttttt!  :P

 

I was in the lows of AAPL too, as well as LUK, BAC, WFC, SD and even BRK...lower than my friend Allan Mecham at Arlington Value...who incidentally has an absolutely stellar record and does not use TA either. 

 

Yes, TA can provide some idea of short-term momentum and investor sentiment, but for the long-term, patient investor, you simply just buy when you see that the whole world is selling. 

 

If you believe that it helps you, so be it and more power to you!  But I would suggest that spending a second on technical analysis, is one second better spent on just reading 10-Q's and 10-K's. 

 

And the simplest experiment I can suggest on the complete and utter uselessness of TA is as easy as this:

 

Suppose you found a small company, that has little market liquidity, little to no debt, is growing steadily and generates terrific net income.  But it has run into a short-term issue of not having enough cash or credit to fulfill a huge order.  You have the ability on the spot to give the company the liquidity it needs, and for the most part, can negotiate the terms you want within reason...in effect, this is going to be a huge winner!  What advantage or gain can technical analysis provide in this investment?

 

Absolutely zero...no advantage, nor even required other than to waste time...only to lose out and not making the investment, as they found another funding source while you were asking Fibonacci for guidance!  ;D

 

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