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Valyooo (99.65)

The myth of self fulfilling TA, and accepting mistakes

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April 05, 2011 – Comments (5)

I hear time and time again that a lot of the reason that technical analysis works is because its self-fulfilling.  This makes no sense to me.  First of all, how did people come up with what charts they woul decide to make popular, and then make it self fulfill?  There had to be some previous success before people caught on to the charts, so how did they work before they were popular?  Also, if a chart bounces off support and is 3/4 of the way toward resistance, who the hell is still buying it?  No technician would do that.  Also, some would probably buy it even earlier, making it not bounce off of support.  Plus, technicians know not to buy a stock stuck in a triangle until it breaks out.  So how does it break out then?  I don't get the logic that TA is self fulfilling.  I am by no means a TA expert, but theres psychological reasonings behind most if not all of the charts.

A second that I would like to add to the CAPS community, because it has been ticking me off lately: when you are wrong, move on, instead of shouting even louder.  1) The world did not end in 2008, so all of the people who are calling people who invested in this bull market a fool, need to shut up and move on  2) If GMX, or anybody else (like me) was right about a china stock being a fraud, and it TURNS OUT TO BE A FRAUD, then say you are wrong.  I have seen people a) debating whether or not CCME is fraudulent STILL TO THIS DATE b) people calling GMX an ass even after they were proven wrong.   Also, since most of them are shaping up to be frauds, dont say "short sellers are irrationally bringing this price down" since its usually pretty rational.  I am not sure why people on here feel like they are somehow superior humans for liking small cap chinese stocks.  Its as if you like RTO's then you are smart, handsome, and righteous, but if you think they are a fraud you are a child molester.  Its ridiculous.

 Also, I have ignored it as long as I possibly could, but Alstry is finally starting to get on my nerves.

5 Comments – Post Your Own

#1) On April 05, 2011 at 7:13 PM, Varchild2008 (84.68) wrote:

"There had to be some previous success before people caught on to the charts, so how did they work before they were popular?  Also, if a chart bounces off support and is 3/4 of the way toward resistance, who the hell is still buying it?  No technician would do that."

Absolutely....which is why Charts don't work.

Fundamentalists see catalysts in a stock with perhaps exact dates of when they occur. 

(GME)<------  My Stock I invested in at the most opportune time.....anyhow...  GME is a great example!

Bounces off support in the 19s and then ploughs its way straight threw resistance after resistance with only 1 day slight pullbacks of (1 penny, 11 cents, and 35 cents).  Otherwise GME has skyrocketed past resistance targets.

Charts only work when there is no news and no expected catalysts and we are stuck with TECHIES only.... Chart watching.

That is why Warren Buffet gave up Chart Watching.....  Investing in stocks is supposed to be a fundamental thing in nature.

You do not get behind a Coca-Cola because you spotted a Cup and Handle..... You get behind it just as you do as a *Fan* of the company's product(s).

Charts work without fundies.... Charts FAIL when fundies enter the picture.

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#2) On April 05, 2011 at 7:51 PM, Valyooo (99.65) wrote:

I don't really agree with that.  You don't sell when the stock approaches resistance, you shave some off when it fails to break it.

Also, often times the charts set up for an explosion, and then a catalyst comes out of of "nowhere" and makes the chart work.  A lot of the time smart money knows what we dont, and the chart tells you ahead of time

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#3) On April 05, 2011 at 10:25 PM, ETFsRule (99.94) wrote:

"2) If GMX, or anybody else (like me) was right about a china stock being a fraud, and it TURNS OUT TO BE A FRAUD, then say you are wrong.  I have seen people a) debating whether or not CCME is fraudulent STILL TO THIS DATE"

I'm not sure if this was directed towards me (among others), but I actually have not been debating whether or not CCME is fraudulent. As it stands right now, I don't think there is enough evidence to say that one side or the other has been proven right. Regardless, I'm sick of the whole debate, & it's pointless to keep going back and forth.

If their financials really are close to what they have been reporting, then I expect to see earnings of at least $3/share for 2010, and a dividend of at least $0.30/share paid this year (they announced a dividend late last year, which will be approximately 10% of their net income).

If they don't pay a dividend in this ballpark, or otherwise prove their legitimacy, then I'll be the first to admit that I was wrong.

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#4) On April 05, 2011 at 11:09 PM, 2trpop (94.30) wrote:

Charts, TA, Fundamental analysis, value investing ...  are all tools in your toolbox.  If you know how to use one tool very, very well, you can do very good things with it.  Some guys can carve an ice sculpture with a chainsaw.  Other guys will tell him it's impossible or dumb to do so because they have tried and cannot duplicate the results ... but it stands that the guy can carve intricate designs with a large, lumbering tool.  Who are they to tell him that his tool choice is stupid or that it can't work?

Some guys will do better using mutliple tools.  Figure out what tools speak to you and hone your skills with them.   If you can use multiple tools well, then you are most often better off. 

I used to laugh at charts myself until I ran into a few guys who seemed like wizards with the things.  I studied it a bit and quickly determined that I could gets some use out of a few simple charts.  I now use charts for assistance in determining entry points, setting trailing stops, and to help decide when to hold or sell.   It has made me a much more profitable investor. 

2trpop is an exercise in using 5 charts *exclusively* to determine what I will buy and sell.  No fundamental analysis, etc.  I plug in tickers until something strikes my fancy and then I buy it.  Selling is a little more haphazzard, sometimes to lock in 5+ points, sometimes when the chart indicates a run is over (for now).  It has been suprisingly "profitable" for me on CAPS adn would be much more so in RL with trailing stops available.

It has been interesting enough that I am mulling over the idea of setting up a RL "sandbox" account and seed it with 5k and see what happens.

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#5) On April 05, 2011 at 11:23 PM, Valyooo (99.65) wrote:

Haha, funny you say that.  My friend just gave me 10k to do the same thing...using nothing but simple trend lines, triangles, and trailing stops, and im not allowed to hold the stock through earnings.  I made a bunch of successful moves, but when I held through earnings (nke) i lost a bunch.  I have tightened my disciplien and am recovering well so far.

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