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HistoricalPEGuy (66.71)

What the $%@&*# ?



May 08, 2008 – Comments (9)

Does anybody really believe in this stuff?  Have you ever really made money using analysis like this?  I can't even rationalize it or even begin to justify it.  Its the equivelant of voodoo.  Is there somebody out there that can defend an analysis like this?

"Oh yeah - I made like a bazzillion dollars last year tracking bullish triangles".  "We've got bullish rectangles too.  And if you ever catch an Isoceles Bullish Triangle, back up the truck!"

-- HPEGuy 

Sales Pitch I got from Zack's: 

Some services point out these patterns after they’ve happened and the trade has gotten away. What’s the point of that?  It’s like whispering the winning lottery ticket number to someone after the contest is over.

Instead, I’m sure you’ll want to know about that stock before the breakout happens, or at the moment it begins. That’s where the Chart Patterns Trader comes in.

Here are a few other examples of recent pattern-inspired recommendations 

+33.5% gains from First Solar (FSLR) in just 22 days (“Bullish Symmetrical Triangle”)

+23.0% gains from Manitowoc (MTW) in just 16 days (“Bullish Ascending Triangle”)

+18.9% gains from Stanley (SXE) in just 6 days (“Bullish Wedge”)

+23.3% gains from Robbins & Meyers (RBN) in just 9 days (“Bullish Flag”)

+34.2% gains from Geoeye (GEOY) in just 33 days (“Bullish Rectangle”)

+21.6% gains from Northwest Utilities (NU) in just 46 days (“Bearish Head and Shoulders” – Yes, we make money from Bear moves, too.)

+27.2% gains from Apple (AAPL) in just 15 days (“Bullish Inverted Head and Shoulders”)


9 Comments – Post Your Own

#1) On May 08, 2008 at 3:07 PM, madcowmonkey (< 20) wrote:

Holy$%@&*?. It took me a while to find the ? on the numbers line of my keyboard.

That was a geometry lesson used in elementary school. It had nothing to do with trading. I think you should check the link again. 

I don't think I would ever listen to anything like that for trading. Ever. 

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#2) On May 08, 2008 at 4:05 PM, hondo928 (97.26) wrote:

I am extremely skeptical of technical analysis, triangles, head and shoulder tops, shooting stars,  cup and handles etc. the list goes on and on. I think it is interesting, there is a trader in one of the Market Wizard books, who relies on technical analysis, and he said something along the lines of this "technical analysis works, but the charts he uses are much more complicated than your standard head and shoulders, or wedge."

Which is actually counterintuitive to a degree, efficent market hypothesis seems to say that technical analysis prevents you from beating the market, however if everyone used the same technical trends, they would jump on the patterns and push prices up or down, which should increase their effectiveness.

I do use some technical analysis, but not blindly I look for a stock that has behaved in that pattern or oscillator many times over, succesfully.  The selling points seem to suggest it is a one time game, when instead it is repeated many times.  And patterns rely on being right 51% of the time and making that little extra.  I'd be more interested in seeing accuracy for technical patterns than gains.  I know of one instance in personaly experience patterns were wrong...and while the reasoning had nothing to do with the pattern, it could be the same for why the bullish wedge of SXE had it go up 18%

 PBR was looking somewhat overextended to me at the time at $90 a share, and I used a shooting star to secure my reasoning for sellin, well a few days later they found a huge oil deposit and the stock shot up to 120.  So their propoganda is BS, the reasoning could have nothing to do with a head and shoulders top or whatever.

 I do however use oscillators, such as bollinger bands and RSI, based on deviation from 0 a stock outside the bands is more likely to return towards 0.  I did a regression using bollinger bands on NBG and found the potential profit was over 300% for a year.  Simply buying when it dropped below the BB and selling when it went over. More money could have been made if you shorted at when it was over and covered when it was 0.  That trade has since broke down, and I am unactivly searching for something similar.  So I think technical analysis has it's upside but must be taken with a grain of salt.  I can't say it is all $*(%#U&(@*#m but some of it may be.

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#3) On May 08, 2008 at 4:23 PM, PDTBiotech (84.69) wrote:

I think the vast majority of TA is crap - there are some arguments to be made for some of the more basic features such as support/resistance, but the pattern recognition approach is complete voodoo.  I used to spend a lot of time on a TA site (Clearstation) because I wanted to get familiar with how its practitioners use it, and from what I can tell it's just a way to take the pain out of making a decision by making it mechanical - many TA people are more comfortable transferring responsibility for the outcomes of their trades to their system rather than their own ability to judge a company and its market's prospects.  People who say they use the same approach differ as to how/when it should be used, what a particular pattern means, and what rationale has convinced them that it actually works.  Not one of the people on that site was able to convincingly show that the patterns they use for making trading decisions actually consistently predict a movement one way or the other.

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#4) On May 08, 2008 at 4:24 PM, MakeItSeven (31.54) wrote:

Technical analysis is not about the patterns.  It's the psychology and the money flow behind those patterns.

The one thing I hate the most is the FIbonacci numbers.  Pure numerology. 

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#5) On May 08, 2008 at 5:57 PM, ctojeira (41.69) wrote:

I prefer bullish octogons.  While they are a little less common, they are almost always surefire winners.


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#6) On May 08, 2008 at 8:16 PM, camistocks (50.76) wrote:

I couldn't do without TA. It is very helpful tool and cuts through all the fundamental bias. TA is neutral and has no opinion.

As Makeitseven says, those patterns represent the psychology and money flows from investors.

There's nothing magical behind TA. It is an art of interpretation. Some are good in it, some not. And it is certainly not the holy grail! It's just an additional tool.

Triangles work. But not all the time, sometimes they break to the downside.

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#7) On May 09, 2008 at 12:08 AM, HistoricalPEGuy (66.71) wrote:

Wow - this was great feedback.  I do think we can use technical analysis to some degree - momentum is something that seems to hold for many stocks.  I don't want to sound elitist here, there are many ways to invest.  I can certainly see somebody targeting YHOO for a short right now.  Maybe you can gain some confidence if you see a head and shoulders effect?

However, you do have to laugh at the following statement:

+21.6% gains from Northwest Utilities (NU) in just 46 days (“Bearish Head and Shoulders” – Yes, we make money from Bear moves, too.)

"I can make money from Bear moves too!  What!?!?!  This is awesome!  The next Isoceles Triangle I see I'm going to plop down my life savings!"

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#8) On May 09, 2008 at 12:38 PM, madcowmonkey (< 20) wrote:

Don't forget your truck!

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#9) On May 10, 2008 at 1:00 AM, HistoricalPEGuy (66.71) wrote:


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