If Technical Analysis works, why isn't there a mutual fund for it?

[wildwood]

John W. Henry, owner of the Boston Red Sox, is a long term trend follower. He traded a $16,000 account to over one billion dollars in a twenty year period. He does not use fundamental analysis. There is more than one way to make money in the market.

[DesertCat]

[ QUOTE ]
John W. Henry, owner of the Boston Red Sox, is a long term trend follower. He traded a $16,000 account to over one billion dollars in a twenty year period. He does not use fundamental analysis. There is more than one way to make money in the market.

[/ QUOTE ]

That $1B isn't all his money, he's a rich man because he has clients who pay him to trade. Most of his funds are trailing the S&P 500. And what he does is much more sophisticated than TA.

"I don’t believe that I am the only person who cannot predict future prices. No one consistently can predict anything, especially investors.".
John W. Henry"

[therockofgibraltar]

[ QUOTE ]
And what he does is much more sophisticated than TA.

[/ QUOTE ]

If you are using historical price/volume data to trade, you are doing TA.

It doesn't have to be charts. It could be using cointegration techniques to find deviations from long term equilibrium (stat.arb) or something else. It is still TA, it is just called differently.

At least that is how I see it. Looking at the charts is one way doing TA. Doing very math oriented econometric calculations from historical stats is another way doing it.

If you think it is like that --> there are many very succesful funds using TA.

[Dan Mezick]

The whole idea of predicting accurately poses large problems.

This is part of the thinking behind his comment.

JWH does not predict anything. He simply follows trends.

Most of this thread is about who has the more valid prediction model.

The need to be right (for example being right about a prediction) is a perennial snare that catches many 'traders' and 'investors' and empties their wallets.

It will be interesting to hear from some of the more experienced traders on this topic.

Predicting is not an essential task. What is essential is a willingness to follow a non-discretionary backtested method, long-term, based on expected value.

[Sniper]

[ QUOTE ]
Predicting is not an essential task. What is essential is a willingness to follow a non-discretionary backtested method, long-term, based on expected value.


[/ QUOTE ]

Risk/Money management is far more important than any predictive model. Putting the odds in your favor is obviously better than flipping a coin. Proper application of Technical, Fundamental, and Sentiment analysis are all important tools to put the odds in your favor.

[Moonsugar]

[ QUOTE ]
John W. Henry, owner of the Boston Red Sox, is a long term trend follower. He traded a $16,000 account to over one billion dollars in a twenty year period. He does not use fundamental analysis. There is more than one way to make money in the market.

[/ QUOTE ]

LOL, OPM helps a lot too...

Other People's Money

JWH is such a bad CTA in a world of bad CTAs

[Dan Mezick]

Ya, like Warren Buffet never used OPM .... not. He stated in with that VERY young.

[MaxPower]

[ QUOTE ]
Ya, like Warren Buffet never used OPM .... not. He stated in with that VERY young.

[/ QUOTE ]

Buffet doesn't run mutual funds. His wealth is not from commissions and fees.

Wow, I'm surprised this thread went as long as it did. To try to narrow the focus a little bit, I want to make a distinction between technical analysis as it is practiced by individual investors and TA/quantitative analysis as done by the pros. As I said earlier in the thread, it may be possible to make money in the market without doing fundamental analysis; however, this requires heavy-duty quant to identify true arbitrage opportunities. Perhaps in-depth analysis of previous price movements might reveal some subtle and intricate patterns which can be exploited, as John W. Henry's fund claims to do (though he has lagged the S&P500).

The technical analysis which is provided as advice on this board and other investing forums generally consists of strategies like, "There's heavy resistance at 40, but if it breaks out, it could go to 50," or, "It's generally a bad idea to buy a stock under its 200-day moving average." This type of analysis seems woefully inaccurate and superstitious.

[ QUOTE ]
The whole idea of predicting accurately poses large problems.

This is part of the thinking behind his comment.

JWH does not predict anything. He simply follows trends.

Most of this thread is about who has the more valid prediction model.

The need to be right (for example being right about a prediction) is a perennial snare that catches many 'traders' and 'investors' and empties their wallets.

It will be interesting to hear from some of the more experienced traders on this topic.

Predicting is not an essential task. What is essential is a willingness to follow a non-discretionary backtested method, long-term, based on expected value.

[/ QUOTE ]
How can you say that predicting is not essential? The entire point of stock-picking is to choose which stocks will go up and which will go down in a given timeframe. I'm not saying that TA systems have to be right 100% of the time. If they were 1% better than chance, they'd be hugely profitable. If you could correctly pick where a roulette ball is going to land 1 in 10 times, you'd make plenty of money.

The real test is whether TA can predict future results. Anyone up for this challenge? Take a look at the entire stock market, and choose 10 or 20 stocks you think have the charts with the clearest indication of movement, either up or down. Post your predictions for whether the stocks will go up or down, and how long it will take for the movement to happen (e.g. 1 day, 1 week, etc.)

Depending on how many people take up this challenge, we'll likely have some better than 50%. We'll use multiple-comparison corrections to evaluate whether anyone was successful at p < 0.01.

up almost another 2k today, guess this TA "stuff" doesn't work
LOL