FA or TA?

Discussion in 'Technical Analysis' started by marcus, Mar 16, 2006.

  1. marcus

    marcus Active Member

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    From what I have read so far I have come to the conclusion that the best way to make a considerable amount of money in the stock markets is to follow the trend made popular by Ben Graham and Buffet (although I will admit they are unique examples) known as value investing. Which is basically assessing the intrinsic value of a small cap company and then "BUY & HOLD". According to most experts and this article the "buy and hold" method if correctly deployed will almost always outperform any other method, be it of the intraday trader, swing trader, short term investor or ANY other method you can think of/invent.

    When you come to think of it ....... think for a moment ........ it does make perfect sense dosen't it. Every year there invariably are a few companies which will outshine their contemporaries in years to come. So had an investor been able to identify the likes of "infosys" during its IPO or within a year of it and similarly picked up other major blue chips in their infancy an investment of only a few lakhs a year maybe 2-3 would actually give returns of crores with the passage of time.

    The key question here is how would you identify the "bigges" in their infancy ..... well the answer would be with fundamental analysis. Although fundamental analysis is more painstaking and you spend longer hours reading the anuual report, quaterly financial statments, profit loss statements, balance sheet, cash flow etc.... read up on the future of the sector check the credentials and past performance of the policy makers at the helm if you can do it successfully it would probably pay off in the long run wouldn't it??

    TA can't help you much here, though if you're good at it I believe you could study a chart for two minutes and draw the correct inferences and then again its a matter of luck (7-8 times out of 10 as someone said) and once again you can only tell short term and intra day trends, to make a large profit you have to bet really BIG money not to mention the stress you'd go through at the thought of a loss (can give uyou ulcers I've heard). Recently someone made 180000/- in a day from Mcdowell buying 4000 shares at a price of 24 lakhs. He himselves said he could pretty much hear his heart pounding throughout the day.

    So this finally brings me to the question is it not more profitable to devote more attention to learning Fundamental analysis??

    :)
     
  2. ivanboesky

    ivanboesky Active Member

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    Depends on your perspective. If you dont want the headache of short-term trading, buy fundamentally strong stocks and hold onto them. If you have the appetite and time for short-term trading, then TA is necessary.
    An excerpt from Warren Buffett's latest letter to the shareholders
    "Long ago, Sir Isaac Newton gave us three laws of motion, which were the work of genius. But Sir Isaac’s talents didn’t extend to investing: He lost a bundle in the South Sea Bubble, explaining later, “I can calculate the movement of the stars, but not the madness of men.” If he had not been traumatized by this loss, Sir Isaac might well have gone on to discover the Fourth Law of Motion: For investors as a whole, returns decrease as motion increases."
     
  3. Agilent

    Agilent Member

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    MARCUS
    Good issue u have raised.

    I believe the successful trader /investor should be adept ( need not be expert) at both FA and TA ..

    TA will tell you where there is smoke, what direction its headed, whether it's growing etc

    FA will tell us why the fire is there , why its growing in intensity, how large is it likely to grow etc

    And by the way, your point about the effort in reading Balance sheets etc... though u r right, remember that past performance is not easy to project into the future, and significantly, it's the future which determines stock trends, not the past

    Views ...others?
    AGILENT:cool:
     
  4. marcus

    marcus Active Member

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    Thanks for your view Agilent, the reason I asked is coz I read (at Murphy's site I think) it has been satistically proven that 80% of day & momentum traders have run through their money within a period of 6 months ..... should they still decide to persist (as most quit) they run into losses for the next few months ...... afterwhich they even out once again and finally start making profits ..... but that too small profits approx 20-35% a year.

    Wonder if there's any truth in this???
     
  5. Agilent

    Agilent Member

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    Marcus
    I think u r getting confused.

    Your thread was about TA versus FA ..

    But now the questions you are raising are about Day/Momentum Trdg (by implication ... versus long term investing)

    Thats a different issue (though not entirely unrelated).

    You may wish to start another thread on this .. ?
    AGILENT:cool:

    By the way, TA can be employed by Day traders as well as long term investors , but FA is usually limited to medium/long term investors, and has no scope for day traders
     
  6. Agilent

    Agilent Member

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    Good question

    I doubt it .. FA will hardly help in predicting intra day trend ... unless of course u r an insider who knows what announcement (e.g earnings guidance) will be made by the Board at a particular time during trading hrs

    Buy /Sell based on that kind of info will of course be neither TA based, nor FA , but is regretfully quite common all across the world

    AGILENT:cool:
     

  7. marcus

    marcus Active Member

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    Well to come back to the original question do read this its very interesting and more over it proves if you go with TA your profit margin will increase by 2% over FA
     
  8. Agilent

    Agilent Member

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    Marcus , I think u have misinterpreted (and wrongly imputed a comparison with FA).

    See below (conclusion from your own link) and try figure out again :

    What Siegel found is that since 1886, using the 200-day moving average as your indicator, you would have earned 2% points better than someone using a "buy and hold" strategy (11% instead of 9%, I believe), and you would have done so with significantly less risk. You were only in the market about 2/3 of the time. And my own research corroborates Siegel's - I've found that you simply don't make money in stocks when they are below their 200-day moving average.

    Got it ?
    AGILENT:cool:
     
  9. marcus

    marcus Active Member

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    Well Agilent I always thought the buy and hold strategy was a FA strategy as advocated by Graham, in his book "The intelligent investor" he basically talks about FA in relation to "value investing", and the "buy and hold" strategy is an integral part of value investing where technical indicators like moving averages are not considered.

    The very fact that you would even consider "moving averages" 200 day or any other would mean a TA approach

    So if "buy and hold" gives you 9% returns whereas considering 200 day moving averages you get 11% and that to being in the markets for only 2/3 of the time can we not infer that using a FA based strategy you would get 9% returns as opposed to 11% using TA strategy.

    The crux of the matter would be "Buy and hold is strictly a FA strategy as you do this for years under successive bull and bear cycles" whereas "using moving day averages is a TA approach as you would be in the market for only about 2/3 of the time as he has stated" This is my understanding

    However it is quite possible I have misunderstood as you have pointed out.

    :confused:
     
  10. rajesh.sadhanala

    rajesh.sadhanala Well-Known Member

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    Do u really think that FA is necessary for the day trading. Its whole lot of noise in the market which drives the share up and down. To pick the stock, we can use Volume surge, Fib Reaction level irrespective of FA. A fundementally weak stock could also go up when it is on the rally.

    Please put ur views If it doesn't match ur views

    Raj :)
     

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