Bank shares

[andyfuller]

Beginners luck I think - up 6.34% today and testing the 31.6p resistance.

[CaerMyrddin]

Well done Andy, learning the ropes of the champions league of trading

[Ferru123]

The downtrend LLOY have been in since Feb 2011 seems to have come to an end as shown on the Daily chart.

How do you know?

It now seems to be in an upwards trend as shown on both charts.

Define 'an upwards trend'. According to what measurements?

I won't go into the historical nature of trends, as I believe that's been covered elsewhere, but a word to the wise: be wary about extrapolation.

However, there are several resistance levels it will be encountering.

How do you know?

The current one is at 30.2p it has tested this level a few time in the last few days and failed to break it.

Has it really tested a resistance point, or is that an optical illusion?

And even if a resistance point existed there in the past, does it mean it exists there now?

You can draw all sorts of plausible support and resistance points on a typical market chart - it doesn't mean that they have any basis in reality, however...

Views?

Yes. That kind of analysis is well-meaning and used by people who have been in the markets long enough to know better, but IMHO it will probably give you the same result as you'd get from trading at random, ie you'd break even long term, were it not for transaction costs.

Jeff

[andyfuller]

No one can ever know as no one can see into the future. But if you wish to trade you need to take a view and that is what I did with the above. So when I say the down trend has come to an end that is my opinion. If you don't take a view at some stage you will never enter a trade with a view to profit.

When I asked for views I was looking for views about what I said being right or wrong about the price movement and why.

You say my analysis is likely to be no better than random, why? And do you have a view about what is going to happen with Lloyds share price?

[Ferru123]

No one can ever know as no one can see into the future. But if you wish to trade you need to take a view and that is what I did with the above.

Depends if you take a predictive or a reactive approach.

So when I say the down trend has come to an end that is my opinion. If you don't take a view at some stage you will never enter a trade with a view to profit.

Again, you don't need to take a view on anything. You can just react to what happens.

You say my analysis is likely to be no better than random, why?

The market is a complicated beast, full of tricks and traps. It takes just 51% of the money to move the market in a particular direction. Can you predict what 51% of the money will want to do in a day, week or month's time, particularly when stuff going on in the economy could send the share price soaring in either direction?

And do you have a view about what is going to happen with Lloyds share price?

At the risk of sounding flippant, it will go up, down or sideways (assuming that there isn't a major eurozone default, in which case it's conceivable that the chart may simply disappear - permanently!).

"I don’t believe that I am the only person who cannot predict future prices. No one consistently can predict anything, especially investors. Prices, not investors, predict the future. Despite this, investors hope or believe that they can predict the future, or someone else can. A lot of them look to you to predict what the next macroeconomic cycle will be. We rely on the fact that other investors are convinced that they can predict the future, and I believe that’s where our profits come from. I believe it’s that simple."

John W. Henry (Trend follower and owner of Liverpool FC)

[andyfuller]

If you are predictive or reactive you have to take a view to enter a profitable trade. You have to decide to either buy or sell. If you don't take a view and either do nothing or both buy and sell you can not be profitable - it is impossible. So which ever way you trade I can't see how you can't take a view as you seem to be saying. If you can explain to me how you can trade without taking a view I am keen to hear.

So you won't be trading Lloyds as you don't have a view on what is going to happen, fair enough. But at some stage you are surely going to have to or have in the past taken a view on what the price is going to do in the future of a share etc. If you don't you will never place a trade surely.

That quote made me laugh, he says no one can consistantly predict anything and then goes on to say he relies on the fact that other investors are convinced that they can predict the future and he believes that is where his profits come from.

So no one can predict anything consistently yet he can predict that investors will remain convinced that they can predict the future.

He is trying to do exactly what he says in the same breath can't be done

[Ferru123]

If you are predictive or reactive you have to take a view to enter a profitable trade. You have to decide to either buy or sell.

You can toss a coin. If the market moves in your favour, stay with it till the trend stops. If it goes against you, scratch your trade quickly.

Let's say you were to map on a histogram every person's IQ score in the country (lowest to highest on the x axis, number of people on the y axis), you'll probably end up with the normal shaped Bell Curve, which represents normal random distribution: http://en.wikipedia.org/wiki/Standard_deviation.

Trend followers believe that markets don't conform to normal distribution, but have a fat right tail - see the charts on this page: http://www.trendfollowing.com/whitepaper/mauboussin.pdf.

If markets were completely efficient, trend following wouldn't work. Neither would scalping, for that matter.

So no one can predict anything consistently yet he can predict that investors will remain convinced that they can predict the future.

All he is predicting is that there won't be a general enlightenment anytime soon. There was a tulip mania in Holland in the 17th century and a housing bubble in the UK within the last decade. Just as it's safe to say that people won't stop committing crime in the near future, it's also safe to say that people won't stop making irrational, emotion-driven financial decisions...

Regardless of your style of trading, your Betfair profits ultimately stem from the fact that there are punters out there who think they have some kind of insight into what's going to happen in a race, yet the bookmakers' balance sheets show that the vast majority of them are pretty clueless with their predictions. So your profits, like John W Henry's, are due to people incorrectly thinking that they can predict the future!

Jeff

[andyfuller]

I will draw a line under this discussion Jeff as I know we aren't ever going to agree on it other than agreeing to disagree so I will save us both sometime

[Ferru123]

Andy

Fine.

Many people attack trend following, but you come across a logical refutation of the compelling empirical evidence that it works, I'd genuinely be interested to hear it.

I'd also be interested in hearing about any non-anecdotal evidence that support and resistance lines, etc work.

Jeff

[superfrank]

i used to develop computer models (that worked with historical diamond mine data) so that the company could forecast what it would have to sell in future months and years.

we knew from the historical data (based on what had come out of the mine to date and from similar mines in the past) what we were likely to find in each area of the mine - there were no guarantees, but it was much better than guessing.

analysis (both fundamental and technical) is useful because history tends to repeat itself.

Jeff, what about this edge? it was found because someone took the time to do the analysis. markets are not quite as random as you seem to think.
http://www.zerohedge.com/news/overnight-longintraday-short-gold-fund-more-doubles-just-over-year-generates-43-annualized-retu

ps. can you create a 'trend following' thread where you can post all the tf wisdom? loads of good threads have now been sidetracked to tf.