Oct

23

TA Patterns, from James Sogi

October 23, 2009 |

J SogiNow that statistical quant is being denigrated on the Street, I am seeing these old TA John Magee patterns that haven't worked for years appearing. Like broadening top. Anyone else?

One of the weaknesses of statistics is the problem of changing cycles, and the appearance of hidden or unknown variables in a data series. Though it is prospective looking, it still uses historical data. The other issue is the role of randomness where very very long runs can appear, even in random series.

Bruno Ombreux defends statistics:

I don't think statistics are weak, but the present environment is unique. For decades, we enjoyed a relatively stable environment and a capitalistic system. This has changed. All bets are off.

The problem is that the type of environment we are in, for instance consumer deleveraging while the Fed is money printing, has not happened very often. There are some similar situations in the 1950s, and some in the 1930s. That's not a lot. Therefore we can't even condition on the environment, because we don't have enough data for such environment.

I had come to rely on statistics. For the past few months, nothing has been working for me. I am not having a good year. Actually, this is my worst year since 1999 (compared to the index) and since 2002 (in absolute terms).


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2 Comments so far

  1. Craig Bowles on October 23, 2009 3:31 pm

    Look at things priced in gold. The stock market remains weak. Wheat got down to lows previously seen twice in the 1980s. Oil got down to the 1998 low and this decade has mostly ranged $75-150 relative to gold at $1000. So commodities are doing terrible if we had a hard currency. Maybe the strategies that aren't working would work have worked well if done with a hedge using gold. Maybe the other commodities rise relative to gold in a recovery.

  2. Laslo Minks on October 23, 2009 6:15 pm

    I had the misfortune of reading everything I could on TA when I was younger. Now, even though I don't give it any credence, I still see all the patterns. Like the bull-flag in sugar. The fact I am long sugar is just a coincidence, right? Yes, I see it. I don't want to. But I do.

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