Technical Analysis in the Real World

Featuring Tom Thornton, Tony Greer & Dave Floyd

What’s the point of technical analysis? In this episode of “The Exchange,” three veteran traders who extensively use technical analysis explain how they discovered these tools, and outline the everyday ways that investors and traders of all types can use and adapt them to fit their own styles. Tommy Thornton focuses on moving averages and DeMark indicators, Tony Greer focuses on trend lines and momentum, whilst Dave Floyd focuses on combining the disciplines into a powerful analytical framework. Filmed on June 1, 2018 in Grand Cayman.

Published on
2 July, 2018
Topic
Trading, Technical Analysis, Investment Framework
Duration
35 minutes
Asset class
Real Estate, Bonds/Rates/Credit, Currencies
Rating
0

Comments

  • @.

    @Steve ..

    18 7 2018 20:24

    0       0

    Technicals are descriptive mathematical conventions. For the most part, technicals follow the price and volume action yet introduces novel examinations.

    I took the MACD, applied it to a basket of 30-40 stocks on a max range and discovered that, MACD consistently bottoms a max -1.5 to -2.0 across blue chips...and studying each assets individual inflection points have yielded great quarterly results

  • OG

    Olivia G.

    13 7 2018 06:50

    0       0

    Absolutely love this video! More videos on TA please :)

  • DC

    D C.

    12 7 2018 20:03

    1       0

    "And nobody's really doing any studies on your unique approach and then back testing it, or yours, or mine. You know, they're just taking these indicators in isolation." I suspect the heavy duty algo and quant funds are doing exactly that and more. They do backtests on multivariate TA signals (along with other fundamental/ sentiment etc.) to see which combination is most useful given different environments. AI and machine learning technology is only going to get more pervasive and dominate in the space. (Although I read that Man Group has to throw out 90% of its fundamental AI based models due to "non-sensible" results.) But I do think that with TA, which is more price-based, the content is prime for Machine learning to eat up, since there wouldn't be spurious correlations, so to speak in TA.

  • DC

    D C.

    12 7 2018 19:33

    2       0

    Nice presentation...something for the new and old with TA. Real Vision- can you put charts back into the Transcripts PLEASE PLEASE PLEASE?

  • HD

    Harrison D.

    11 7 2018 01:07

    0       0

    Amazing video, absolutely loved it, contained great info for a new trader.

  • JG

    Jory G.

    9 7 2018 20:15

    0       0

    Thank you for a great piece. Very informative and thought provoking for a newbie.

  • BT

    B T.

    6 7 2018 08:08

    0       0

    Great work Gents. It has been enjoyable to see the media/industry people bash TA and Wall Street preaching that you can't time the market while I see practitioners use TA as a tool, in their arsenal to simple skew the risk/reward ration in their favor.

  • AG

    Abhimanyu G.

    4 7 2018 12:04

    2       0

    As mentioned by many already, Tommy, Dave and Tony have great chemistry - makes each video easy to watch.

    I have a question - in the past 5-odd years while prices have been artificially manipulated by Central Banks, did you have to alter the way you approached Technical Analysis? Thanks.

    • WS

      Will S.

      5 7 2018 23:04

      0       0

      Excellent question! I've asked myself exactly the same thing!

  • JC

    Joe C.

    3 7 2018 18:26

    3       1

    The DeMark Indicator seems to be a Real Vision favorite. Can anyone recommend a good book or resource on the subject? Not just how to calculate, but perhaps the theory behind why those counts are effective. I see "The New Science of Technical Analysis" by Tom DeMark on Amazon, but I wonder if that's the best option.

    Would also love to see a RVTV series exclusively about DeMark. The idea of "trend exhaustion" is compelling to me and I haven't found the RSI does a good enough job capturing that.

    • TT

      Thomas T.

      3 7 2018 19:19

      14       0

      There could be something with Tom DeMark in the future on Real Vision. I'm working on hooking that up. He's a brilliant man who created these esoteric indicators by hand on paper before computers in the 70's. I have a basic DeMark Sequential and Combo primer I made for clients I can send you if you email me at info@hedgefundtelemetry.com with DeMark in subject. The most useful book is Jason Perl's book on DeMark Indicators available on Amazon. I'll keep working on getting Tom on Real Vision.

    • JC

      Joe C.

      3 7 2018 20:30

      3       1

      Thanks for the recommendation, Tom! I will definitely reach out. Fingers crossed you guys can put something together with Tom DeMark :)

    • RL

      Richard L.

      9 7 2018 08:17

      0       0

      Hi Joe, I have been following Tone Vays through my interest in Bitcoin and he is a big fan of the TD Indicators, he has a good range of resources on his website under the "Learn Trading > Time Analysis" section. Lots of good content in respect of TD on there. https://tonevays.com/learntrading

  • LS

    Lee S.

    3 7 2018 17:07

    3       0

    Could Demark indicators be expanded upon next time?

  • ev

    ernie v.

    3 7 2018 13:06

    4       0

    Structure, framework, yes basic tools can give you this. The stuff explained there is only as good as the person using those tools. Each of the simple indicators can provide a clue. Those clues only feed on your basic need to predict the future based on the past. Most people seem to get that wrong. Especially new traders. Maybe bring in the players that move the MK. Do they use simple indicators?
    Thanks for keeping this simple but maybe step it up a bit next time

  • BH

    Ben H.

    3 7 2018 11:56

    2       1

    Thanks Gentlemen,
    Great discussion got a lot out of it and will watch again..
    Would love to see you expand on the topic of position sizing - pretty sure others on here would too?

  • RL

    Rui L.

    3 7 2018 08:22

    3       0

    Reminded me of a Bill Williams saying, "Trading is simple, not easy. But it is simple.". Congratz to all for the keep it simple approach tuned. p.s. love the charts design.

  • LC

    Liliana C.

    3 7 2018 05:34

    1       0

    Thanks DF, TG, and TT! I’m taking it all in learning a bit at a time. I really get that you’ve been at it a long time and hence are experts! Once I know enough to mostly understand how to interpret what you guys see, I’ll be in a better place to buy into your service! 👍😃

  • DS

    David S.

    2 7 2018 22:19

    2       0

    Has anyone seen any info on how much any indexes are up because of corporate buybacks over the last five or ten years? Is the main drawback the excess compensation to corporate executives? Thanks, DLS

  • BT

    Brian T.

    2 7 2018 20:06

    0       3

    One thing I would find interesting is a discussion about how to spot potential bubbles BEFORE they happen, not during or at the top. What are the key things to look for? I missed the Bitcoin bubble and our fearless leader Raoul sold out too early, so even great traders made the mistake... What are the psychological factors that lead to a bubble? Has anyone done any work on these? Many of the RVTV contributors have been pointing out overbought / overvalued market basically since Trump was elected. But how do you ride a wave like that EVEN THOUGH you know things are already/becoming overvalued? It seems to me that the people who rode this wave were mostly lucky and/or just following the masses, and they are just as likely to lose in a major wave when the big correction finally comes. How do you spot a bubble at the beginning/while it is developing, and successfully get on board?

    • JC

      Joe C.

      2 7 2018 20:21

      5       0

      When GMI took the Bitcoin trade off, they had made an 800%+ return.
      The price of Bitcoin both increased another 800% from there and collapsed 70%. Who could've predicted which would happen first? I would strongly disagree selling Bitcoin last summer was "too early", even (and perhaps especially) with the benefit of hindsight.

    • ML

      Mark L.

      2 7 2018 23:50

      0       0

      5

  • MT

    Mike T.

    2 7 2018 20:02

    0       0

    Firstly these guys are thoroughly professional and always worth listening too. However after many years of trying my own results with TA were at best inconsistent until one day I realized what the issue was. I had a problem making decisions based upon my interpretation of TA. TA did not lead me to make a sufficient number of trading decisions.

    Now I focus almost exclusively on Trading Options, mainly Short Premium Strategies where TA is simply not required to find the best Short Premium opportunities. Option trading & probabilities of successful outcome, setting profit targets, deciding what instruments to trade are all decisions based on mathematics, unaffected by personal opinions, subjective interpretation or mental biases it's 100% a mechanical process, although I will admit before I place a trade I usually have a quick look at the chart :-)

    • JB

      Juan B.

      3 7 2018 01:37

      1       0

      Thanks, Mike, for your valuable perspective. Would you be so kind as to provide some specific examples of the type of options you have traded in the past, how you have created your trading plan, and how you have monitored for the right set-ups?

    • MT

      Mike T.

      3 7 2018 10:05

      14       0

      Juan,

      The following is meant as an overview of one specific approach, if you want to know more point the guys at RV this thread and I'll be happy for them to provide you with my contact details and we can take any other questions off line one to one so to speak.

      These are some of the basic principles that I follow:

      I'm a seller of option contracts aka in the jargon Short Premium. When the seller of an option position initiates a trade we "sell to open" and receive a credit payment for doing so. The game then becomes how much of that credit do we get to keep before "buying back the position to close" knowing that my exit transaction will be buy to close, in order to profit I want only to sell 'options that are expensive relatively to 12 month historical' and then with the knowledge options contracts decline in value as time passes at a rate much faster than the UL will decline if also falling is a function of the Black-Scholes pricing model i.e. Options contracts are over time depreciating assets, therefore the objective is to sell to enter at high price and by back at a lower price for a predetermined profit target to close out. Don't be greedy and try to keep all that credit, the % profit target is decided in advance at trade entry depending on what strategy is being used e.g. a Strangle get out when the price of the option has fallen to 50% of what you sold if for. Another example, a Straddle get out at 25% max profit. I would like to stress the mathematics behind this approach puts the probability of success overwhelming in favour of the option seller, the option buyer is always disadvantaged from a probability perspective.

      When looking for opportunity i.e. in finding the 'set up' I look for two things the first of which is of paramount importance. The options must be highly liquid with really tight bid/ask spreads. Liquidity is king which is why for options trading all roads lead to US Markets. Second only sell options that are trading expensive relatively to historical past. So as not to be accused of being a troll for a particular trading platform or options software company I happy to share what I use but DM me if interested.

      So I scan/filter for liquidity and further filter for high priced options, takes literally 30 seconds. At this point I have absolutely no interest in what the specific underlying's might be, they are only symbols nothing more. As long as the options are liquid and historical expensive on a relative basis they are in play for an options seller. In order to take money out of the market with this approach it's possible for anyone of any age to operate profitably without knowing anything at all about company fundamentals, not interested, the daily market news e.g. what's Trump up to also not required, the overall global macro situation not necessary. If the contracts are liquid and relatively expensive there is opportunity put simply whilst it’s a cliché, the seller of options lets market prices tell him where to focus.

      If for example on any one day the above process spits out 10 good candidates for which I do not already have a position then whilst being ultra-aware of never exceeding my personal capital allocation rules (maximum is 30% at work 70% in cash) if I have sufficient spare cash and I have 10 good candidates I will without hesitation put on 10 new positions as long as I don’t exceed my max capital 30% rule. Note on my 30:70 ratio. Remember Options are leveraged instruments and an apparent What???? at first glance 70% in cash response should not be judged through the same eyes of those that purely trade directionally long/short outright. A key point with options trading in order for the mathematics to play out over time in your favour it's necessary to continuously trade with multiple active positions using multiple different strategies (I currently have over 50 positions but know of many who have a lot more) in the portfolio each of which is deemed by my criteria as small so if anyone trade blows up, no real damage done. In summary lots of positions, use multiple strategies and trade frequently.

      Now comes the challenging piece. I watch overall Portfolio metrics like a hawk, my own preference being I do NOT, stress do NOT want directional exposure. At the end of most days I want the portfolio to have minimal directional bias aka in the jargon Delta Neutral although sometimes if market conditions are judged appropriate I want the portfolio to have negative Delta i.e. bearish in nature thereby providing a hedge against a Volatility spike where options prices go higher in value which would damage the prospects of exiting a short premium position at a profit and would certainly damage the Daily P&L which plays on my anxiety inclined to check 'how am I doing right now'. Taking this approach we end up with the market forcing you to do what every trader knows in his heart he should be doing but often extremely difficult to implement. For a portfolio made up mainly of short premium positions as the market goes up, we get short, and as the market goes down you get long. To mitigate the directional exposure it's necessary to constantly adjust e.g. if the price of the underlying goes down, in response we roll down the call side, if U/L price goes up in response we roll up the put side usually within the same cycle but only do this for a credit, never ever for a debit and when that stops being effective Roll Out in time to next cycle but again only if a credit is available never a debit. If struggling to form a mental picture of the aforementioned description and thinking how does that work, remember for an options seller a short call is bearish and a short put is a bullish strategy.

      Key Point: I size individual positions based upon a calculation of buying power/margin used. If it’s a defined risk trade my maximum capital allocation as defined by reduction in buying power is 1% of overall Net Liq. If it's an undefined risk trade maximum position size is equivalent to 5% reduction in buying power of overall Net Liq. This is not a typo allocate more capital to undefined risk trades is mathematical optimal.

      Key Point: As a matter of routine and personal discipline at 21 days prior to expiration date, always, as in ALWAYS roll out to next cycle. Of course there are times when an individual position might have done better had you remained in the current cycle but overall the math plays out over time and most importantly keeps GAMMA risk to a minimum, which only accelerates as expiration date approaches is optimal for the option seller over the long haul. As an example last Friday I rolled out of ALL of my July positions into the August 17 Monthly cycle.

      Key Point: for a seller of options, look to enter new positions at approx. 45 days prior to expiration. Why? Because 45 days is mathematically the moment when the value of Option contracts really starts to decline at an ever accelerating rate so the optimal window for a position in any one cycle is enter at 45 days move to next cycle at 21 days, rinse and repeat until profit target is achieved.

      As an example, at the time of writing, where I have deliberately not included specific companies as I don't want to stand accused of pumping any one stock the following ETF's have high liquidity and are expensive on an historical basis i.e. they are in play for a options seller.

      USO
      FXI
      EWW
      EWZ
      EEM
      SMH
      XLE
      XLI
      OIH

    • AG

      Anubhav G.

      3 7 2018 12:06

      2       0

      Juan,
      I would recommend https://www.tastytrade.com/tt/ for options trading

    • DR

      David R.

      3 7 2018 16:43

      0       0

      Interesting and informative posts. As far as TA is concerned, there's an old axiom that goes like, "The charts are never wrong but the chart reader often is".

  • DK

    Davic K.

    2 7 2018 17:43

    8       0

    Enjoyed the presentation on TA... Would have liked to see different examples on different setups. It would have added to the value hearing from the different perspectives on the same chart and a position or non position they would take. Really enjoyed the exchange.

    • DF

      Dave F.

      2 7 2018 19:13

      4       0

      Thanks Davic - we hear ya loud and clear.....

  • CS

    Charles S.

    2 7 2018 13:30

    8       0

    Again, like these chats as it gives some insight to real-world application and trading of TA. Hope we can dig deeper in the future and talk about present set-ups and opportunities. Good work

    • DF

      Dave F.

      2 7 2018 19:13

      5       0

      In the works and or discussion - let the folks at RV know you want more of a deep dive on education. We all discussed it in The Caymans (when this was filmed).....

  • LL

    Louis L.

    2 7 2018 12:06

    6       1

    I like the dialogue approach. TA is a very misunderstood tool. Next time you guys want to talk shop on TA ask me to join. Been successfully managing assets for multiple decades and TA is part of my process. :-) Louis Llanes, also a contributor to RV

  • NG

    Nick G.

    2 7 2018 11:09

    5       12

    OK. Can we have some more University level stuff? This going back to kindergarten is getting a bit boring. Nothing against educational videos for beginners, just separate them out. Why not do a separate channel devoted to "Education"?

    • KJ

      Kulbir J.

      2 7 2018 11:54

      7       0

      Calling this university level stuff, is harsh and unfair.

      Nevertheless, as you seem like you have a wealth of knowledge to share on the matter, please make a video and upload it on Youtube and share it with us, for us to ''learn'' and critique.

    • TT

      Thomas T.

      2 7 2018 13:03

      9       1

      Nick, I understand what you are saying yet there are a lot of people who want to know some basic technical stuff that can be used in trading and investing. And that is what we sought out to do with this video. An education section would be pretty cool I would agree. All three of us could easily go deep into much more of the specifics with some our complex indicators. Hopefully we will do more videos soon that will take it to the Masters level.

    • DF

      Dave F.

      2 7 2018 13:41

      5       0

      Nick G - as Tom noted....that is in the works/discussion @ RV - stay tuned

    • MF

      Malou F.

      2 7 2018 18:44

      2       0

      You can always learn something new.. I did..

    • MF

      Malou F.

      2 7 2018 19:15

      0       0

      Taking away the candle sticks sure takes away emotions..thank you!

    • MF

      Malou F.

      2 7 2018 19:15

      0       0

      Taking away the candle sticks sure takes away emotions..thank you!

    • DS

      David S.

      2 7 2018 19:50

      2       0

      There are innumerable articles, books plus videos on YouTube discussing technical analysis. These traders use more resources than technical charting. They include all the relevant information they can find on the trade. IMO it would be interesting for one to show his thinking – charts, fundamentals, FX, market news and gossip - on entering and exiting an actual trade. The other two could add their input on how it might be looked at differently. The idea is a case study. How they think is the lesson. DLS

  • CM

    Christopher M.

    2 7 2018 10:49

    2       0

    Great to hear people talking about TA without the distraction of charts that you might have online or in books. I have learnt to use Ichimoku I am 18 months into my journey, and I am still learning new things every day.

    Nice to hear the honesty that sometimes the "tools" breakdown and you need to lean on friends who have a different "toolbox".

  • KJ

    Kulbir J.

    2 7 2018 10:00

    5       0

    Fundamental Analysis and Technical Analysis are complimentary to each other. You don't solely make a trade based on Technical Analysis or Fundamental Analysis, but hand in hand.

    I totally agree with the point made that Technical Analysis helps with timing and entry/exit points.

    • KJ

      Kulbir J.

      2 7 2018 10:02

      16       0

      P.S I really enjoyed the Exchange with these 3 guys and the previous one they did. They have such a natural chemistry with each other, and it just flows. Great job.