[good post on using TA on stocks]
Rainier, even though we know $1-$5 stocks gain the best when they fly, we must be wary that TA (at least mine) isn't as good for these stocks vs $10->$20 stocks.
something to consider..
ubject: STOCKS WITH ATTITUDE TEAM - FA/TA AND
EVERYTHING ELSE
| Previous | Next | Respond |
To: +sergio heiber (47 )
From: +Christopher Smith
Sunday, Dec 14 1997 12:51AM EST
Reply # of 388
I've been checking in on the 56 threads often during the past few
months, usually out of
curiousity more than anything else. I have just registered for SI,
thus no posts from me
until now. During the past few months several things about the
group's activity have
stuck out, and I wonder if some of you would respond to the
following questions. By
way of background, I will say that I am a marketmaker with one of
the largest
investment banks/trading houses in the world...since I do not want
to specify which
one, I will only say I work for either GSCO, MLCO, MSCO, or BEST. As
a result, I
believe I bring a certain degree of saavy and knowledge about the
issues (especially
regarding marketmaker activity) that some of you seem to think you
are qualified to
comment on.
1. I have been struck by this group's obsession with stocks in the
$1-$10 range. The
firm I work for has an extremely sophisticated, high-powered
technical analysis
department, and I know the value of good TA. Like your member "Doug
R", I
consider myself extremely competent in the area of TA and apply it
daily when
evaluating my proprietary positions and inventory levels. Anyone who
knows
ANYTHING about technical analysis knows that it is most effective as
a predictor of
future activity for stocks OVER $10. Applying TA to stocks under
$10, and especially
penny stocks under $5, is completely ludicrous. Just one of the
reasons for this is that
TA, on a basic level, attempts to identify trends in price activity
from which one can
profit. Stocks under $10 do not experience the consistent buying and
selling activity of
larger stocks. Example: as a marketmaker, I will have a customer,
such as a mutual
fund, come in one day and buy a large block of a $30 stock. The next
day, the fund
will buy another block. Often, that customer will be joined by
another, such as a hedge
fund...this usually goes on for days or weeks, since many of these
institutions identify
the same types of desirable stocks at the same time. This creates a
clear pattern in the
chart of the stock, which creates great trading opportunities for
those utilizing good
TA. These patterns almost NEVER exist in penny stocks, since most
activity in these
issues is retail and short term speculation, not institutional
activity. If you are a short
term trader, fine...just don't use TA to justify buying or selling a
penny stock to the
extent you would a more respectable one, because you'll be comparing
apples and
oranges.
<other stuff deleted> |
