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Hi Big,
The validity of TA continues to be debated, period, throughout the
investment industry. I personally, strongly believe in its merit and have
built many successful (and a few not so successful) trading programs over
the years. The underlying belief of TA is that history repeats itself. If
TA works for the individual constituents of a composite, then, by
definition, it must work for the composite itself. TA is a predominant
method of analyzing the S&P 500 Index (simply a well known composite). The
ETN you refer to is just another composite made up of many components. In
my opinion, one of the greatest strengths of composites is that you can also
analyze the individual constituents as a whole. While on an individual
issue you can look historically at 5 values (open, high, low, close and
volume), on composites, you have a much larger arsenal. Not only OHLCV, but
also an infinite number of composite breadth values, including statistics
like advancing/declining issues, advancing/declining volume, new highs/lows,
constituents trading above their 200 day moving average and an endless list
of other statistical measures (subject only to one's imagination).
Does TA work on composites? In my (not so humble) opinion, absolutely. It
works even better if you use all the tools available to you.
Good luck.
Best,
L. P. Carhartt
-----Original Message-----
From: equismetastock@xxxxxxxxxxxxxxx [mailto:equismetastock@xxxxxxxxxxxxxxx]
On Behalf Of Big Papa
Sent: Tuesday, August 05, 2008 7:00 AM
To: equismetastock@xxxxxxxxxxxxxxx
Subject: [EquisMetaStock Group] Validity of line studies on composites
Group,
I bought a stock (DEE), which is the Deutche Bank double short commodities
ETN. Purchased 7/17 @ $20.47.
Basically, it tries to provide the double inverse of a group of commodities,
oil, corn, wheat, etc, etc.
As commodities have gone down, the stock has risen. I had invested a small
amount, around $2k. (Small investor, my "play money" is $10k, as I learn
more about all this). As things began to rise, I did a line study, and it
appeared $22.50 was a good stop loss point.
On July 30, stock opened at 23.3, hit the low of 22.36, and I got stopped
out. Stock has continued to climb since. As I do a post mortem of the trade,
I could have seen where maybe 22.10 was a better stop, but got me to start
thinking.
Do composites stocks with so many inputs really hold up well to TA?
I have seen many of you working on S&P500 composites etc, but was curious as
to your thoughts.
Quit complaining because I made 10%? Kick myself because at $24.56 open
today, I'd be up closer to 20%?
Thanks,
Big
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