What book do you recommend on this matter?
Thanks, Barry

Barry,

It is really hard to pick just one. But if you say the subject you're interested in is technical analysis I guess I would start with the classic Technical Analysis of Stock Trends by Edwards and Magee

Larry

This is just an observation and probably doesn't mean anything, but you can make the same charts look completely different by varying the distance between measurments on the x & y axis. Ex. if you were to spread out the y axis the collapse in the Nasdaq from 2000 to 2002 would look pretty gradual or you could shorten it and make it look like 1987. Maybe there's a reason that investors like Buffett and Rogers don't pay that much attention to charts.

I could say the exact same thing about fundamental analysis. Give me a stock and, if I wanted to, I could make a bullish case or a bearish case, solely based on "sound" fundamental analysis depending on how I want to manipulate the data and make forecasts.

Buffett doesn't do things like Rogers, and Rogers doesn't do things like Buffett. They have their ways of getting an edge and people who understand technical analysis have theirs.

By the way, I've discussed this before, but how well do you think Buffett has done since 1986 compared to the COT? That question is open to anyone who cares to answer.

Larry

Given the amount of capital that Buffet has to invest and that any purchase by him is going to move the markets as opposed to small investors following the COT reports, going from a Berkshire price of $16,680 on Jan. 2 1986 to $83,900 as of yesterday is pretty respectable. Some how I doubt that if you had several billion to invest that you could achieve that kind of return with the COT system. Which is not to say that the COT system is not a good system for the small investor, I think it is. But trying to compare it to Buffett's returns is like comparing apples to oranges.

Anonymous,

You seem to have some good things to say. It would help if you would use a name. If you’re concerned about spam you don’t have to use an email address.

Anyway, you’ve made an excellent point. And your point is one reason that I mentioned Buffett. I’m always hearing about people who want to invest like Warren Buffett. And to that I say why? As individual investors we have tremendous advantages over someone like Buffett who is trying to put billions to work. For example, I don’t know if it was you or another “anonymous”, but someone posted an implication that maybe since Buffett didn’t use technical analysis then maybe it wasn’t an effective approach to the markets. That’s a great example of apples and oranges. Buffett can’t invest billions in a very profitable breakout strategy (or whatever) but other people can. So as individual investors we should use the tremendous advantage of flexibility and liquidity that we have.

I just pointed out how you’re right. Now here’s where you’re dead wrong. I don’t know what you consider a “small investor”, but you can move a lot of money with COT strategies without having an impact on the market or incurring significantly higher transaction costs in the form of slippage. Vehicles like SPY and QQQ are extremely liquid, trading many millions of shares a day. And you can always diversify into very liquid stocks or funds.

But, if you’re concerned about that, here’s my suggestion to all who are trading COT strategies – once you get up to a hundred million or so in equity, you may want to use a different strategy. And let me know when you get there. .

Larry

I didn't think it was that important that I add my name but now you have it. By small investor I meant someone who's not managing a lot of money like say a mutual fund, pension fund, large hedge fund etc. I doubt that many of these types are trading the COT system. I don't personally trade the COT system but like I said that dosen't mean I think its a bad system. I was just making a point that charts can be manipulated to fit the expected result. Which of course has nothing to do with the COT system. As you can tell I'm not big on technical analysis though. I check in and read the posts once every week or so. I've noticed that over the last several months many of the so called technical patterns or indicators haven't performed so well. However I think you are doing a great service with your site. My opinion is nothing more than that, just my opinion. Everyone has their own methods and mine just differ from yours. In regards to Buffett I think the one thing that seperates him from the rest of us is the time frame he operates in, he just has more patience than most.

Scott

one thing i finally realized in trading... neither technical NOR fundamental analysis "work" - meaning neither can be counted on to make you money. they are just tools to help you come up with a bias.

they both claim to give you an edge and EITHER (or both) can IF you believe them. van tharpe says you don't trade the markets you trade your beliefs. once you realize that, simply ask yourself what do i believe? you won't trade a system you don't believe no matter how great the track record.

also, it doesn't matter if most of the chart reading has not worked out. the question is - does the plan make money? a simple system with a positive expectancy that is followed is where the money is made. even if you are wrong most of the time.

-ja

Scott,

Thank you for your contribution and I look forward to your insights in the future.

Joe,

You hit the nail on the head. So much of all of this is psychology. There are many ways to get an edge. We all need to find something we believe in and stick to it. As someone said a long time ago, if you don't know who you are the stock market is an expensive place to find out. I try never to forget that.

Larry