Technical analysis: why is it used in some markets (commodities) more than others (IR)?

Randumb · Post by **Randumb** » Fri Jun 20, 2008 4:18 pm

I can't believe the Black Swan (citation: HankScorpio) chart pattern actually predicted this downturn.

Tradenator · Post by **Tradenator** » Fri Jun 20, 2008 7:48 pm

Should I rethink about technical analysis? If so, in which roles is it useful?

Yes, rethink it. It is useful in trading when it is kept simple and coupled with responsible money management policies.

are our interest rate traders smarter/more analytical/more thoughful than our commodity traders?

Yadunno, who makes more money? Smarter is not always the best thing.
are commodity and interest rates markets so fundamentally different that a more thorough mathematical description of commodities at the level it is done in interest rates is impossible?

People also compare commodities to FX (ie gold as a currency). Asset classes all have fundamental differences (as AndyM wrote), and yet some people are successful at getting technical analysis to work across the board. Perhaps part of the reason is that technicals are accepted as always changing, but fundamental relationships aren't seen like that.

apine · Post by **apine** » Fri Jun 20, 2008 8:09 pm

i think this adds to andym's comment, but i think a lot of rates trading involves relative value considerations that are quantitative. sell side in particular has to ensure that their quotes given line up against other areas within their area (e.g., makes sense for the govy yield curve, barbell efficient frontiers, etc) and against related markets (e.g., swap curves vs. govys). there are a whole slew of products that are priced against other products. plus the rate market is much more liquid than commodities so that pricing needs to be more exact both because the per trade sizes are bigger and the spreads are tighter.

Scotty · Post by **Scotty** » Sat Jun 21, 2008 4:38 am

Johnny

Terrific succinct summary - I get it. Thanks.

quantie · Post by **quantie** » Sat Jun 21, 2008 4:38 pm

I also think there is a self-fulfiling/pygmallion effect to this. FX all the technicians who are followed at various banks come out with about the same support and resistance levels in their charts. This then leads to stops build up in the book around these level which then causes certain price action that actually confirms the original pattern to be true.

Johnny · Post by **Johnny** » Mon Jun 23, 2008 10:07 am

Cheers Scotty

MoreLiver · Post by **MoreLiver** » Tue Jun 24, 2008 9:39 am

Quantie, check this out.

The banks don't agree on the s/r levels that much, roughly a third are the same. Also, there are outlier banks that never seem to "agree" with other banks (don't know why, among physical resistance types there might be Elliot freaks or similar).

In all, the levels identified by the banks seem to work to some extent.

Energetic · Post by **Energetic** » Tue Jun 24, 2008 5:20 pm

Vanilla commodities traders aren't a very sophisticated lot. Their methods are typically laughably primitive which is why they blow up so often. They used to survive OK in the rangebound market. But now that the game has changed they go out of the window in droves.

Any system eventually tells you to go short. Then the market turns against you and soon you hit the limit ... I'm sure there's a lot of money to be made by if you're smart but it's not easy.

FDAXHunter · Post by **FDAXHunter** » Tue Jun 24, 2008 8:13 pm

Energetic: Their methods are typically laughably primitive which is why they blow up so often.

Oh please. As opposed to the more sophisticated ones, which blow up less often, but with a bigger bang?

Energetic · Post by **Energetic** » Tue Jun 24, 2008 8:42 pm

Dude. I'm just trying to give the benefit of doubt to those I don't know much about.