Some hedge funds believe in the power of technical analysis, while others find it useless. As an example of contrasting opinions, here are some quotes from his two wealth managers.
“I have never met a rich technologist” – Jim Rogers (estimated net worth $300 million). [1]
“I used Fundamentals for 9 years and got rich as an engineer.” – Marty Schwartz (estimated net worth $50 million).[2]
Below are a few wealthy techs who got rich from trading using some form of technical analysis that Mr. Rogers researched and helped discover they existed and have been around for 100 years. list of people.
- Paul Tudor Jones
- Marty Schwartz
- Jesse Livermore
- Nicholas Darvas
- William J. O’Neill
Use of technical analysis by fund managers
Here’s what a hedge fund manager with 20 years of experience in the financial sector on both the sell side of Deutsche Bank and JP Morgan and the buy side of Brevan Howard has to say about hedge fund managers or anyone else who uses technical analysis as follows.
“SSome people love it, some people hate it. I think you need to be specific about what you mean by technical analysis. If technical analysis means looking at charts optically, looking at head and shoulders, etc., testing becomes very difficult. You might look at this today and find out that it’s head and shoulders. What affected you, you can’t determine you can’t test, so unless that’s the case, you don’t know You can’t write it down as a set of rules that even people know can speak english and sit in mongols and replicate but it won’t be used obviously there is another group and it’s more art than science It is often said thatUltimately, regardless of how you get your black numbers at the end of the year, that’s the really cool thing about trading.” – Corvin Codirla[3]
David Paul teaches banks, hedge funds and individuals how to trade and has the following quotes on the use of technical analysis at the hedge fund level. He is Managing Director of VectorVest UK.
“It’s always been seen as a negative, and certainly at the retailer level. Institutions are told on day one to buy at good levels or not at all. Unfortunately, most retail Before the trader saw what could be a candle pattern, move Mean cross, or whatever. Institutional investors buy at levels where most traders set their stop loss one tick below the recent low. institutional orders. ”
“I think institutional investors are just doing the same thing as institutional investors. If you want to buy 100 shares at the retail level, if you want to buy pounds for $5 or 1 point, press the little button, at the institutional level you can do it, but it’s not that simple, and Sometimes you really have to generate liquidity to get on board I don’t think anyone sees where the stops are but most of the stops are all clustered around this obvious level so they Bid on the market at a certain level. The market will move to where you bid and all those people will be eliminated. “
“If you don’t think long and hard about where you’re going to put the stop, you’ll find something you can do. It’s easy to die in a sea of stop-losses, so here’s an exercise for some people. Write down on a piece of paper where you want to put it. your stop loss. Instead of buying it, place an order to buy it where you put your stop loss and then watch how many times the market goes to your order. increase. One of my rules is that I want my entry to be where the masses stop. “
“Nothing upsets me more than someone telling me this is a very risky trade if I fail to enter at a good level. Once again, the stop has to be where the stop should be, so if the entry is sloppy, the stop loss should be the red bus away from where you entered to give the move a chance to stay. “
“Average true range helps with that. Most traders see stop losses at 2.5 times the average true range or something like that, but if you want to get in with a lower stop loss at institutional level, It takes courage, institutional investors use Fibonacci levels that use trendlines and simple horizontal support and resistance levels to actually look for confluences and try to place orders. Unfortunately, most retailers For example, if you look for some form of confirmation, the desktop loss will be too close and noisy. ”
What kind of analytics do hedge funds use?
While technical analysis is used by many individuals and individual traders and investors, large hedge funds and investment banks also use technical analysis as a primary or secondary factor in trading decisions and trade management. . These large institutions have dedicated trading teams that use technical analysis.
Quantitative hedge fund strategies use quantitative analysis (QA) to make investment decisions. Quantitative analysis is a technique that seeks to understand patterns using mathematical and statistical modeling, measurements, and studies that rely on large datasets.[4]
Do Hedge Funds Hire Technical Analysts?
Many large hedge funds have dedicated trading teams that use technical analysis. About 60% of hedge fund traders employ technical factors when making decisions. You may or may not have announced it publicly. Investment banks also use technical analysis with a dedicated team that tracks market momentum and direction. In addition to or apart from fundamentals and macros, it is common practice in the money management industry to integrate some form of technical analysis when making trading decisions. [5]
“The Elliott Wave theory allows us to create incredibly lucrative risk/reward opportunities. It is the same reason I attribute much of my own success to the Elliott Wave approach.” – Paul Tudor Jones ($7.5 billion net worth)