| Rectangle Formations On The Go

3rd Oct '18 by Kiran Shroff

25 comments 3754 reads

I like price formations, especially Rectangle. They are quick to assess, easy to understand and most importantly one cannot miss it even if they are seen without support and resistance lines. So easy it is. And above all, once they break out either way, chances are high that they follow the same direction. Investtech has done extensive research on this formation in the Scandinavian markets for a given time period. We came out with some impressive numbers that show the Rectangle formation has produced better return than the index. More can be read about this research and its results here.

Walt Disney Company (DIS) Close: 117.66
Investors over time have bought Walt Disney shares steadily at higher prices and the stock is in a rising trend channel in the medium term chart. The stock on Tuesday closed at its highest level, just breaking out from the ceiling of the rectangle since the begynning of 2016. This signals increasing optimism among investors and indicates continued rise in price.
The price formation gives a target of 134-135 dollars and in case of a reaction back there is support between 113-109 dollars. This give a favourable risk-reward ratio.
To add to this interesting case, the volume balance indicator has been very positive and momentum in the stock is rising. Hence the stock is overall assessed as technically positive for the medium to long term.
Investtech's outlook (one to six weeks): Positive

Vertex Pharmaceuticals (VRTX) Close: 191.93
After being inside an almost horizontal trend for over an year, Vertex Pharmaceutica has given a breakout from two rectangle formations at the same time. The formation gives a price target of a little under 230 dollars. In case of a reaction downwards, there is support around 177.
Positive volume balance shows that volume is higher on days with rising prices than days with falling prices. This indicates increasing optimism among investors. The RSI curve shows a rising trend, which could be an early signal for the start of a rising trend for the price as well.
Investtech's outlook (one to six weeks): Positive

Bank of America Corp (BAC) Close: 29.58
Bank of America Corp is in a rising trend channel in both the medium and long term chart. Interesting to see that the stock has broken…

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Taff6

4th Oct '18

Why would anyone feel sorry Kiran? Not sure why all the thumbs down either. Thanks Kiran

Edit

Chart is FTSE 100 from 1999

mmarkkj777

5th Oct '18

After years of investing, just buying based on fundamentals, I've recently started to try a bit of technical analysis and just use the Stocko tools (I am reading about trading). Its too soon to really know if its helping or not.

I also can't see anything in Kiran's post to warrant all those thumbs down. I guess some people perhaps just do it as quick feedback without writing a comment as to why they didn't like it. Perhaps people see it as advertising for Investtech, but that's not really a problem if its fully declared. Also, it uses only American stocks as examples, and most people on here seem to be mainly interested in UK stocks. I have 4 US stocks, but I don't trade in them (just buy and hold).

So, don't be put off trying another post Kiran. There are a lot of experienced investors on here, as well as more inexperienced ones, so be careful how you word it and maybe leave the reference to your company's research until the end, so people can find further reading if they want to after reading your post.

Hope this helps.

Mark.

timarr

So, don't be put off trying another post Kiran.

I don't think you need worry. If she is who she says she is, she's a professional technical analyst, she's paid to write this stuff.

Hi Timarr,

Yea, I read her profile, but I was just trying to be nice for once. I must be turning contrarian!

Kiran Shroff

Given on Stockopedia website when you fill create your profile:
"Anyone who writes on this site can use these tools to promote their business of choice free of charge.
The more you publish on the site, the more followers you will gather, and the more exposure you will receive."

To read in details one can follow the link to Stockopedia's guidelines here https://www.stockopedia.com/page/getting-published-on-stockopedia/#article-publishing-policy

For all thumbs down, never mind. 'If' they are for not writing good content, accepted.
You read an article, you act on it or you do not. That is it.

aflash

For some reason the first three posts have been suppressed from the system.

One was mine asking for a comparaison between your 'rectangles' and my 'box range'.

It was longer but maybe you saw it.

DIS (Walt Disney) interested me lower down but then I buy reversals not break outs.

Andrew L

I gave your article a thumbs up! Good luck. I thought there were lots of people here who like technical analysis. If someone is offering insights it may be to advertise services but they are still offering insights. Perhaps, though, for UK investors people would of preferred technical analysis on UK stocks? Have a good weekend.

6th Oct '18

......so are you paid, or at least paid back.

You express your thesis on Stocko (in your case it is cogently expressed) so that makes you think more clearly and make better buy or sell decisions.

We should welcome someone who thinks differently because in Warren Buffet's words 'there is a high price to be paid for cheery consensus.'

She may not have accumulated enough capital to invest in the market but she is interested and that is worth something.

andrewdb

I generally think TA and homeopathy rank together on the 'is it real scale'
But
Underneath it all, a lot of TA is based on identifying momentum
And
The M in the QVM stockrank is momentum and there is a good body of peer reviewed evidence to support it.
So personally, i move my opinion from 'dismissive' to 'will read'.

Technical Analysis is the study of price movements.

As such almost all Stokopedians use it.

The only ones who do not are the Factor investors who only review their portfolio once or twice a year.

Price movements are determined by supply and demand.

However TA is not a statistical science because Emotions often determine supply and demand.
The most recent example was the morning after Brexit when stocks with good financial results were marked down.

It is ironic that Stokopedians are disdainful of TA when posting but use the 50 day and 200 day Moving Averages when buying and selling. Fortunately some articulate members such as dscollard and Phil of Sunflower Counselling show the value in their results.

It is fine by me that you all prefer the ancient greek method of logical exchanges on the Stokopedian forum. By following a collective train of thought we make better investment decisions.

However there are other sites to which I subscribe where a set of Technical Analysis rules are followed over the course of price fluctuations of a stock to generate buy and sell decisions.
They work because any disciplined approach does.

8th Oct '18

Good to read different views.
I think trading for me without any backup or supporting system is like shooting in the sky, if a flying bird gets shot then its a win else otherwise. And TA works for me just fine as I have studied the subject.

There are traders who use only their gut feeling or fundamentals or technicals or a combination of things to trade. What works for one may not work for another and so on. It is highly subjective.

And why should I or anyone else should be interested if someone is being paid for writing or not? We all have our own situations in life and its individual choice if they want to reveal their profile or not. Why to waste time on that?

We must see the content with an open mind and share our views. Is it not a good way to learn and grow?
Enjoy analysis and trading!

vik2001

T.A defo helps me to know when to get in or out of a stock. I watch the moving averages, RSI and MACD levels

What is Technical analysis? We’ve had a few views on this; however my own view differs slightly to others.
Technical Analysis is the collation of all the fundamental analysis collected on an instruments financial, economic and fiscal (political) data which is then reflected as price movement on an instruments price chart. In my view (and I know I’m in the minority on Stockopedia) it has many advantages over Technical Analysis, in that it communicates to the technician when their interpretation of the data is incorrect and incorporates the emotions of human behaviour (Fear and Greed). This can be a little problematic for Technical Analysis as views can be isolated with others on the opposite side of the trade. I have seen many discussions on Stockopedia where very talented Fundamental Analysts are on the total opposite side of the fence, take Graham and Paul for e.g. Obviously both can’t be correct and no matter how good one is at Technical Analysis there will always be someone who knows more and after all no one knows more than Mr. Market. Sometimes even the very best Technical Analysis can be correct and on the wrong side of the trade as others are slow to come to the correct conclusions. Technical Analysis simplifies things massively as it captures all of the Fundamental Analysis and gives us a very simple visual representation by way of price movements on a chart. Simple systems can then be created to take advantage of all this Fundamental Analysis, (However this would be classed as Technical Analysis). One simple system that springs to mind is the turtle trading system.

More on turtle trading,

https://www.stockopedia.com/co...

These simple systems in practice should beat one’s chosen index over time. However simple is not always easy and as with all analysis practitioners will go through periods of under performance and be tempted to change things, the same happens with next system and so forth until no visibility remains. It would appear that that the majority of traders and investors fail to beat the market. It has been well documented that markets move in a counter intuitive direction and that human psychology and the brain are unable to reason with this behaviour. From the example given we can see that these human limitations can be overcome with simple systems (Technical Analysis) and discipline or principles as Aflash refers to them. From my e.g. In 1983, commodities trader Richard Dennis bet with his business partner Bill Eckhart that he could teach a random group to be great traders, and the rest is as they say is history. Why do these simple systems fail then? The simple answer is the lack of discipline from practitioners to enforce their system whether Technical Analysis or Fundamental Analysis. One thing that I have been curious of for a long time is, whether these counter intuitive market movement are in fact very cleverly designed algorithms to transfer wealth from one group to another? Would be very similar to saying "can’t beat the Buy and Hold strategy", really? (Do as I say not as I do). The success of Stockopedia and other quantitative systems appear to corroborate this theory and maybe all Fundamental and Technical Analysts are barking up the wrong tree or failing to move with time?
In conclusion I see no difference between Fundamental Analysis and Technical Analysis one is simply a function of the other and not to be used in isolation.

Great point made by Kiran
“We must see the content with an open mind and share our views. Is it not a good way to learn and grow?
Enjoy analysis and trading!”
Here’s a great video to enforce Kiran’s View on learning and one of the great benefits of Stockopedia

https://www.ted.com/talks/daph...

Here’s a slightly different take on rectangles looking @ £XLM

XLMedia (LON:XLM) Monthly Price chart with no TA

XLMedia (LON:XLM) Monthly Price chart with a little TA

(the time line on the .214 obscures price on the image. it reached the .618)

Buy, Sell or Hold?

Quantitative analysis suggests that stocks with a Quality rank above 75 before the day of profit warning, on average regain all of their losses and more within twelve months

so what's it going to be? TA, FA, Stockranks or a combination of all?

Edit for previous post

apologies for the above but text should be as follows (Yes I am Stupid occasionally)

What is Technical analysis? We’ve had a few views on this; however my own view differs slightly to others.
Technical Analysis is the collation of all the fundamental analysis collected on an instruments financial, economic and fiscal (political) data which is then reflected as price movement on an instruments price chart. In my view (and I know I’m in the minority on Stockopedia) it has many advantages over Fundamental Analysis, in that it communicates to the technician when their interpretation of the data is incorrect and incorporates the emotions of human behaviour (Fear and Greed). This can be a little problematic for Fundamental Analysis as views can be isolated with others on the opposite side of the trade. I have seen many discussions on Stockopedia where very talented Fundamental Analysts are on the total opposite side of the fence, take Graham and Paul for e.g. Obviously both can’t be correct and no matter how good one is at Fundamental Analysis there will always be someone who knows more and after all no one knows more than Mr. Market. Sometimes even the very best Fundamental Analysis can be correct and on the wrong side of the trade as others are slow to come to the correct conclusions. Technical Analysis simplifies things massively as it captures all of the Fundamental Analysis and gives us a very simple visual representation by way of price movements on a chart. Simple systems can then be created to take advantage of all this Fundamental Analysis, (However this would be classed as Technical Analysis). One simple system that springs to mind is the turtle trading system.

What is Technical analysis? We’ve had a few views on this; however my own view differs slightly to others

How on earth can TA have any credibility if anyone can come along and redefine what it is?

Anyway, what I'd like someone to explain to me is this. If TA is essentially objective in nature then it must be repeatable. And if it's repeatable it must be encodeable. And if it's repeatable and encodeable surely our major financial institutions with their quantitative analysts with brains the size of a planet will have implemented it on their supercomputers and will capture any excess returns before anyone here can identify them?

And if TA isn't objective then why is it any better than any other subjective method?

If it's repeatable and encodeable surely our major financial institutions with their quantitative analysts with brains the size of a planet will have implemented it on their supercomputers........

They have

..........and will capture any excess returns before anyone here can identify them?

Depends on the time frame. For Day Trading yes.

However Technical Analysis patterns fit both short term and long term time frames.

Take BATS (British American Tobacco) as an example. It peaked last year. Since then a recognizable 'Head & Shoulders' pattern can be distinguished on the chart.

Left shoulder in Sept 2016, Right shoulder in Sept 2017 and Head in the middle at the peak.

A Fibonacci retracement of .618 gives support at 3031p so I am prepared to buy at that point.

That pattern took ten years to form.

Other traders will calculate the Fibonacci retracement over much shorter time frames.

StudyingHard

I'm not a fan of technical analysis myself. But I just wanted to weigh in as a Norwegian and say that Investtech is a respectable company with a good track record for results in Norway.

They're featured almost daily in the larger financial papers and their results when tested do measure up.

That said I said I still turned them down when they called me to see if I'd like to extend my trial. Technical analysis just strikes me as momentum investing with extra steps. Also a smidge of reading the other players at a poker table. It just isn't for me.

Still. As far as "ads" go this isn't some two bit no-name piece of trash firm if she is from Investtech.

https://www.hegnar.no/contentbytag/895 quick link to their features in what is my own personal favourite Norwegian Financial paper which features them heavily.

I'm a bit torn on how I feel about her post. This is without a doubt, them trying to target potential clients. I mean. They are straight up a rival service to Stockopedia and people involved in the management/ownership of Investtech have recently launched a rival to Stockopedia that deals primarily in momentum investing.

There's a good case to be made for deleting this post and warning/banning the user who posted for the admins I feel.

In truth I'm fairly surprised a company as well respected as Investtech would make a post like this.

Depends on the time frame. For Day Trading yes ... However Technical Analysis patterns fit both short term and long term time frames.

OK, if institutions are exploiting the short term opportunity then presumably they arbitrage away the excess gains before private investors can access them. So are we saying there's no TA opportunity for short-term trading?

And if there are excess returns to be made over the longer term why aren't institutions trading on that as well? Not all institutions are short term in nature, and if this is happening all the time then there will be a constant flow of opportunities to realise once you've made the initial investment.

Basically to arbitrage away the TA anomaly institutions only need to be seconds ahead of private investors, regardless of timescale. They invest millions to get physical space closer to trading exchanges to reduce the timelag on optic fibre cables for HFT - in fact there's even work been done on wher to physically locate trading centres to take advantage of relativistic delays in light propagation between different exchanges. So this stuff would be trivial for them if it's repeatable.

And if it's not repeatable then what is it?

My View (for what it's worth).

Fundamental analysis (usually) works in the long term. Its a measure of the worth of a company and how well a company has been doing, from which people can attempt to extrapolate the future value and performance of a company (earnings, T.O., etc.).

In the shorter-term the market is a popularity contest, with the collective human nature (or behaviour) of all the share-holders contributing to the short-term rising and falling of a share price. So, in effect, Technical Analysis is actually the statistical analysis of the effect this collective human behaviour has on a share (whether we like it or not). Because human nature doesn't change much (greed, fear, hope, etc.), repeatable patterns have emerged over the years that Technical Analysts have identified as price patterns. Over the years the markets change, the top companies and sectors may change, but the only real constant is human nature, because we are all human. Maybe this will change in the future, over time, with Quants, but the Algorythms are programmed by humans too, so maybe not.

Personally, I use both, but I've only started to use TA recently to help me time my buys and sells.

Hi timarr
Thanks for your reply, and very diligent content elsewhere on stocko
I’m pretty sure u were LOL when typing, however
• How on earth can TA have any credibility if anyone can come along and redefine what it is?

The act of defining is of making something specific, distinct, or clear to everyone however an interpretation of something is to express an opinion about what it means. So there’s no redefinition going on here.
• Anyway, what I'd like someone to explain to me is this. If TA is essentially objective in nature then it must be repeatable. And if it's repeatable it must be encodeable. And if it's repeatable and encodeable surely our major financial institutions with their quantitative analysts with brains the size of a planet will have implemented it on their supercomputers and will capture any excess returns before anyone here can identify them?

Patterns are continuously repeated in the stock market however encoding would be very difficult due to the many variables namely, human behaviour and the financial, economic and fiscal (political) data that exists for all instruments. This data also continually changes. Patterns will also remain indistinguishable to those who fail to replicate the encoding in one’s mind or visually. (FA)
• And if TA isn't objective then why is it any better than any other subjective method?

I don’t recall saying that TA is better than any other method only that it has some advantages and if you want to discredit TA then it would be better to concentrate on the disadvantages of which there are many, if the fundamentals don’t concur with the TA then as sure as night follows day the identified TA will fail.

In respect of you comment

• Basically to arbitrage away the TA anomaly institutions only need to be seconds ahead of private investors, regardless of timescale. They invest millions to get physical space closer to trading exchanges to reduce the timelag on optic fibre cables for HFT - in fact there's even work been done on wher to physically locate trading centres to take advantage of relativistic delays in light propagation between different exchanges. So this stuff would be trivial for them if it's repeatable.

You are making a really good point here in support of TA. Maybe one should concentrate their TA efforts when closing trades and not opening them. This would be taking advantage of price dislocations and is one area where private investors should have an edge, which might go some way to explaining the investment.
See point 1
https://www.stockopedia.com/co...

regarding your comments on supercomputers. Computers are only the evolution of the human mind and work in exactly the same way as the programmer only a lot quicker. The same as everything else TA has probably moved on and may well now be indistinguishable to some groups, however evolving simple systems in conjunction with FA may still give the PI a glimmer of parity.

best regards J

Rectangle formations on the go

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Kiran Shroff

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