What Do Hedge Funds Think of Technical Analysis?

what do hedge funds think of technical analysis some of them love it and some of them hate a technical analysis some absolutely live by it thinking trend lines Head and Shoulders support and resistances are basically the Bible the stock market all right a third way I'm Different I use technical analysis right and to be fair there's a lot of traders that have made a ton of money from using just purely technical analysis then there's the other side where people think technical analysis is basically astrology for Traders seems like a lot of thinking it's just a

bunch of random lines on a chart almost like a four-year-old drawing on a wall with a marker but who's really right here if you went on Reddit and asked a technical analysis word you would instantly start an absolute brawl to the death of Internet nerds fighting over why they believe they are right but I don't want to just listen to a random 19 year old on Reddit sorry true D gen 720. I want to listen to someone who's been in the market Gates I want to listen to hour period I want to listen to a

hedge fund manager so that's exactly what I did I scavenged the internet for interviews with hedge fund managers some dating back to 10 to 15 years and oh boy did I find some gems I cut up to what I thought were the most interesting points in the interviews so we could really answer the age-old question what do hedge funds think about technical analysis let's get straight into it shall we our first contestant is Corvin codurla I think that's how you pronounce it he's an ex-hedge fund manager and systematic Trader for JP Morgan we'll go over

what he thinks about technical analysis and then see some other hedge fund managers responses including what a managing director thinks about stop hunting and what the retail investor should do to better their chances of surviving the stop hunting an algorithmic Trader that has worked with a bunch of hedge funds and his thoughts on support and resistances and at the very end of the video we'll go over what this guy a man that has managed billions of dollars just himself thinks about stop losses so going back to Corbett when asked what he he thinks about technical

analysis this was his response some of them love it and some of them hate it and I think you have to really specify what you mean by technical analysis if technical analysis means optically looking at the chart and looking at heads and shoulders and stuff like that it becomes very difficult to test you see you might look at this today and see it's the heads and shoulders and in five years time you might see something completely different maybe a cup with handle what influenced you to make those choices you can't determine you can't test so

as long as the thing isn't you can't write it down as a set of rules that you know even a guy that doesn't speak English and sits in Mongolia can replicate then it's not used there's obviously another set of people that say well it's more of an art than a science and hey if they make money who am I to deny another poker players placed in the sun yeah so ultimately that's the really great thing about trading regardless of how you manage to get that black number at the end of the year that's ultimately all

that matters so after hearing corvin's response I completely agree with him I like to think my channel has the complete staple of always back testing strategies to make sure they work in the long term in order to back test that strategies there has to be a specific set of rules that you have to follow it can't just be oh when you get a certain feeling that the chart is losing momentum no the other point he made was look if something's working for you and I don't necessarily agree with it who am I to say that

it doesn't work if it's making you money it's making you money so I think that's another really key thing to take away from this you shouldn't just automatically neglect someone's trading idea just because it doesn't follow your rule set I guess what I'm trying to say is you should have an open mind when talking to other Traders our next speaker is David Paul a financial Trader and managing director of VectorVest the main topic he is going to be talking about is if stop hunting and trading exists and what the retail Trader can do to help

better their chances in surviving attacks like this it's always looked upon as negative certainly at the retail Trader level institutional Traders are taught on their first day that they buy good levels or they don't buy at all unfortunately most retail Traders will wait for some confirmation before they get in that could be a candle pattern could be a moving average Cross or whatever institutional Traders will buy at the level now most Traders will put their stop loss a tick under the last low and they will invariably put their stop loss at exactly where the institutional

orders are I think that institutional Traders are just doing with institutional Traders do putting their entry points at very good levels however if you are trading at the institutional level it's not always easy to get filled at the retail level if you want to buy 100 shares you want to buy the pound against the dollar at a five or a point you press the little button and you've got it at the institutional level it's not that simple and you've got and on occasions to actually generate the liquid ability to get aboard I don't think that

anybody looks at where the stops are but they will say to themselves well we know pretty sure that most of the stops will all be crowded around this obvious level so they will bid the market at that particular level all you need is one person to chicken out and the markets are going to go where the bids are and all those people will be taken out if you do not think long and hard about where you're going to put your stops that you're going to find that you can quite easily die in a sea of

stop losses and here's an exercise for some people the next time you're just about to put a tread on you pick up something heavy and you just go foreign and then you write down a piece of paper where you were going to buy and where you're going to put your stop loss don't buy it but put an order in to buy it at where you're going to put your stop loss and then just watch how many times the market goes to your order markets I will go to the obvious stops most of the time and

one of my rules is that I want to put my entries where the masses put their stops if you don't get in at a good level there's nothing that upsets me more than a guy saying that this is a very risky trade I'll use a tight stop loss that's just rubbish because uh you'll get stopped out over and over and over again the stop needs to be where the stop needs to be so if your entry is sloppy then your stop loss is going to have to be a red bus away from where you got

in at to give yourself a chance of staying in the move the average true range will help with that most Traders will look at a stop loss of two and a half times the average true range or something like that nevertheless if you want to get in with low stop losses at institutional levels you've got to be brave the institutional Traders will use Fibonacci levels they will use trend lines they'll use Simple horizontal support and resistance levels to actually look for confluences to try and place their orders nothing clever okay unfortunately most retail Traders as

I say will look for some form of Confirmation and a desktop loss will then be too close and you'll get taken out in the noise David made some really great points unlike you and me a huge institution can't just buy in at any given time they have so much money there isn't enough liquidity out there so they can organically enter at the given price they want in order for them to get in at the price they want they need to create the liquidity themselves which in return means making price hit these huge areas of stop

losses and buying in at that point that's why in a lot of my video strategies like this one fake outs and liquidity grabs are huge part of the success of the strategy because it's hitting all these Traders stop losses and you're essentially trading with the big money another quote I really liked from him was the stop loss needs to be where the stop loss needs to be you shouldn't just make a stop loss small because you don't want to take on a lot of risk if you're taking up a lot of risk it's because your

entry wasn't good so really pay attention to that next time you enter a trade the next interview we're going to look at is Mark an algorithmic Trader that worked with a bunch of different small hedge funds now the main topic he is talking about is if hedge funds use support and resistances to help make trading decisions and this answer kind of surprised me the question is this if we are thinking of hedge funds are they taking support resistance into account before they're taking a placing a trade or an investment now it's important to kind of

distinguish here what we're talking about I would Hazard a guess that hedge funds at the very top end like your Bridgewater like any kind of really big fun that's managing a massive amount of money really doesn't care about this because unless they've got a sub fund that's very technical and small which I don't think they have because they've got so much money wouldn't make any sense they don't care about this because they're holding times are much longer they're much more interested in different things which we'll get to in a second so they don't but then

when we go down to the smaller end of the scale like people who are still running funds the couple that I've worked with have taken it into account because they're not 100 Man team they're a small team managing a decent amount of money but a modest amount when you compare it to the big guys and the people in charge of making those trades May well have a decision making process that is integrated with some kind of technicals because they can do it because they're not trying to move 200 million around then maybe they're moving 20

million around 30 40 50 that kind of stuff which is Small Change compared to the billions up there there so if we look at this process a hedge fund investing Capital isn't going to care about support and resistance because they're looking for an edge elsewhere maybe they're looking for an edge in some emerging market that someone hasn't seen maybe they've recognized that this specific currency is going to be the value more against this because they've got information that retail is going to struggle here and the mining company and all that so they make a bet

based on that now they don't care about support and resistance there now one caveat to that is that you may well get Traders within the fund who are executing the may take a little bit of stock in terms of no pun intended of support and resistance if they are manually executed so say they've been given an order to buy X number of shares in this company now it's their job to get the best possible price now they may well just put an algo in and just time slices the order volume slices the order and they

leave it and they're off they don't really care they may well do it manually and there may well be a Trader who's looking at charts like us who's executing it in batches and maybe he sees the price at resistance and says well I'll just see I've got another batch to do I need to do it anyway should I just see if it backs off from this because I think we might back off in which case then maybe they do is it is it kind of uh intro integral is the word I'm looking for into their

whole system and strategy no it's not they're still going to buy it regardless as we go down oh should I say it becomes less and less likely creators don't really care about that they just care about getting the order done it's such a big order it has to be done regardless and little things like that aren't going to make a difference but as you come down the scale into the smaller kind of regulated funds then yes you can imagine that there's going to be some traders in there I know may well be sitting there saying

well actually you know what we're going to take this order but we'll wait because we're hitting resistance or we're at support now maybe we should start to scale into the position they'll still have to take the trade anyway but it might mean that they adjust the order as they're doing it now Mark made some really great points the key thing to take away from this is are hedge funds really looking at support and resistances well the big guys that are dealing with billions of dollars no because it financially doesn't make sense for them to go

that in depth with the charts for liquidity reasons but the smaller ones they will sometimes use it to help make decisions on when to enter so save prices at this resistance level and they were told to buy that specific stock they might wait a little bit to see if it comes down to support so they can get it at a better price sure they're gonna buy either way but they may base some of their decision on when to enter based off that support and resistance is there sole reasoning based off support and resistances no their

decisions are based off of other larger factors but they may just use them to get a little more specific on when to enter the final speaker is Andre who is a senior portfolio manager at Citizens Business Bank he's going to be going over what his thoughts are on stop losses and how Traders should be using them I am going to be a huge contrarian to everybody else as I said be careful be careful be careful have tight stop losses tight slap the tight stop losses I am certain is the main reason why most Traders don't

make money because before a trade moves your way it usually moves the opposite way because the people in the market don't want they have to make money from you and they know they're gonna close you out because most of you have tight stop losses so you never get to make money I would say if you're confident about a trade don't have tight stop losses have a big big gap between your stop losses so if it goes down and it backs up to where you want you're still in the trade and you're not taken out I

would say stop losses are I would say is the main reason why most Traders don't make money even when they get it right when they know the direction is right and they still get taken out it's because of your stop losses I say don't listen to anyone who says have really type stop losses if you are confident don't have tight stop losses you will lose money even if you are right in guessing the direction are they ever a good idea they are the good ideas sometimes but then I would say if you're not sure about

your trade then don't do it don't do it it's a good idea if you have a huge position that you know over the weekend or whatever some massive political event is going to happen and by the time you can catch up with it it's too late you wiped out so in that case it's good to have a stop loss but still I would say don't have your stop-loss is too tight if you can help it you know if if you have to judge where you are what what what time of year you are what what's

going on geopolitically whether it's safe generally to keep your position open without much of a without tight stuff like stop losses I would say if there is a research done that your people would find is the main reason why when they guess the market direction right they got they made never made money because they get taken out and the people who run the markets they know that game they know if they go down before they go up they've taken you out I completely agree with Andre here now it definitely depends on what type of Trader

you are just from listening to this interview I can already tell Andre and his firm our major long-term Traders so it really makes sense for them to have these huge stop losses whereas someone who's day trading penny stocks may not really want to have huge stop losses like this so it really depends on what type of Trader you are but I do completely agree with this mentality if you were confident in a trade there's no reason to have a small stop loss and to back that point up even more you should only enter a trade

in the first place if you're confident and overall after listening to all these interviews it does sound like hedge funds use bits and pieces of technical analysis sure they're not basing their whole decisions purely based on it but they do use it to a certain point which I found pretty interesting if you found this video helpful or interesting you should definitely check out this video where I go over a strategy where you can see where hedge funds and institutional Traders are buying and selling thanks for watching and I'll see you guys next time