I've been just beginning watching the market from opening to the close for about two weeks. Before I was doing the trading strategy / back test research but I didn't really have a sense about the market, I just downloaded data from yahoo finance or from Bloomberg in the library, then wrote some programs to test if a buy-and-sell signal works. After some time I was wondering why it's me doing the signal entering job. You can find anyone who can program to do this. I didn't find that this work utilized my knowledge of economy and market (well ... I was thinking I did have some knowledge of market, now I find I have too much to learn, I'm far away from knowing the market). OK, then I began to use my scholarship/fellowship that the greatest Columbia University Graduate School of Arts and Sciences grants me to do trading. I began to follow the market, and the new ideas and thoughts and deeper understandings come up everyday.
I read the book "Technical Analysis of the Financial Markets" by John J. Murphy since last month. Well, the whole academia is teaching the market efficiency (except the behavior finance people), they claim that the technical analysis never works (well it's not really true, there are some highly inefficient markets in the world outside the US, I know some funds are making huge amount of money every year). I believe the US market is more efficient than other countries', I can see that from the extremely low beta of American stocks .... (beta = 0.02 OMG I can't imagine how many funds are using how many quantitative strategies to make the inefficiencies disappear in this country). Though it's more efficient, it doesn't say that it's efficient. I read the book and find the various indicators are too many -- it's so hard for a beginner like me to decide which one to use under what situation, the market has news everyday and I don't think I can manage that well by just looking at the charts. Looking at charts must make you lose some information because if you need to judge the direction of the trend, the information at the beginning of the trend must be wasted. Well.. I think I'm gonna review the fundamental analysis/indicators I learned before. Here are some resources I know to compare a stock's P/E or PEG or other indicators with it's competitors and the industry average:
"Related Companies, Add or Remove Columns"
Btw the way, I find the Yahoo Finance and Google Finance are really useful. I need to spend the next two days to figure out the meaning of every term (there are still some terms that I'm not familiar with) and the use of every sub-page. Also, my homework includes the study of Wall Street Journal market data pages.
And I just searched a while via Google Scholar, there are tons of research about the predication of stock return by fundamental analysis. I read some, and I think the most important reason for the academic papers' findings look not feasible is that they rarely care about the transaction costs and bid-ask-spread. This may not be a big problem if the paper is trying to test return of long-term investment strategy, but if it's about short-time, it's really a big problem and may be misleading.
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