Hedge Funds and Technical Analysis

General Opinions

• Varied opinions: Some hedge funds strongly favor technical analysis, while others completely disregard it.
• Technical analysis includes elements like trend lines, Head and Shoulders patterns, support, and resistance.
• Debate is intense among traders and on platforms like Reddit.
• Preference for listening to experienced hedge fund managers rather than uninformed opinions.

Key Interviews and Insights

Corvin Codurla (Ex-Hedge Fund Manager & Systematic Trader for JP Morgan)

• Views on Technical Analysis: Mixed opinions among hedge fund managers.
  • Difficulty in testing technical analysis due to its subjective nature.
  • Effective technical analysis should be rule-based and replicable.
  • Some see it as an art, as long as it makes money.
• Takeaway: Importance of Back-testing and rule-based strategies.
  • Keep an open mind about different trading strategies.

David Paul (Financial Trader & Managing Director of VectorVest)

• Stop Hunting Exists: Institutional traders often buy at good levels.
  • Retail traders often place stop losses where institutional orders are.
  • Institutional traders create liquidity by hitting stop loss levels.
• Advice: Be strategic about stop loss placement.
  • Avoid tight stop losses as these can lead to frequent stop-outs.

Mark (Algorithmic Trader)

• Support and Resistance: Usage varies by hedge fund size.
  • Large hedge funds (e.g., Bridgewater) do not focus on support and resistance due to scale and long-term outlook.
  • Smaller hedge funds might use them to time entries better.
• Takeaway: Smaller funds may use technicals for fine-tuning entries, but they aren’t the sole basis for decisions.

Andre (Senior Portfolio Manager at Citizens Business Bank)

• Stop Losses: Avoid tight stop losses, especially for long-term trades.
  • Belief that tight stop losses are a major reason why traders lose money.
  • Emphasizes having confidence in trades before entering them.

General Takeaways

• Hedge funds use a blend of technical analysis, but it is not the sole factor in decision-making.
• Different hedge funds and traders employ varied strategies based on their size, objectives, and trading styles.
• Importance of liquidity, strategic entry, and flexible stop loss placement are consistent themes across hedge fund strategies.

Final Note

• Be aware that while technical analysis is part of the toolkit, broader market insights and macroeconomic factors are crucial for hedge funds.