Do large banks and institutions use TA to profit?
- Thread starter londonkid
- Start date
that is not what I said: Referencing historical data != technical analysis. One is the source of various types of analyses, the other is building indicators in the belief that some magic twisting of historical data has more predictive power than the historical data itself.
Fair points, I think the idea that the TA crowd tries to sell is that some (necessarily) lagging indicators (aggregates of historical data) has more predictive power than the time series themselves. That by definition cannot be the case.
this post of you proves that you are a bloody beginner in this business (or have been a loser for a long time). Luck is part of everything in life, but just as asset diversification is not rewarded (financially speaking in terms of beta) because it is priced in as everyone can diversify at no extra cost, so does the "luck component" have nothing to do with trading because you cannot do anything about luck. Trading has nothing to do with luck and it has everything to do with managing probabilities wisely. Even if you throw darts at assets to trade the outcome of such trading approach will be very different as function of how you manage a trade in terms of risk and expectation.
And I take a stab at answering your question: Prices go up and down, always. So, you will on every single chart identify price levels where prices bottomed or topped out. However, you cannot predict at which levels prices will next bottom or top out. Those levels will be a function of a myriad of factors all of which will occur in the future and are not to be found in past prices. Hence, the success factor of a trade will be much higher when correctly predicting such factors and predicting how the market will react to such. Take for example USD/JPY. It is a purely fundamental trade and not a technical one whatsoever. Fed will raise rates sooner or later, this year or beginning of next year. BOJ will further ease, it is an absolute given that USD/JPY will trade at 125 if not way beyond 130 levels, hence it pays to buy sell offs and position longs when momentum starts to pick up from medium-term lows. Has nothing to do with past prices, nothing to do with where precious lows or support levels lied. Nothing whatsoever. It is everyone's guess whether USDJPY will soon break out of its range to the up or downside, and that has nothing to do with any chart patterns. It has something to do with whether any macro themes emerge such as more China weakness or issues with Russia in Syria or the Ukraine that may push the pair further down along with equities or whether the storm calms and asset managers allocate cash to risk and hence buy higher yielding currencies and fund with lower yielding currencies.
I can only repeat that you are deluded if you believe for a second that currencies, stocks, or futures prices are driven by technicals.
And I take a stab at answering your question: Prices go up and down, always. So, you will on every single chart identify price levels where prices bottomed or topped out. However, you cannot predict at which levels prices will next bottom or top out. Those levels will be a function of a myriad of factors all of which will occur in the future and are not to be found in past prices. Hence, the success factor of a trade will be much higher when correctly predicting such factors and predicting how the market will react to such. Take for example USD/JPY. It is a purely fundamental trade and not a technical one whatsoever. Fed will raise rates sooner or later, this year or beginning of next year. BOJ will further ease, it is an absolute given that USD/JPY will trade at 125 if not way beyond 130 levels, hence it pays to buy sell offs and position longs when momentum starts to pick up from medium-term lows. Has nothing to do with past prices, nothing to do with where precious lows or support levels lied. Nothing whatsoever. It is everyone's guess whether USDJPY will soon break out of its range to the up or downside, and that has nothing to do with any chart patterns. It has something to do with whether any macro themes emerge such as more China weakness or issues with Russia in Syria or the Ukraine that may push the pair further down along with equities or whether the storm calms and asset managers allocate cash to risk and hence buy higher yielding currencies and fund with lower yielding currencies.
I can only repeat that you are deluded if you believe for a second that currencies, stocks, or futures prices are driven by technicals.
No matter what backtested statistically proven method you may be using the future will always be an unknown factor, although we all expect a trade to work out in our favour, so luck is of great importance, no matter what system is being used. Example would be selling a market and getting stopped out a few ticks/points away from an actual reversal, bad luck. Correct analysis, bad luck on stop placement.
Let's not mix risk/trade management into this discussion, although absence of which is any system killer.
I still ask to explain rationally why on the chart that I posted previously there were many occasions when price bounced from previous reaction lows/highs, please do not point out hindsight analysis, I certainly am not new to this. Are you disputing that the simplest technique of all in TA of selling a potential double top/buying potential double bottom, of course implementing proper risk/trade management strategy, does work in the real world?
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What?! I have never said that. Post a link to my post. You mean reaction points on the chart? Ok, well maybe you wanna chip in why price often does bounce off previous reaction highs/lows? You have failed to explain all those random events!
you completely missed the point of David Harding. He simply states that his approach is to quantify data, it does not mean he applies technical analysis or uses retail based TA at all, he actually specifically states that he quantifies a lot of fundamental data and he puts a lot of emphasis on price action and momentum both of which have nothing to do with masturbating over historical price data.
...lol, then you missed the whole point of this thread, it is about retail based TA, I am sure OP did not inquire whether quant desks or professional traders use prices, past or present, because sure everyone does. At least I understand your confusion and thinking now. Thanks for explaining.