Is TA broken due to Fed?

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indicator777

This is an article that discusses this possibility. I don't agree that it's not working, I think HFT has impacted TA but it still works, you just have to be smarter than in the past when applying it.

Any comments about the head and shoulders in SP500 dismissed in the article?
 
According to orthodox TA it's not an inverted H&S since that pattern should be present after a "significant" downtrend. However, it doesn't mean we can't rationalize the pattern after the fact, one way or another. Ie. The pattern indicates alot of squeezed sell/short-side traders. May provide good "fuel" when enough participants have been blindsided by such PA, though how long this "fuel" might last is just a guess. Of course parts of the same PA could just as well have been part of a new downleg instead, so won't help if the same "pattern" begin developing later.

If you read the whole PA, you'll continuously see what price is doing and how it's changing at all times, so may be better prepared to trade on it. Focusing on just one pattern is not enough to generate trading ideas. Though, I'm no discretionary trader, the latest development does seem actionable, although as always - risky. There's been heaps of irrational fear lately, which is good for bulls, oddly enough. However, later development may halt this development dead in it's tracks, so that's why I prefer a systematic approach.
 
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I agree with Handle, it's vendor propaganda.

That said, the article is BS. It confuses correlation and causation. Like saying all fires are started by firefighters because firefighters are always present.
  • "the market corrected last February, reached a new low and the RSI(14) did not signal an oversold condition"
  • "Then, on April 1, the RSI(14) signaled an overbought market but when the condition was worked off, the same indicator did not signal an overbought condition 20 days later when the S&P 500 index broke above 2100."
I was not aware RSI(14), moving averages, or ANY indicator for that matter, is, or has ever been, a holy grail. Same for any chart pattern, either well-known or recent invention.

The Fed has not broken TA. The Fed has caused correlations to change and skew. It has been going on for years! Adapt! For the most part, TA employs a limited set of data involving OHLCV. All those data points are alive and well. OHLCV is alive and well.
 
tiddlywinks said:
...TA employs a limited set of data involving OHLCV. All those data points are alive and well. OHLCV is alive and well.
More...

Agree completely. Technical Analysis doesn't consist of any single indicator or data point. Technical Analysis is the science of using empirical market data; successive price range per interval of time, volume per interval of time, etc, or indicators, all of which are derived from the former, to construct a consistent and coherent framework of operation as a trader.

Looking at RSI isn't TA. TA is when you form and test a hypothesis about the RSI. What if I buy w instrument right when the RSI is above x? What is my average MFE with y points of risk? What is my average MAE with profit target of z? How can I structure and optimize these opportunities to produce the most profit per unit of risk? If I test 100 (1000?) instances of this behavior, does this strategy have sustained positive expectancy?

If your hypothesis is bad enough, that's really good too. Because you can just short those occurrences and make consistent money instead. Many of us have discussed our personal paradigms of TA in the past, and many use quite similar fundamental premises as each other. Some are better and more comprehensive than others, but there is SO much low hanging fruit in the wide world of all publically traded markets.

I am consistently baffled when I hear claims that TA doesn't work. From my perspective the notion is completely absurd. But successful technical analysis really have no vested interest in convincing the skeptical otherwise. You might even say their disbelief leaves more cake for the rational and disciplined. But the incredulity it evokes in me is always too overwhelming to dialogue publically with most individuals on the subject for very long before feeling like I need another nice, long hiatus.
 
fordewind said:
https://www.quora.com/Why-is-Brownian-motion-often-used-in-Finance
More...

Important to read the last few sentences of that article. Also, remember that brownian motion for finance is just a modelling of random momentum, in lack of more precise understanding and modelling of human behaviour - a gross oversimplification. I think most, even academics, are beyond the fascination of brownian motion at this stage.

If for nothing else, just remember that a random momentum generator can generate almost any continuous timeseries, just by chance alone. Such a random generator, could in theory, if given enough time and opportunity, exactly replicate the entire works of William Shakespeare.

The logic that all males are human and have testicles. Therefore all humans have testicles, is fundamentally and logically flawed.

Beyond that, I don't think anyone gives a rat's ass about it and couldn't care less.
 
Personally I think that article is written by someone with very little to no knowledge of TA.

As I have said before on this forum "the eyes cannot see what the mind does not know".

If you look at the chart below TA clearly shows that it is NOT broken. It shows a GIANT BULL FLAG. Some of us that understand how to interpret charts were able to break even or make money during that time. Personally, trading was not easy for me but I was able to squeak out a small gain from Feb 2015 - March 2016. Since that time TA clearly says being bullish is the proper trade. But then again I don't day trade. I swing trade.

Just my .02
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