Is Technical Analysis a joke??
- Thread starter Jdesey
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Good luck!
My two cents:
I used to think using charts (or TA) to trade is like driving using the rearview mirrors. After all, some Nobel economists said that stock price change is stochastic and random.
At the urging of an ET poster (I am forever in debt to him), I started staring at charts every day, for a few years now. Lo and behold I started to see some tradable patterns. No many but enough to make things very interesting.
Then I went back and look at stock price distribution. They are almost Normally Distributed but not quite, more like Levy/Laplace, so there must be some predictable elements hiding within the charts. The challenge for us amateur retails: Finding them is not impossible but very very very difficult.
So, back to the question of TA. I think there are some combinations of TA that can give profitable setup but the simple, published, popular, run of the mill TA probably won't work too well.
I used to think using charts (or TA) to trade is like driving using the rearview mirrors. After all, some Nobel economists said that stock price change is stochastic and random.
At the urging of an ET poster (I am forever in debt to him), I started staring at charts every day, for a few years now. Lo and behold I started to see some tradable patterns. No many but enough to make things very interesting.
Then I went back and look at stock price distribution. They are almost Normally Distributed but not quite, more like Levy/Laplace, so there must be some predictable elements hiding within the charts. The challenge for us amateur retails: Finding them is not impossible but very very very difficult.
So, back to the question of TA. I think there are some combinations of TA that can give profitable setup but the simple, published, popular, run of the mill TA probably won't work too well.
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TA is basically
So do the values produced by these transforms predict anything, and give you an edge in trading?
Now, what you have actually discovered, is that edges (alpha) are rare (or some would say non-existent in liquid instruments these days), especially ones hiding in plain sight in commonly used public data absolutely everyone has access to. Moreover, people get addicted to using inappropriate statistical methods attempting to discover edges (because they give promising results, in backtesting that is!) and fool themselves.
However... as a thought experiment: restrict your context to strongly trending stocks you have researched and believe have sound business plans. Use TA to figure out how long the trend is intact. Suddenly you've removed the need to figure out when to exit your trade entirely and have an additional condition for entering. Tadaa, TA can aid with that.
So
- a bunch of mathematical transforms (commonly very simple ones)
- taking a price series as an input to these transforms
- something that sounds cool to uninitiated people (it's "technical" right) and subsequently used by self-proclaimed experts
So do the values produced by these transforms predict anything, and give you an edge in trading?
Now, what you have actually discovered, is that edges (alpha) are rare (or some would say non-existent in liquid instruments these days), especially ones hiding in plain sight in commonly used public data absolutely everyone has access to. Moreover, people get addicted to using inappropriate statistical methods attempting to discover edges (because they give promising results, in backtesting that is!) and fool themselves.
However... as a thought experiment: restrict your context to strongly trending stocks you have researched and believe have sound business plans. Use TA to figure out how long the trend is intact. Suddenly you've removed the need to figure out when to exit your trade entirely and have an additional condition for entering. Tadaa, TA can aid with that.
So
- finding an algorithm ("system"/"strategy"/"robot"/"expert advisor") that just takes a bunch of price bars and produces consistent alpha from that in all market regimes - waste of time (as far as I can tell, there are of course claims out there of the contrary)
- adding someone else's TA to your charts - waste of time
- figuring out some TA that helps you see you make decisions on your charts - highly individual; subconscious or conscious discretionary filtering can turn that into a winning method, somehow, will be waste of time for many people
- integrating TA into your decision process to automate parts of it - probably viable
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There is such a thing as a failure rate. Thomas Bulkowski, in his Encyclopedia of Chart Patterns analyses the different patterns. You will not win each and every trade that you place so, why do you expect any chart pattern or even support and resistance to hold each time you take a position? This just my 2 cents. If you stick to one or two patterns and study it thoroughly, you probably, will do better. Most retail traders try to be experts in everything. If you master one or two chart patterns, you can be an expert in those chart patterns and use it to trade and make monies off of it.
being old, as in a senior/retired, I have time to reflect, I was to believe TA was essential to investing & trading
today I figure its all bunk, for the reason it tells me historical base facts.
today I don't use TA, what the analysts pipe, what the media spew out ... historical information, even 24 hours ago old or futures, doesn't help me with a trade that I make today.
take the drop in the S&P yesterday, did anyone call the 2.3% rise today - before the fact?
today I figure its all bunk, for the reason it tells me historical base facts.
today I don't use TA, what the analysts pipe, what the media spew out ... historical information, even 24 hours ago old or futures, doesn't help me with a trade that I make today.
take the drop in the S&P yesterday, did anyone call the 2.3% rise today - before the fact?
agree 100%