Prove to me that Technical Analysis Works.

TazTheLaz said:
I refuse to believe that a line on a chart can explain the entirety of a company. It defies rationality and logic. Not to mention that NOBODY notable has gotten super rich off of TA. On the other hand, fundamentals have made several people rich (Warren Buffett, Charles Munger, Bill Ackman, Carl Icahn, etc.).

Please explain to me, with logic, how TA is supposed to work.

I don't care if it's the VWAP or a moving average, just explain to me how a line on a chart will predict anything beyond a vague guess.
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Paul Tudor Jones used Elliott wave theory.
Stanley Druckenmiller looks at charts
http://mastersinvest.com/chartsquotes
 
longandshort said:
Information on a chart that’s useful is:
- price volatility
- trend (past performance can be indicative of future performance a la momentum anomaly)
- trading volumes (price and volume tends to be cointegrated)
- option positioning (implied vol, OI, volumes at strike)
- 14 day rsi is a proxy for short term reversal (known anomaly)

So “technicals” can be useful though are largely abrogated by more advanced quantitative analysis (kalman filtering, cointegration analysis, cross correlations, etc.).

In the 1980s-early 00s, computing power wasn’t as powerful on-demand, which meant using things like moving averages to approximate momentum was an acceptable solution. Today not so much, and there is a lot of garbage out there mainly due to most retail traders not understanding the nature of prices (non stationary geometric random walk) and people looking for simple solutions (that aren’t rigorously tested).
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I agree with most of this, though I've never seen evidence that a 14-day RSI has any edge. The only edges I've seen are long-term momentum beating buy-and-hold on a risk-adjusted basis. There used to be trading systems that bought short-term weakness during long-term uptrends that had an edge as well. For example, buy a 7-day low when the S&P 500 is above its 200-day MA then sell the next 7-day high--or something like that. From what I can tell, they lost their edge when books started promoting them and automat trading systems started using them.

Also, I haven't seen any edge in volume, though I haven't really studied or systematically tested volume profile or modern adaptations of Wycoff. But simple volume or volume+price doesn't seem to provide any real, repeatable alpha.
 
A line on a chart I trust is price.

And I trust it more than I trust any human.

Including the great investor of the insurance cash machine monster he built Warren Buffett.
 
SunTrader said:
A line on a chart I trust is price.

And I trust it more than I trust any human.

Including the great investor of the insurance cash machine monster he built Warren Buffett.
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The stock price can deceive you. Ever read Irrational Exuberance?
 
TazTheLaz said:
I refuse to believe that a line on a chart can explain the entirety of a company. It defies rationality and logic. Not to mention that NOBODY notable has gotten super rich off of TA. On the other hand, fundamentals have made several people rich (Warren Buffett, Charles Munger, Bill Ackman, Carl Icahn, etc.).

Please explain to me, with logic, how TA is supposed to work.

I don't care if it's the VWAP or a moving average, just explain to me how a line on a chart will predict anything beyond a vague guess.
More...

i think quants are the only "techies" that make money long term.

The Man Who Solved the Market: How Jim Simons Launched the Quant Revolution,
Citadel, jump trading, etc

Sure they don't use swiggly lines like most retail traders, but they use fancy math on price data. Isn't that what technical analysis is? coming up with a mathematical formula to read the markets.
 
hilmy83 said:
i think quants are the only "techies" that make money long term.

The Man Who Solved the Market: How Jim Simons Launched the Quant Revolution,
Citadel, jump trading, etc

Sure they don't use swiggly lines like most retail traders, but they use fancy math on price data. Isn't that what technical analysis is? coming up with a mathematical formula to read the markets.
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No, because Citadel is a market maker, and they have much better data than anyone else has access to. Quant models aren't the reason they make money, volume data and buying data is, though.
 
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TazTheLaz said:
No, because Citadel is a market maker, and they have much better data than anyone else has access to. Quant models aren't the reason they make money, volume data and buying data does, though.
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Yes, plus plenty of math geeks have tried using "really fancy maths" (neural nets, chaos theory, Fourier Transforms, etc.) over the years without any consistent edge. Basically Simons edge is HFT, probably optimized by a bunch of math geeks.
 
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