Prove to me that Technical Analysis Works.

nooby_mcnoob said:
Here is an example of a (not scientifically accurate) random walk below. When people say stocks follow a random walk, that doesn't mean that it isn't predictable, it means that in aggregate, they follow a random walk.

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thanks for the explanation, did not know, still I am with the phases from Wyckoff and Weinstein
 
TazTheLaz said:
Please explain to me, with logic, how TA is supposed to work.
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Nothing works 100% of the time. This isn't about certainty, it's about probability.

Charts are a visual representation of price movement. Price movement is created by an imbalance between buyers and sellers. This imbalance is created by many different factors, but it ultimately comes down to sentiment. TA isn't about lines on a chart, it's about studying past behavior to predict future movement.

“History doesn't repeat itself, but it often rhymes.”
- Mark Twain.
 
nodoubts said:
We also have to take their word about what goes on in their accounts. Anytime someone says "trust me," you can't. Especially if the business they're in is a nasty, "slaughter the peasants" game. He's already told you he "laughs" at traders, meaning "you can't do what I can't do," it's the sign of an insider, who knows you can't do it because you're not connected, not the sign of a teacher. He has to tell you to trade technicals, it's terrific bait. They all make big money because traders try and fail, why would he rock his own boat?
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It's not a terrific bait if someone specifically states that they use fundamentals with technical analysis.

The issue is that you'll see retail traders thinking they can do the same with technical analysis alone and are willing to go bankrupt while trying to put 100% emphasis on TA...nothing else with the error belief they're trying to trade like that other guy that's honest enough to say he doesn't use only TA.

We use to have a guy here at the forum by the name of marketsurfer that had the same type of questions and debates here at ET...he didn't believe TA worked while at the same time promoting the use of TA and defending it at other online locations.
  • He did these types of threads for the pure fun of it...prove it to me. The guy actually had indicators on his charts (yeah he used charts) and would state that the indicators on his chart plays no role in his trade decisions. :rolleyes:
The fact that he used charts should have been a big hint to many that he uses some form of Technical Analysis. :D
  • Those that argue that they don't use TA...shouldn't be using charts to help them make trade decisions.
My point, the thread starter (OP of this thread) could be using TA and succeeding with it while using something else with it (e.g. fundamentals, risk management, insider tips, cartel trading, dice rolling) and we wouldn't be the wise of it while he promotes TA or bashes TA.

People just have not wised up to the games played by others online in threads like this.

wrbtrader
 
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MKTrader said:
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.
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14day rsi is a weak signal of short term reversal, better signal is actually std of pct difference between a stock and its peer group, compared against newsflow of peers. Short term reversal factor is primarily driven by investor positioning and attention (lots of studies on this, I recommend looking it up). Across a large n study reversals tend to occur every 2-4 weeks but you can improve the signal by using the aforementioned approach. From what I’ve seen on desks is: a big change in price that is not driven by revisions/major info can be faded.

Price volume cointegration means it’s not a one-for-one but rather tends to occur “generally”. Prices tend to mean revert in low volume because of how the order book is distributed across limit prices and that interaction with market orders. It’s useful in that there is some correlation between price and volume, though lead-lag is not clear (sometimes price leads volume and vice versa).
Ultimately, these tools aren’t useful by themselves and are only helpful to support a fundamental view on a security. Without that there’s no real edge once you factor in transaction costs and slippage.
 
angrytrader said:
Most TA indicators fail miserably to provide a reliable signal. Others are simply late to the party. TA can explain the past but never the future. Whoever is successful with past performance analysis is because they are doing something else, that extra bit of analysis is what makes their trades to work, not the TA indicator.

All you have to do to prove that TA is a religion is to run multiple backtests on any indicator and you will see their performance over time.


In this YouTube channel a developer challenges most of the known indicators, the results are depressing.
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Like I already said, technical analysis (study of the stockcharts) is not the same as trading indicators (measurement of price). Much like comparing a bull to a dog. It is that kind of ignorance that guarantees failure.
 
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