Prove to me that Technical Analysis Works.

[MacBookProHo]

What's a good one going for these days, air delivery?

Alaskan King Salmon....$60 retail price/pound....X.....15 pound fish = $1,000 Fish, including Seattle's 10% sales tax.
That's a crazy price to pay for a fish you'll cook and eat just once.

A 20 pound box of Alaskan King Crab legs will costs you $2,000.
I'm not sure if these prices are current, check though. These were prices at the height of inflation, or coronavirus, around last year or two.
That's a stupid amount to pay for food, even if it were half off.

 

[Smart Money]

For the skeptics of technical analysis, here’s a little exercise: imagine a company XYZ. They make a statement about sales on a Tuesday morning. The market interprets the statement as positive, and the stock rises to $100 a share. On Wednesday there is no news on the stock and no news from the federal reserve and no news regarding escalating wars or OPEC tightening etc. Essentially Wednesday is a a non-news day. Would the stock just sit at $100 a share? Why not. If your answer is random motion, then shouldn’t it’s price still hover randomly around $100? If you don’t believe technical analysis works, how can you explain stock price movement in absence of additional news?

 

[Businessman]

If you don’t believe technical analysis works, how can you explain stock price movement in absence of additional news?

The price will move based on supply and demand.
More buying demand on any day and price will rise by end of day.
More selling supply and price will fall by end of day.

Plus human emotions of fear and greed that often push prices to extremes.

 

[Sprout]

For the skeptics of technical analysis, here’s a little exercise: imagine a company XYZ. They make a statement about sales on a Tuesday morning. The market interprets the statement as positive, and the stock rises to $100 a share. On Wednesday there is no news on the stock and no news from the federal reserve and no news regarding escalating wars or OPEC tightening etc. Essentially Wednesday is a a non-news day. Would the stock just sit at $100 a share? Why not. If your answer is random motion, then shouldn’t it’s price still hover randomly around $100? If you don’t believe technical analysis works, how can you explain stock price movement in absence of additional news?

From a retail perspective;

FA describes the “why”
TA describes the manner by which the “why” is assimilated by market participants


Retail perspective =/= smart money’s

Whatever is happening now, SM has already been positioned and is extracting profits in present time.

 

[Smart Money]

The price will move based on supply and demand.
More buying demand on any day and price will rise by end of day.
More selling supply and price will fall by end of day.

Plus human emotions of fear and greed that often push prices to extremes.

OK, is the fear instantaneous or does it taper in and taper out? Is the demand instantaneous, or does it also taper in and taper out? If these outside price drivers taper in and taper out, then price movement will do that too. Separate the random motion from the directionality early enough and you can surf on the changing stock price and jump off before it reverses as it peters out. IMHO, the best application of TA is to spot a trend early enough to profit from it and spot the end of the trend early enough to get out. Surprisingly simple indicators can help you do this. Of course it works. It just measures the effect of outside drivers beyond the stock’s fundamentals.

 

[Smart Money]

Another example. A herd of cows is walking north. Eventually they turn west. You’re watching this transpire. At what point did you decide they are turning? Did you need the whole herd to complete the turn before you recognized it? No, you would notice that more and more cows were beginning a turn. Now what if you made a mathematical model of that turn?…like if 39% of the cows turn within 15 seconds, the herd is turning? Then use that model to place bets on their behavior. Simple math to spot a trend that is profitable. It surprises me people can say that TA doesn’t work because it seems common sense that it does.

 

[themickey]

....It surprises me people can say that TA doesn’t work because it seems common sense that it does.

And so most people lack common sense, that's why + 90% fail?

 

[SunTrader]

Another example. A herd of cows is walking north. Eventually they turn west. You’re watching this transpire. At what point did you decide they are turning? Did you need the whole herd to complete the turn before you recognized it? No, you would notice that more and more cows were beginning a turn. Now what if you made a mathematical model of that turn?…like if 39% of the cows turn within 15 seconds, the herd is turning? Then use that model to place bets on their behavior. Simple math to spot a trend that is profitable. It surprises me people can say that TA doesn’t work because it seems common sense that it does.

An actual market example from yesterday of this is eMini (actually eMicro) with Cumulative Tick indicator below it clearly showing, other than a very small blip at the open, stonk selling was taking place alllll day long so only take short trades or for those who don't trade both directions .... stay the eff out :-

 

[easymon1]

Cumulative Tick indicator

Not too shabby.

 

[Sprout]

Another example. A herd of cows is walking north. Eventually they turn west. You’re watching this transpire. At what point did you decide they are turning? Did you need the whole herd to complete the turn before you recognized it? No, you would notice that more and more cows were beginning a turn. Now what if you made a mathematical model of that turn?…like if 39% of the cows turn within 15 seconds, the herd is turning? Then use that model to place bets on their behavior. Simple math to spot a trend that is profitable. It surprises me people can say that TA doesn’t work because it seems common sense that it does.

Folks fall into two camps about it;

https://twitter.com/x/status/1520782141075902464