TA - Objective or Psychological Skill?

cornix

cornix

Following the discussion in my recent journal in order to clear it from the off-topic discussion I suggest the following debate here:

TA (technical analysis), is it objective edge or rather a psychological subjective skill?

My own belief is TA patterns can be objectively defined and many of them probably automated as well with the only limitation is ability of computers to process all inputs.

But psychological component is important when it comes to manual execution/trade management discipline etc.

So let's discuss it. :)
 
Quote from cornix:

Following the discussion in my recent journal in order to clear it from the off-topic discussion I suggest the following debate here:

TA (technical analysis), is it objective edge or rather a psychological subjective skill?

My own belief is TA patterns can be objectively defined and many of them probably automated as well with the only limitation is ability of computers to process all inputs.

But psychological component is important when it comes to manual execution/trade management discipline etc.

So let's discuss it. :)
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All discretionary traders need to learn to manage the "psychological" aspects of trading. Trading is a stressful or mental testing adventure for most and to ignore the psychological aspects...usually results in a short lived trading career...sometimes literally.

Exercise, Good Nutrition and Mind Rest will result in a trader that's more able to take on the psychological aspects of trading.

Also, even if someone objectively defines a TA price action, another discretionary trader will objectively see it differently and objectively apply it differently. That's just how the human mind works which is why some traders navigate to automation because they know that the human mind can play tricks even with objectively defined price actions.

That's why two discretionary traders using the exact same objectively defined method will have different trading results while trading the exact same trading instrument on the exact same time frame...the human mind is very powerful...you'll do things often via the subconscious.
 
I don't disagree that TA patterns can be objectively defined. Suri Duddella does a good job in his book. My old Metastock software could (for example) easily flag common candlestick patterns, so automation should be possible.

Is there any statistical study that anybody knows of that gives the success rates for bull or bear flag entries, etc?

If it is not a statistically proven edge, then I submit it is likely subjective in nature, hence the '10,000 hours of screen time' that seems to be flavor of the month. Nothing wrong with this, skilled craftsmen exist in many fields (women too, of course).

Since TA is more than just chart patterns, let me state that in my first year of trading I used MACD-H successfully, >20% profit after commissions. Yes, it is a lagging indicator, so what? Swing or trend traders do not need to catch the exact top or bottom, just the meat of the move.

Wrbtrader has highlighted some of the other factors underpinning successful trading. My basic contention is that it does not matter if it is chart patterns, candlestick patterns, MACD-H, RSI, etc, people who use any of these methods successfully basically have a structured system of entry and trade management that allows them to trade these profitably.

As a swing trader, provided I stay out of choppy, small range markets, anything above 30% winning trades typically sees me moving into profitable territory. I make a clear distinction between what I use to give me entry signals and what happens thereafter, which is what brings in the money for me.

Troubleshooting losing periods is thus simplified.
 
Ready for the cop out answer.....it can be both! It all depends on how you approach trading. If you are a pure PA trader (PA is a sub set of TA), then I do not believe it is possible to create an objective system because of the many subtle nuances that go into every trading decision. However, if your rule based system has to do with OHLC bars, multiple time frames, or other tools that appear on the chart and if the trader is able to actually organize the logic into a form that is then able to be coded, then TA can be objective.

The bottom line really is whether an approach is profitable or not and whether the trader, either discretionary or algorithmic, is able to make their system work consistently. Some people are very biased in their opinion of TA and this view is very limiting as TA is such a vast field that no one is able to have tested every combination of inputs and say, definitively, that TA doesn't work. The ones that do are just lazy :D



Quote from cornix:



TA (technical analysis), is it objective edge or rather a psychological subjective skill?
More...
 
Quote from R. Raskolnikov:

Some people are very biased in their opinion of TA and this view is very limiting as TA is such a vast field that no one is able to have tested every combination of inputs and say, definitively, that TA doesn't work. The ones that do are just lazy :D
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I swear you are just waiting for someone to come along and hurl insults at you. :D
 
Quote from R. Raskolnikov:

Ready for the cop out answer.....it can be both! It all depends on how you approach trading. If you are a pure PA trader (PA is a sub set of TA), then I do not believe it is possible to create an objective system because of the many subtle nuances that go into every trading decision. However, if your rule based system has to do with OHLC bars, multiple time frames, or other tools that appear on the chart and if the trader is able to actually organize the logic into a form that is then able to be coded, then TA can be objective.

The bottom line really is whether an approach is profitable or not and whether the trader, either discretionary or algorithmic, is able to make their system work consistently. Some people are very biased in their opinion of TA and this view is very limiting as TA is such a vast field that no one is able to have tested every combination of inputs and say, definitively, that TA doesn't work. The ones that do are just lazy :D
More...

Agree on nuances, but if think of it, most nuances are still objective. Yes there are many, but each makes logical sense and is not just some "feeling".

So probably it's a complex formula, too complex for automation currently, but doesn't mean it's not objective.
 
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