Technical Analysis Doesn't Work

[rcanfiel]

Quote from NihabaAshi:

has found 1% of the stuff (+1,500 methods) he has tested to have value.]

No, about 1500+ system vendors offerings, not "methods". I have tested a few TA methods, and found them wanting.

He states that s/r levels and trendlines are useful (I think he considers this as price action only TA and/or subjective).

No, s/r and trendlines MAY be useful. If I said otherwise, the MAY reflects my thoughts.

Simply, there's a contradiction (hypocrisy) in the above that others in this thread have noticed.

not in my opinion. People mostly tend to misquote or try to read into the meaning of posts beyond what is stated.

Therefore, via all the links he has posted here at ET as references to his theory...

I have published very few.

All have involved traditional indicators ONLY (ex. rsi, macd, cci et cetera).

correct. That was the point, which I assented to in a later post when someone brought it up. Technical indicators like the ones you mention, plus EQ, Gann, Fib, etc.

 

[marketsurfer]

to clarify, when i mentioned "trading on the chart"--- i was refering to actually placing orders on a chart--as is offered by several FX dealers. not using a chart for analysis, however, one must keep in mind that charts are very deceiving, even when used strictly for analysis. placing orders on a chart, would be climbing high on the wall of folly in the FX market.

surf

 

[jem]

you are testing all wrong. The big money has been made in the last decade finding t/a or statistical pattens that have been "working" "recently" and then pounding the hell out of them til they stop working.

Of course your back tests reveal no edge. it has already been blown up.

I know the above to be a fact from the horses mouth. I grew up in Greenwich and I know some people.

Surf I know Vic must already know this - it is why I find your persistence on this subject so tiring.

 

[rcanfiel]

Quote from feb2865:

So he's giving us one side of the story. Well that explains everything.

There is no "one side of the story." The subject of this post is the only subject here.

So he's a system designer/tester using indicators??

no

so he found and edge of 1% of all the systems he has tested and he said that S/R and trend lines are useful

correct

So Mark, correct me if I'm wrong but in my 27 years of trading, I always though that S/R and therefore price action is probably the foundation of technical analysis. Is there any change???

Pure price action seems to be the basis of many of the more sucessful ET posters, who continually say you have to set aside the indicators, and trade what you see. S/R seems to have value, but I have not personally seen statistical testing of this. I don't use it, so am open to its potential value.

My main thought, is that trend is the important thing. The stock market, and prices in general, rise over time due to inflation. Things like dollar cost averaging, and scaling in/out seem to realize profits (although scaling is often at the cost of higher total drawdowns).

 

[marketsurfer]

Quote from jem:

you are testing all wrong. The big money has been made in the last decade finding t/a or statistical pattens that have been "working" "recently" and then pounding the hell out of them til they stop working.

Of course your back tests reveal no edge. it has already been blown up.

I know the above to be a fact from the horses mouth. I grew up in Greenwich and I know some people.

Surf I know Vic must already know this - it is why I find your persistence on this subject so tiring.

yeah, the search for edges will never stop.

yeah, i/they are well aware of the "state of the art"--

i dont find it tiring, (well on occasion i might), to correct misunderstandings and myths on this subject


surf

 

[panzerman]

Quote from marketsurfer:

t one must keep in mind that charts are very deceiving

How do mean they are deceiving? Charts are just a graph of the price levels at which buyers and sellers agree to strike a deal through time.

If you are looking for the motivation as to why a particular person decided to buy or sell, or if their future intentions are to buy or sell more, you will not find that represented anywhere. I know companies anounce buybacks, but that doesn't tell you the exact price levels at which they will enter the market at.

 

[Thunderdog]

Quote from optioncoach:

If you dont trade off the chart, what do you use.

And please do not say fundamental analysis which has the same flaws as technical analysis.

At this moment, I'm not sure it really matters because surfer advised recently in his journal that he is presently negative for the year. No disrespect, surf, but all I see are sour grapes. When you get that "man of science" thing up and running, do be sure to let us know.

As an aside, I can't really imagine how a retail trader can hope to make money solely using fundamental analysis. The retail trader will not have preferred access to fundamental information, and will likely be in the back of the line. He will be playing a game where the very thing he is relying on will be accessible earlier to other people. Remember, I'm talking about trading rather than investing. On the other hand, price occurring in real time is an equal opportunity phenomenon. There may be people with inside information, or those who know how to interpret the price data better than others, but price is price is price. At its most basic level it is something of an equalizer, at least in part. It's there for everyone at the same time to do with it what they will.

It is generally agreed that the retail trader has the deck stacked against him. Relying exclusively on fundamental information is akin to having your opponent viewing the order of the deck before you start playing. You have to be really, really good to beat the guy who knows where all the cards are. Or supremely lucky.

I think that the idea is to play the game in a manner where you are almost on equal footing. There, with enough experience and skill, you just may be able to bring the odds in you favor.

 

[rcanfiel]

Quote from optioncoach:

Good defense, you laid out all the reasons why you will never take any evidence contrary to your opinion. Studies that support you are good, evidence against you is luck, money management, randomness, skewed or biased.

There has been little evidence to the contrary in this thread so far. Take anything presented as "for TA" so far to a statistician and he will most likely have a good laugh.

S far, I have pretty much seen the things I described in the original post (repeated here):

<i>Those dissenting will usually try to defend TA via some of the following methods:

1) Stating "of course method a or indicator b has value. You just have to know how to apply it."

2) Anecdotal or testimonial evidence (often unverifiable or presented in an unrealistically positive light), in which a poster says "it works for me" or "I know a successful trader who..." or other variations on this theme. Often the person known may only use a certain technique or a (small) part of his trading method.

3) Throwing mud at a well-designed test by pointing out a perceived flaw or parroting the fine print of such a test. Usually, the poster will ignore other parts of the survey and offer little evidence of their own. This is mostly a distractive technique, not something that would hold up under academic/scientific rigor. To fully discredit something requires equally rigorous evidence, that is accepted by the other knowledgeable individuals in the invest community.

4) Point to some successful guru "who I know used it" However, rigorous independent monitoring is usually absent and longterm tracked performance results will generally be missing, spotty, ancient, or questionable. Or again, the particular method might only be a fraction of the trading methodology, where something else such as money management might explain the outperformance.

5) Use other distracting or verbose arguments that have little value if examined "under the hot lights."

6) Point to a few well-chosen examples of success, when a true test requires a large sample to demonstrate value.

None of these arguments would hold much weight as compared to longterm, rigorous statistical sampling & testing of a mentioned method or indicator, over a diversity of markets and market time periods.</i>

 

[marketsurfer]

Quote from panzerman:

How do mean they are deceiving? Charts are just a graph of the price levels at which buyers and sellers agree to strike a deal through time.

If you are looking for the motivation as to why a particular person decided to buy or sell, or if their future intentions are to buy or sell more, you will not find that represented anywhere. I know companies anounce buybacks, but that doesn't tell you the exact price levels at which they will enter the market at.

panzer,

see "winner take all" by gallacher and "practical speculation" by niederhoffer/kenner for indepth treatise on how charts deceive.

thanks, surf

 

[marketsurfer]

Quote from Thunderdog:

At this moment, I'm not sure it really matters because surfer advised recently in his journal that he is presently negative for the year. No disrespect, surf, but all I see are sour grapes. When you get that "man of science" thing up and running, do be sure to let us know.

As an aside, I can't really imagine how a retail trader can hope to make money solely using fundamental analysis. The retail trader will not have preferred access to fundamental information, and will likely be in the back of the line. He will be playing a game where the very thing he is relying on will be accessible earlier to other people. Remember, I'm talking about trading rather than investing. On the other hand, price occurring in real time is an equal opportunity phenomenon. There may be people with inside information, or those who know how to interpret the price data better than others, but price is price is price. At its most basic level it is something of an equalizer, at least in part. It's there for everyone at the same time to do with it what they will.

.

no, no sour grapes here. yes, im in a bad trade, and am down on the year. however the year is only slightly more than 1/2 over--my confidence remains high.

the retail trader has one hope of making money---that's good money management/position sizing and making bets based on whatever--it doesn't matter. then if succesful increasing bet size, et al. there is very little edge if any for the retail trader.... sad but true. it is critical that one realizes they are making a bet, and dont actually have an edge--- understanding this is the start of trading success. self delusion has no place in the markets.

surf