Technical Analysis - is it more than just a Self fulfilling prophecy?

Atikon

Atikon

So my trading methology is based on Fundamentals. I use TA only for Entries and Exits.

TA for me is a Chicken or Egg thing when it comes to it's inception. I believe that ppl are looking for and acting on patterns. A consensus was formed when and how a stock pattern was to be interpreted and the market participant reacted accordingly or lost money. The rise of quants/automated trading solidified TA as part of trading.

However, I know that if we should have learned anything from the market corrections of the 2008 & 2001 is that things will always come back to the fundamental side of things. Seeing ppl make comparisons based on TA between the 1929 makes me smh bc of the entirely different kinds economies and Fiscal/CB reactions.

I see TA as a Self fulfilling prophecy but I'm open to see your POV
 
Atikon said:
So my trading methology is based on Fundamentals. I use TA only for Entries and Exits.

TA for me is a Chicken or Egg thing when it comes to it's inception. I believe that ppl are looking for and acting on patterns. A consensus was formed when and how a stock pattern was to be interpreted and the market participant reacted accordingly or lost money. The rise of quants/automated trading solidified TA as part of trading.

However, I know that if we should have learned anything from the market corrections of the 2008 & 2001 is that things will always come back to the fundamental side of things. Seeing ppl make comparisons based on TA between the 1929 makes me smh bc of the entirely different kinds economies and Fiscal/CB reactions.

I see TA as a Self fulfilling prophecy but I'm open to see your POV
More...

My POV
SPX 2900 -> 1850

It’s true TA is reflexive.
But not only TA is eggs and chicken.
Boom and busts were here before the tape.

Fundamental is tricky.
We can’t value something without contrast.
Price is what it is. Lots of models take it as input.

But value is subjective.
There is no objective, intrinsic, value.
Value is story, model, context dependent.

Anyway ...
We don’t trade fundamentals or technicals.

We trade expectations.
It’s a voting machine, a beauty contest.

We try to outguess the market.
Let it be rational or not.

I mean ...
If business was astrology related,
The wisdom would be to look into the sky.
 
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The markets backbone is the 200 week simple moving average.
Screen Shot 2020-04-10 at 4.03.28 PM.png
 
TA works if you can make it work. Even with the best strategy, you will still somehow find a way to step on your own d*ck.

It's not TA that's the problem, it's the psychology.

Also i believe you are going to have a very very hard time from here on if you are trading based on fundamentals. Don't take my word for it, take it from a performance coach Brett Steenbarger who works with hedge funds and trades and he said that fundamental trading is what is NOT working right now. And i agree. Because we are in a bubble.
 
orbit23 said:
TA works if you can make it work. Even with the best strategy, you will still somehow find a way to step on your own d*ck.

It's not TA that's the problem, it's the psychology.

Also i believe you are going to have a very very hard time from here on if you are trading based on fundamentals. Don't take my word for it, take it from a performance coach Brett Steenbarger who works with hedge funds and trades and he said that fundamental trading is what is NOT working right now. And i agree. Because we are in a bubble.
More...
Price discovery downwards will be stopped out at some point/beyond the backstop. But most of my daily trading is selling options, so for me it's puts writing time right now and I use the backstop as my exit/delta.
 
I agree FA is completely random.

Market goes up on bad news, market goes up on good news.

and

Market goes down on good news, market goes down on bad news.

+ + +

Markets also sometimes respect (although it is really illusionary) the 200 MA, or any other squiggly, and sometimes it doesn't. 50% of the time at best which if it were baseball batting .500 is damn good. Trading not so much.
 
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Atikon said:
However, I know that if we should have learned anything from the market corrections of the 2008 & 2001 is that things will always come back to the fundamental side of things.
More...


"Things always come back to the fundamental side" right there is your problem, that means whatever you're using for TA has no true mathematical edge because if it did you would have a proper way to determine the actual underlining strength of what you're trading and the fundamentals wouldn't matter because once "X" amount of selling or buying comes in you would pick up on that and than know to trade in that direction.

Which is the smart way to do it anyways because "fundamentals" can take days, weeks, months, years or even decades to play out. Plus you have to take into account other peoples ignorance if you want to trade fundamentals, which is pretty much impossible to do consistently. Meaning people in general will keep buying or selling irrationally for a multitude of reasons(that may have nothing at all to do with current fundamentals).

The fundamentals can be hidden or take forever to play out, people's emotions cannot be hidden and will show on the chart letting you know when to take action (instead of guessing and waiting). Separately institutions buying and selling a lot as they work to get a net weighted average on their positions is also possible to pick up sometimes on the charts.

If day trading is your primary source of income and you intend on being consistent and successful long term you better have some type of math somewhere giving you an edge.
 
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