Recently, I obtained an advance copy of "Evidence Based Technical Analysis" by David Aronson. It is by far the best TA book ever published. Finally, someone cut through the mystery and nonsense yet presents a scientifically valid approach to using TA as a trading tool. I was happily surprised to see these truths revealed for the first time in a mass market trading book. This book destroys the TA myths, yet shows how it can be used in a statistically valid manner. It topples long held beliefs and is a must read for anyone interested in trading.
http://www.amazon.com/Evidence-Base..._bbs_sr_1/104-4988713-1539167?ie=UTF8&s=books
Here's some of the review from Amazon:
<i>Editorial Reviews
Book Description
Evidence-Based Technical Analysis is a breakthrough book in that it rigorously applies the scientific method and recently developed statistical tests to determine the true effectiveness of trading strategies, rules or systems discovered by data mining. Traditional technical analysis â as currently practiced â is more like a faith-based folk art than a science, the author asserts. These subjective interpretive methods cannot be back-tested or evaluated, yet many believe that they are effective. The author explains that because of various cognitive biases and illusions, such as hindsight bias, illusory correlations, etc., people often adopt beliefs that are unsupported by evidence or even contradicted by evidence. For example, the famous head and shoulders pattern â a cornerstone of traditional TA when tested objectively â has been shown to have no predictive power. Yet many TA texts and most TA experts believe in the patternâs efficacy. To move technical analysis forward, the author proposes a new type of technical analysis, which he calls: evidence-based technical analysis or EBTA. Unlike traditional technical analysis, EBTA is restricted to objective methods whose historical profitability can be quantified and then rigorously scrutinized. The author provides a new statistical methodology specifically designed for evaluating the performance of rules that are discovered by data mining, a process in which many rules are back-tested and the best performing rule(s) is selected. Experimental results presented in the book show that data mining is an effective approach for discovering useful rules. However, the historical performance of the best rule (s) is upwardly biased - a combined effect of randomness and data mining. Thus new statistical tests are needed to make reasonable inferences about the future profitability of rules discovered by data mining. Most importantly, in a data mining case study the author evaluates more than 6,400 signaling rules applied to the S&P500 Index using these new tests. For technical analysts and traders, the book is a wake-up call to abandon subjective, interpretive methods and embrace an approach that is scientifically and statistically valid. For other traders, the rigorous testing of trading signals/rules may make their data mining efforts more productive and stimulate the development of new systems, signaling rules. </i>
surf
http://www.amazon.com/Evidence-Base..._bbs_sr_1/104-4988713-1539167?ie=UTF8&s=books
Here's some of the review from Amazon:
<i>Editorial Reviews
Book Description
Evidence-Based Technical Analysis is a breakthrough book in that it rigorously applies the scientific method and recently developed statistical tests to determine the true effectiveness of trading strategies, rules or systems discovered by data mining. Traditional technical analysis â as currently practiced â is more like a faith-based folk art than a science, the author asserts. These subjective interpretive methods cannot be back-tested or evaluated, yet many believe that they are effective. The author explains that because of various cognitive biases and illusions, such as hindsight bias, illusory correlations, etc., people often adopt beliefs that are unsupported by evidence or even contradicted by evidence. For example, the famous head and shoulders pattern â a cornerstone of traditional TA when tested objectively â has been shown to have no predictive power. Yet many TA texts and most TA experts believe in the patternâs efficacy. To move technical analysis forward, the author proposes a new type of technical analysis, which he calls: evidence-based technical analysis or EBTA. Unlike traditional technical analysis, EBTA is restricted to objective methods whose historical profitability can be quantified and then rigorously scrutinized. The author provides a new statistical methodology specifically designed for evaluating the performance of rules that are discovered by data mining, a process in which many rules are back-tested and the best performing rule(s) is selected. Experimental results presented in the book show that data mining is an effective approach for discovering useful rules. However, the historical performance of the best rule (s) is upwardly biased - a combined effect of randomness and data mining. Thus new statistical tests are needed to make reasonable inferences about the future profitability of rules discovered by data mining. Most importantly, in a data mining case study the author evaluates more than 6,400 signaling rules applied to the S&P500 Index using these new tests. For technical analysts and traders, the book is a wake-up call to abandon subjective, interpretive methods and embrace an approach that is scientifically and statistically valid. For other traders, the rigorous testing of trading signals/rules may make their data mining efforts more productive and stimulate the development of new systems, signaling rules. </i>
surf
, I look forward to this. There have been a few papers over the years, attempting to apply statistical methods to TA. However, they've been written mostly by academics, and, with maybe a couple of exceptions, generally neither well-designed nor useful. By contrast, this guy is obviously hands-on: a long-time systematic trading practitioner, a technician (CMT), a very early fund-of-funds entrepreneur (nice...), and only recently an adjunct prof (from his bio).