What is Technical Analysis? Why does it work?

[wrbtrader]

There was a discussion not to long ago where someone propose that if a trader is good with statistical analysis and that trader is profitable...that trader should also be able to succeed in chart analysis.

I propose that it doesn't matter what you use (e.g. charts, no charts, fundamentals, economics, statistics, bid/ask screens, day trade, swing trade or whatever)....

Most traders lose and it doesn't imply that fundamentals don't work, doesn't imply that statistics don't work and it certainly does not imply that TA don't work. In contrast, it implies that whatever we use...most will find a way to fuck it up.

Most traders just lose because that's the way the markets are setup and the human brain has too many problems in dealing with that fact that most will just lose.

 

[I Know You]

There's a great little game www.chartgame.com spend 30 minutes each day on it for a period of 6 months and see if there's a difference to the overall performance.

What happens a lot is that people find a method, go on sim for a bit and then go live and lose either half or most of the capital. Then they come here whining that TA doesn't work.

Spend substantial time honing trading skills, establish probability of your chosen method, calculate risk per trade and only then go live.

 

[profitlocker]

TA is simply broad wording for supply/demand analysis. There are senseless and savvy ways to utilize it. The problem is most people are dumb, lazy, or a combination of both. This keeps the majority in the senseless zone

 

[Robert Modd]

There was a discussion not to long ago where someone propose that if a trader is good with statistical analysis and that trader is profitable...that trader should also be able to succeed in chart analysis.

I propose that it doesn't matter what you use (e.g. charts, no charts, fundamentals, economics, statistics, bid/ask screens, day trade, swing trade or whatever)....

Most traders lose and it doesn't imply that fundamentals don't work, doesn't imply that statistics don't work and it certainly does not imply that TA don't work. In contrast, it implies that whatever we use...most will find a way to fuck it up.

Most traders just lose because that's the way the markets are setup and the human brain has too many problems in dealing with that fact that most will just lose.

Most traders lose in my opinion because there is not enough focus on the most important aspect of trading, money management or trade management or portfolio management, I have heard many terms. The bottom line is the mechanics of allocating funds is so overlooked and perhaps the most important variable. If you can understand trade management you can get away with being wrong on direction and still profit!

 

[kut2k2]

Most traders lose in my opinion because there is not enough focus on the most important aspect of trading, money management or trade management or portfolio management, I have heard many terms. The bottom line is the mechanics of allocating funds is so overlooked and perhaps the most important variable. If you can understand trade management you can get away with being wrong on direction and still profit!

Nonsense. Money management means nothing without an edge. If you don't believe this, try "money managing" your way to profits while playing roulette or casino craps or a slot machine. In trading, your edge has to come from your timing strategy (knowing when to enter and when to exit your trades). Once you have an edge, you can use money management to maximize your profits or to minimize your drawdowns.

 

[profitlocker]

kut2k2

Gotta agree with you on this. Testing random entries with the same trade/money management techniques I use every day proved to barely be worth my time. It just kept the wheels spinning in place. IMO not viable intraday. Might work on longer time frames though

 

[Robert Modd]

Nonsense. Money management means nothing without an edge. If you don't believe this, try "money managing" your way to profits while playing roulette or casino craps or a slot machine. In trading, your edge has to come from your timing strategy (knowing when to enter and when to exit your trades). Once you have an edge, you can use money management to maximize your profits or to minimize your drawdowns.

I agree you do need an edge. You don't have to be right on direction to create an edge . If you understand Options , Probabilities, Volatility AND Proper Money Management. You can get that edge.

If you believe you found an edge by picking direction forget it without proper Money Managment.