Of course it can happen. I've seen it work great. I built some strategies using a few TA concepts. These achieved Sharpe of 2.0 to 3.0 for several years in full production. But I also know and appreciate how difficult it was to get to that point and that TA alone is never enough.
What to do if Technical voodoo doesnt work
- Thread starter genevaroth
- Start date
Of course it can happen. I've seen it work great. I built some strategies using a few TA concepts. These achieved Sharpe of 2.0 to 3.0 for several years in full production. But I also know and appreciate how difficult it was to get to that point and that TA alone is never enough.
To get on the same page about this topic, you need to define what you mean by Technical Analysis (TA). The traditional definition is the study of historical price and volume. This is the basis for the classic chart patterns and the vast array of indicators so commonly used. But this traditional definition of TA refers to price and volume of the <b>same</b> trading instrument. This is a key distinction.
In the OP's original post, he mentions that the VIX is a useful TA indicator. Well, think about what the VIX really is. First of all, it's not the price history of the market you are analyzing and trading. The VIX is a measure of option premium prices for the S&P500, which is reflective of market sentiment. The VIX is really a sentiment indicator (measuring fear or complacency), and is external to the market you're analyzing. Sentiment indicators are a separate category of analysis from traditional TA.
The same distinction applies to other categories of quantitative analysis. For example, arbitrage (pure), arbitrage (statistical), and various forms of intermarket analysis including relative value, mean reversion, etc. These methods may be part of a quantitative trader's toolkit, but are not traditional TA.
So when we talk about whether TA works or not, it would be more precise to indicate if we mean traditional TA, or other quantitative techniques that are often loosely referred to as TA.
In the OP's original post, he mentions that the VIX is a useful TA indicator. Well, think about what the VIX really is. First of all, it's not the price history of the market you are analyzing and trading. The VIX is a measure of option premium prices for the S&P500, which is reflective of market sentiment. The VIX is really a sentiment indicator (measuring fear or complacency), and is external to the market you're analyzing. Sentiment indicators are a separate category of analysis from traditional TA.
The same distinction applies to other categories of quantitative analysis. For example, arbitrage (pure), arbitrage (statistical), and various forms of intermarket analysis including relative value, mean reversion, etc. These methods may be part of a quantitative trader's toolkit, but are not traditional TA.
So when we talk about whether TA works or not, it would be more precise to indicate if we mean traditional TA, or other quantitative techniques that are often loosely referred to as TA.