Why does anyone take technical analysis seriously?

[moonmist]

There is still no consensus on ET what qualifies as TA, therefore the debate won't lead anywhere. Some say it's using indicators, others are saying it's about chart patterns and then there are the ones claiming it's using any historical data to determine future prices.

Yes.

Some may think that TA involves volume analysis, order flow analysis, etc. It is tough to come up with a definition that everyone agrees on.

Just my two cents.

 

[lawrence-lugar]

There is still no consensus on ET what qualifies as TA, therefore the debate won't lead anywhere. Some say it's using indicators, others are saying it's about chart patterns

Simple. just show your historical percentage returns. -- whoever wins that battle...generally win this TA debate.

The bottom line always speaks; the rest is just noise and bs.

 

[Laissez Faire]

Perhaps a distinction between statistical methods & "technical analysis" is in order... Most "traders" that use "TA" are not sophisticated at all; they do not understand the most basic concepts of data analysis, they sit & stare at lines on charts; chart monkeys. Just as an FYI

Chart reading is merely a subset of technical analysis, which by definition is forecasting future prices based on past price data (price and volume).

TA is a vast field and there's no doubt a lot of useless stuff and useless approaches.

 

[marketsurfer]

Maybe the following is undeniable proof that markets are not random, and this implies that TA can work:

1.If you throw a dice, the smallest possible value is 1 and the biggest possible value is 6. Each time when you throw, the value will be at least 16.7% of the previous one (from 5 to 6) and maximum 600% (from 1 to 6). So the outcome from the next throw will be between 16.7% and 600% different from the last throw. This is a huge range.

2.If you take all the closing prices from the s&p since 1/1/1950 (16544 days of data), then we see the following:

• The closing price from any day is always between 91% and 111.5% of the previous close. There was only 1 exception on that: 19 october 1987, when the markets crashed. Then it was 79%.
• If prices would be random the value should vary between 0 and infinite. This is clearly not the case. The prices even stay in a very narrow range. Even if we would narrow the random range to 0 till 200%, the real values use only 10% of this range. This creates a very high probalitity, which is never found in real random data. Here TA comes in the game.
• For 65 years the price never dropped more than 10% and never rose more than 11.5% from one closing to the next one. If you throw a dice the only thing that is sure is that the outcome will never be more than 600% whereas in trading the outcome will be between 91% and 111.5% of the last close with a VERY HIGH probability. The range of about 20% is also much smaller than the range for throwing a dice which is almost 600%.

I believe that is called" upward drift" and yes the stock market is the only financial market that experiences upward drift due to its nature. surf

 

[marketsurfer]

Simple. just show your historical percentage returns. -- whoever wins that battle...generally win this TA debate.

The bottom line always speaks; the rest is just noise and bs.

No, because folks have won the lottery multiple times-- this does not mean they have a special power, system or gift--- It's just the result of randomness.

surf

 

[NoVoodooHere]

Chart reading is merely a subset of technical analysis, which by definition is forecasting future prices based on past price data (price and volume).

TA is a vast field and there's no doubt a lot of useless stuff and useless approaches.

You have a mighty fine definition there.

 

[NoVoodooHere]

I believe that is called" upward drift" and yes the stock market is the only financial market that experiences upward drift due to its nature. surf

Does that address the 500 pound gorilla of flawed logic in that post? - The one that jumped out and smacked me in the face with an entire bunch of bananas.

 

[Mtrader]

I believe that is called" upward drift" and yes the stock market is the only financial market that experiences upward drift due to its nature. surf

The fact that this upward drift repeats itself for and over again during many decades proofs that history repeats itself. People react each time in the same way. Behavioral finance. And that's what can be used in TA to predict the next upward drift.

 

[Mtrader]

No, because folks have won the lottery multiple times-- this does not mean they have a special power, system or gift--- It's just the result of randomness.

So Niederhoffer won many times the lottery? Because the blow ups confirmed that he had no special power, system or gift. It was just the result of randomness?

 

[NoVoodooHere]

The fact that this upward drift repeats itself for and over again during many decades proofs that history repeats itself. People react each time in the same way. Behavioral finance. And that's what can be used in TA to predict the next upward drift.