Why does TA not work (for you)?

[kinggyppo]

Surf doesn't even admit trends exist: you know like

1212, 1319, 1402, 1504, etc.

this thread while amusing is just this rehashed:

http://www.elitetrader.com/vb/showt...end following delusion shattered&pagenumber=1

 

[marketsurfer]

Quote from logic_man:

Not only that, but the article states on the first page that the authors take it as proven that under certain assumptions, past price information can be used to make abnormal profits (their phrase), which goes against surf's claim that past prices are useless.

"There are few sophisticated technical rules that may explain why technical analysis works. For example, Treynor and Ferguson (JF, 2985) demonstrate the usefulness of past price information in making an abnormal profit. They develop a Bayesian probability estimate using past price data to assess whether the market incorporates some firm-specific information, that is made available to investors. If the market does not have such information, and this is confirmed in past price data, the investor with this private information can make a trading profit. Technical analysis in the Treynor-Ferguson sense is beyond the scope of this paper, however."

Quoting out of context? I agree it's dusty old stuff-- just trying to show that the cases against TA are very old and well documented.

 

[marketsurfer]

Quote from kinggyppo:

Surf doesn't even admit trends exist: you know like

1212, 1319, 1402, 1504, etc.

this thread while amusing is just this rehashed:

http://www.elitetrader.com/vb/showt...end following delusion shattered&pagenumber=1

Here's why:

Here is a piece of wisdom from Dr. Phill McDonnell----


http://www.dailyspeculations.com/wordpress/?p=3158


Moving averages--- are you serious?


Evgeny Slutsky and Moving Averages, from Phil McDonnell
September 27, 2008 | 1 Comment
All moving averages have to be based on a backward looking window of time. So a 10 day average is the average of the last 10 days and so on. But the center in time for that average is really about five days ago. To be more precise it is (n+1) / 2 days ago or 5.5 days ago.

So comparing two moving averages of different lengths is really comparing apples and oranges. If we compare a 10 day to a 30 day average, for example, then we are comparing the average of 5.5 days ago to 15.5 days. In other words they are not the same point in time. Mr. Glazier's enlightening 3D representation of moving averages of various lengths shows that the longer windows respond more slowly to ripples in price than do the shorter moving averages because of this lag effect.

Another feature visible in the chart is the apparently cyclical undulations. The problem with that is that it may simply be a manifestation of the Slutzky - Yule effect. Essentially Slutksy-Yule says that any series, when averaged, will show sinusoidal oscillations as a result of the averaging process. This is true even if the original series was composed of random numbers which could not possibly be sinusoidal in nature.

Another common pitfall when using moving averages is to think that all one has to do is to find the magic combination such as a 19, 27 and 79 day triple crossover with a minimum threshold of 1%. The problem with any such system is that there are an infinite number of these combinations. We quickly fall into the data mining trap where we will appear to find something even if it is merely a product of chance.

Dr. McDonnell is the author of Optimal Portfolio Modeling, Wiley, 2008

 

[R. Raskolnikov]

Writers write, traders trade. It's really very simple.

 

[logic_man]

Quote from marketsurfer:

Quoting out of context? I agree it's dusty old stuff-- just trying to show that the cases against TA are very old and well documented.

How did I "quot[e] out of context"? The authors are simply stating that they are only going to analyze some types of TA, but they are going to ignore others because those others actually appear to work and they use past data as inputs.

If you are denying that you've said past data is useless and that's what I'm quoting out of context, there are at least half a dozen posts in this thread alone where you did state that.

 

[RCG Trader]

Quote from frenchfry:

You mean: Laterals and lateral movements?

Not quite, CCC actually forms wedges accompanied by dry up.

 

[Fah Q]

Quote from logic_man:

How did I "quot[e] out of context"? The authors are simply stating that they are only going to analyze some types of TA, but they are going to ignore others because those others actually appear to work and they use past data as inputs.

If you are denying that you've said past data is useless and that's what I'm quoting out of context, there are at least half a dozen posts in this thread alone where you did state that.

i also recall reading surf say that past price is useless.

 

[R. Raskolnikov]

So he posted a link that contradicts one of his foundational theories?? Priceless

Quote from logic_man:

How did I "quot[e] out of context"? The authors are simply stating that they are only going to analyze some types of TA, but they are going to ignore others because those others actually appear to work and they use past data as inputs.

If you are denying that you've said past data is useless and that's what I'm quoting out of context, there are at least half a dozen posts in this thread alone where you did state that.

 

[marketsurfer]

Quote from Fah Q:

i also recall reading surf say that past price is useless.

Completely useless when it comes to predicting future price.

 

[marketsurfer]

Quote from R. Raskolnikov:

So he posted a link that contradicts one of his foundational theories?? Priceless

The faithful are grasping at straws and making up sh$t: From my link

......technical analysis cannot earn abnormal returns. Technical strategies are inferior to a buy and hold strategy since they typically churn investor accounts. Nonetheless, technical analysis appears to thrive. The purpose of this paper is to explain why technical analysis survives
even though it is inferior to a buy-and-hold strategy.