Does technical analysis work or not?

This is a discussion on Does technical analysis work or not? within the Technical Analysis forums, part of the Methods category; I even got banned on another forum for asking this question. People who would normally tolerate a wide range of ...

View Poll Results: Does technical analysis work in your opinion?
It does 24 53.33%
It doesn't 11 24.44%
No foggest clue 4 8.89%
What's technical analysis? 6 13.33%
Voters: 45. You may not vote on this poll

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Old Apr 5, 2016, 7:06am   #1
Joined Oct 2012
Does technical analysis work or not?

I even got banned on another forum for asking this question. People who would normally tolerate a wide range of really diverse opinions suddenly went nuts and started throwing insults at me for simply asking. Was just so odd to see such a sudden extreme reaction to a seemingly routine question.
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Old Apr 5, 2016, 8:42am   #2
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Originally Posted by babyjake1961 View Post
I even got banned on another forum for asking this question. People who would normally tolerate a wide range of really diverse opinions suddenly went nuts and started throwing insults at me for simply asking. Was just so odd to see such a sudden extreme reaction to a seemingly routine question.
Hi babyjake1961,
This is outrageous; it's trading blasphemy to even imply in your question that it might not work. How dare you sir!

I've not answered your poll, not because I object to the question as such, but because for me it depends what you mean by 'work'. Also, it looks at TA in isolation. Just as a car won't 'work' without a driver behind the wheel, TA won't work without a trader. And that's where the problems begin. Copied below is an extract from post #2 of the Essentials of Technical Analysis Sticky . . .

The answer to this question (does TA work or not) very much depends on how you define ‘work’. As an infallible predictor of where price is going to go next – NO it doesn’t work! As a useful aid to enable you to forecast (probable) future price trends – YES it can work. Whether or not it will work for you will depend on whether or not you’re prepared to put in the effort required to master it. TA is a tool like any other and using it well will take time and effort. Those who claim it doesn’t work tend not to bother. They apply TA by numbers and buy when the blue line crosses the red line (of XYZ indicator), or sell when price breaches the neckline of an H&S pattern etc.

Some critics who maintain that TA doesn’t work are academics who provide impressive mathematical studies to support their claims. A recent example of this is a paper entitled Technical Analysis from Around the World by Ben Marshall, Rochester Cahan and Jared Cahan. The authors of many papers like this one are intellectual heavyweights, but they are rarely traders and, therefore, have no practical experience or understanding of the subject. Additionally, none of them can actually prove that TA doesn’t work or, even, that XYZ indicator doesn’t work. Here’s why . . .

You’ll probably be familiar with the popular myth that bumblebees can’t fly. Everyone knows that they can, but scientists have struggled to explain how and, even, supposedly ‘proved’ that they can’t. Actually, they haven’t done that at all. What they have done is to demonstrate that relatively simple mathematical models fail to explain something as complex as the flight of a bumblebee. They’ve struggled to model the way the insect moves, the way its wings bend and twist and the number of strokes they have and how their angles change etc. And so it is with academic studies about TA: because the mathematical models fail to take the trader into account. They invariably look at chart patterns or indicators in isolation. It’s akin to saying cars don’t work when there isn’t someone in the driver’s seat. You don’t say! Chart patterns, indicators and TA in general are just tools to aid the trader. As with any tool, how well it works (or not) is dictated by the knowledge, skill and experience of the person using it. Consequently, academic studies about the effectiveness (or otherwise) of TA tend to be as flawed as mathematical models which supposedly ‘prove’ that bumblebees can’t fly.

Tim.
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Old Apr 5, 2016, 9:54am   #3
 
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I'm with Tim. TA is a tool that assists in making reasonable assumptions (guesses) at what appear to be appropriate times. The job then is to take adequate advantage when it goes favourably and limit the damage when it doesn't.
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Old Apr 5, 2016, 10:46am   #4
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The question pulls the rug right out from under the feet of places such as forums. This is why they have to terminate you.

Technical analysis works most times in favour of banks who are ultimately on the other end of your trade, and they have the profit and stats to prove it. This is how it should be. After all they are running a business.

Are there people consistently benefiting from TA when it doesn't for banks some of the times ? I have seen no conclusive proof of it at least in all the places I have looked so far.
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Old Apr 5, 2016, 11:00am   #5
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How does TA work in favour of the banks?
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Old Apr 5, 2016, 11:15am   #6
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How does TA work in favour of the banks?
The usual figure is 90% of retail "traders" lose - my own figure is much higher. As they all use TA. Clearly TA favours and works for the banks.
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Old Apr 5, 2016, 11:17am   #7
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That's not really answering the question but I know what you are saying albeit in a general sense.
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Old Apr 5, 2016, 1:54pm   #8
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babyjake1961 started this thread I mean, is it possible to be consistently profitable based on some historical market patterns? My own experience has led me to conclude the number of possible market scenarios is limitless, so the past ones are irrelevant as future guidance. I would throw a trading system on historical data as a random data sample to see if the system survives and profits but would never build a system based on specific historical data as opposed to general market concepts.
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