Does technical analysis work or not?

[new_trader]

Nothing mechanical about TA

TA works. But making a profit from it is something most people can't do.

Agree!

This is a quote from Investopedia that summarises my opinion and therfore saves me a lot of typing:

The methods used to analyze securities and make investment decisions fall into two very broad categories: fundamental analysis and technical analysis. Fundamental analysis involves analyzing the characteristics of a company in order to estimate its value. Technical analysis takes a completely different approach; it doesn't care one bit about the "value" of a company or a commodity. Technicians (sometimes called chartists) are only interested in the price movements in the market.

Despite all the fancy and exotic tools it employs, technical analysis really just studies supply and demand in a market in an attempt to determine what direction, or trend, will continue in the future. In other words, technical analysis attempts to understand the emotions in the market by studying the market itself, as opposed to its components. If you understand the benefits and limitations of technical analysis, it can give you a new set of tools or skills that will enable you to be a better trader or investor.

Many people think TA involves using indicators or painting pretty coloured lines on a chart and then doing 'something' when the price crosses or touches it. That is mechanical trading and utterly useless for making money. I don't trade using a chart. I use charts for investment decisions but I don't use any indicators on them.

 

[zaysev36]

Many people think TA involves using indicators or painting pretty coloured lines on a chart and then doing 'something' when the price crosses or touches it. That is mechanical trading and utterly useless for making money. I don't trade using a chart. I use charts for investment decisions but I don't use any indicators on them.

Totally agree! If someone explained me this at the beginning of my trading studies, he would have spared me a lot of time and confusing moments. Some traders (dare I add - unexperienced ones) seem to think that TA is like a math problem - if you solve it, then you will get one correct answer on when and what to do. That's not the case. You have to analize your solution, compare it with results of other studies, corellate it to your knowledge of the market, and only then you will be able to make a decision that may be considered reasonable.

 

[Fugazsy]

It takes time to learn how to trade TA professionally, many will not have enough stamina to endure to see the advantage it offers.

 

[darktone]

Yes, it can if you don't understand the business. They will never run the price against their own inventory like that. They always face the right direction, although not counting spikes.

All events short of earthquakes are known in advance. Inventories are set up accordingly.

Careful mate, that "Everything is known in advance! :smart:" kinda talk can be right sticky wicket when it shows itself to be just aint so. :cheesy:

 

[darktone]

You are projecting. I don't have trouble knowing who is taking my money when it happens. I don't suffer from pushing the on off button.

If they are loading up, so would I. If they put their money in, that becomes serious business. Trading is everything about seeking value. Value adds to your safety. No psychology required.

Well, youve got an I think I know something comfort blanky atm. But blankys dont work when reality comes knocking.

 

[darktone]

Yessir. Dynamic ones.

Do think it may be possible using a stop puts you on the nervous side?

Lets say your long at 50 with a stop at 20.
price dives to 15.
price recovers to 45.
then dives to 10.

Did you do well getting out of that position?

 

[babyjake1961]

Do think it may be possible using a stop puts you on the nervous side?

Lets say your long at 50 with a stop at 20.
price dives to 15.
price recovers to 45.
then dives to 10.

Did you do well getting out of that position?

Sure thing. I don't even watch it - my bot handles it for me.

 

[EnlightenedJoe]

Careful mate, that "Everything is known in advance! :smart:" kinda talk can be right sticky wicket when it shows itself to be just aint so. :cheesy:

I said except earthquakes. If earthquake strikes in the wrong direction, they can hold up the price until they are good and ready.

No use being provocative, I don't care to prove anything. This kind of thing takes years of study. If you want it you will have to put in the effort.

 

[EnlightenedJoe]

Well, youve got an I think I know something comfort blanky atm. But blankys dont work when reality comes knocking.

My comfort blanket looks more like this:

DAILY YIELD at market price using 50:1 leverage
Trade size is in units representing a notional trade employing ▒1000 margin

Yield Ranking ▒ Yield Ranking ▒ Trade Size Yield %
long % ▒ short % ▒ buy sell long short
▒ ▒
SG30_SGD 1.324 ▒ WTICO_USD 7.419 ▒ AU200_AUD 18 18 0.013 -0.288
EU50_EUR 1.177 ▒ NATGAS_USD 6.187 ▒ AUD_CAD 93493 93515 0.115 -0.348
CH20_CHF 0.917 ▒ BCO_USD 2.683 ▒ AUD_CHF 93493 93515 0.224 -0.581
ZAR_JPY 0.820 ▒ SUGAR_USD 0.571 ▒ AUD_HKD 93493 93515 0.046 -0.416
DE10YB_EUR 0.561 ▒ CORN_USD 0.550 ▒ AUD_JPY 93493 93515 0.190 -0.396
UK100_GBP 0.438 ▒ CHF_ZAR 0.342 ▒ AUD_NZD 93493 93515 -0.210 -0.160
TRY_JPY 0.337 ▒ EUR_TRY 0.328 ▒ AUD_SGD 93493 93515 0.057 -0.427
USB30Y_USD 0.304 ▒ USD_TRY 0.328 ▒ AUD_USD 93493 93515 0.170 -0.375
NL25_EUR 0.274 ▒ USD_ZAR 0.320 ▒ BCO_USD 1746 1747 -2.957 2.683
FR40_EUR 0.267 ▒ EUR_ZAR 0.320 ▒ CAD_CHF 92064 92084 0.027 -0.315
UK10YB_GBP 0.248 ▒ WHEAT_USD 0.312 ▒ CAD_HKD 92064 92084 -0.151 -0.151
AUD_CHF 0.224 ▒ GBP_ZAR 0.304 ▒ CAD_JPY 92064 92084 -0.007 -0.130
NZD_CHF 0.215 ▒ EUR_AUD 0.170 ▒ CAD_SGD 92064 92084 -0.140 -0.161

 

[tokyojoe]

Do think it may be possible using a stop puts you on the nervous side?

Lets say your long at 50 with a stop at 20.
price dives to 15.
price recovers to 45.
then dives to 10.

Did you do well getting out of that position?

price dives to a level that drags your position under water for an unknown length of time !

In the mean time if you've bailed with BE or small loss, then go on to TP on a fresh new position within minutes

Did you do well getting out of the original position ?

 

[tokyojoe]

That's what TA is, the study of price movement.

Db

really, thanks I'm now well informed !!!

 

[tokyojoe]

Well, youve got an I think I know something comfort blanky atm. But blankys dont work when reality comes knocking.

 

[tokyojoe]

I'm not nervous for a tiny bit. Firstly, I only trade small amounts of capital that I can easily afford to lose. Secondly, I have fully automated bots doing this job for me. So all in all, I sleep like a baby.

If I traded my bread money and had to do it manually, I would not be able to think of anything else in life.

Hey Babyjake, when I say nervous I don't mean my knickers are always pulled up around my head, I now trade for only 2 or 3 hours max if I'm in the game on any given day, profit or loss. I'm looking to maximize my TP.

I can't be arsed to come on here pretending to be billy big b@llocks, but I know one thing for sure, if you are a day trader, YOU WILL HAVE LOSING DAYS, our job is to keep these losing days in check.

I sleep easy too mate, no overnights.

 

[EnlightenedJoe]

The fencing continues. They parked the price above my cost for a day but did not give me an advantage by moving to the upper trend line where I wanted more size. Now it's a waiting game while they pay me interest every day including the weekend. They moved the price back below my cost to tempt me. But I am in no hurry.

Their fencing is very good, pro level.

 

[piphoe]

really, thanks I'm now well informed !!!

he's right price movement is fundamental to TA. without there is nothing to "technically analyze".

 

[metrader]

The fencing continues. They parked the price above my cost for a day but did not give me an advantage by moving to the upper trend line where I wanted more size. Now it's a waiting game while they pay me interest every day including the weekend. They moved the price back below my cost to tempt me. But I am in no hurry.

Their fencing is very good, pro level.

Very clever fishing Joe – you managed to confuse them talking about fencing. They took the bait and they don't know about it.

 

[tokyojoe]

he's right price movement is fundamental to TA. without there is nothing to "technically analyze".

Hi Piphoe, I keep it very very simple these days

Decent Pace/speed of flow ?

Obvious value/supply/demand areas under pressure or being sneaked up/down ?

Is there a trappy nature to the current price point ? (I use SB so have the extra layer of synthesis to be mindful of)

We are all seeking one simple thing when we use our "TA" & that is likely direction of travel, there is nothing else to look for at the end of the day.

(ps I was being gently sarcastic to DB's reply)

 

[Solas0077]

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.

This is a clashing issue. It cannot be answered with Yes or No, or Maybe. I have read many books on TA, probably more than 40. Some just present it without challenge. Some show only what worked in part in some markets but not in other markets where it did not. Some concentrate on system development but do not provide sufficient evidence their approach is sound. Everything came in place in my mind after I read the book "Fooled By Technical Analysis" by Michael Harris (just Google title and author.) I have to mention it because after you read it everything will be clear. I own to this author my enlightenment.

 

[dbphoenix]

Hi Piphoe, I keep it very very simple these days

Decent Pace/speed of flow ?

Obvious value/supply/demand areas under pressure or being sneaked up/down ?

Is there a trappy nature to the current price point ? (I use SB so have the extra layer of synthesis to be mindful of)

We are all seeking one simple thing when we use our "TA" & that is likely direction of travel, there is nothing else to look for at the end of the day.

(ps I was being gently sarcastic to DB's reply)

Gently sarcastic? I was crushed. It will take me at least until Monday morning to recover.

It's about twenty years now that technical analysis has been redefined as the use of "indicators" (mathematically-derived formulas such as the MACD), implemented almost exclusively through the use of "candles". Patterns have been around for centuries, but their use today is very different from what it was at that time. So anyone who's relatively new to this, i.e., less than twenty years, doesn't know anything else, and the question "does TA work?" is interpreted within the context of indicators and candle patterns and fanciful patterns in general. Then one may get into quantitative analysis, which is its own form of self-delusion.

The core of technical analysis is the assessment of activity (how many trades are being consummated), pace (how quickly are trades meeting their objectives), and whether price is trending or ranging, and if it is trending, what is the extent of the trend, how far is it going before it begins ranging or reverses? And that's pretty much that. Indicators are used to tell us what we're looking at if we don't understand what we're looking at, and this is the state of all struggling traders, largely I suspect because they really don't enjoy trading, so the prospect and task of figuring it all out leaves them cold. They aren't particularly interested in why and how and when price is moving up or down; they only want to know what settings to use so that they can act with confidence of profits when the red line crosses the blue line.

The question "does TA work?" is then more accurately phrased as "does TA tell us whether price is trending or ranging and, if trending, in what direction?" And the answer is of course "yes". Whether or not indicators and patterns "work" is an entirely different question, as is the value of candles.

Db

 

[tomorton]

This is a clashing issue. It cannot be answered with Yes or No, or Maybe. I have read many books on TA, probably more than 40. Some just present it without challenge. Some show only what worked in part in some markets but not in other markets where it did not. Some concentrate on system development but do not provide sufficient evidence their approach is sound. Everything came in place in my mind after I read the book "Fooled By Technical Analysis" by Michael Harris (just Google title and author.) I have to mention it because after you read it everything will be clear. I own to this author my enlightenment.

I Googled this title and the book will apparently show why -
Trading with chart patterns and indicators is unprofitable
and
Chart analysis has no logical foundation.

I'd be interested to find out Harris has come to incorrect conclusions but I just haven't got the time - I can't read every book that comes along that's not a help in what I do - to coin a phrase, where would I draw the line?

But do you want to offer any enlightenment?