When Technical Analysis Stops Working

[TrendSpider_Jake]

One of the biggest mistakes traders make is getting too comfortable with a technical signal that they have been trading for a couple months and they become complacent. Once the status quo changes and that technical signal is no longer "popular" which is what made it self-fulfilling in the first place, the trader gets burned on the trade and has to find a new signal that is coinciding with price moves. This has happened a lot since October...

Has this ever happened to you?

 

[tomorton]

A signal that fails in this way was never a reliable signal in the first place, it was just giving good results due to random statistical variation. Even a coin toss will give extended series of winning results that look like an effective strategy. Effective strategies don't fail because they lose their popularity.

 

[hatemypips]

A signal that fails in this way was never a reliable signal in the first place, it was just giving good results due to random statistical variation. Even a coin toss will give extended series of winning results that look like an effective strategy. Effective strategies don't fail because they lose their popularity.

You say there are no effective strategies in absolute sense, any profitable trader could be considered as a lucky guy which had a long row of profitable trades. This could be true in case of fair coin toss game, but markets returns is not always identically and independently distributed random variables. Consider trading sessions overlap, we could have protracted reaction to significant event because some traders simply had not opportunity to participate into trading.

 

[tomorton]

You say there are no effective strategies in absolute sense, any profitable trader could be considered as a lucky guy which had a long row of profitable trades. This could be true in case of fair coin toss game, but markets returns is not always identically and independently distributed random variables. Consider trading sessions overlap, we could have protracted reaction to significant event because some traders simply had not opportunity to participate into trading.

No, I don't say there are no effective strategies. Effective strategies remain effective, subject to the regular TA cycles of trend to non-trend to range to trend etc. So there might be times when they should not be used, but these will always be visible through TA, even if only later.

But I reject two types of strategy failure - one where a TA-based strategy stops working for no visible TA reason, and the other where the reason is that it became too popular.