Simple defense of technical analysis

Discussion in 'Technical Analysis' started by MathAndLogic, Nov 30, 2012.

  1. There are some threads of ET and there are several books, such as this one: , and this one: , which presented strong arguments against technical analysis.

    Although I do not know the exact methods they test each technical analysis indicators or signals, my guess (and thus my premise for making my argument) is that they threw series of data to each indicator or signal and see whether it makes profit.

    There are also studies (which I do not recall the author) which have shown that career traders become more successful as their experience grow, and many do use technical analysis.

    Here is my defense of technical analysis based on the above. All the indicators and signals in technical analysis are like the movements and weapons in martial arts. If my premise were true, then testing series of data on an indicator is like using only one martial art movement such as round house kick, to fight against a variety of enemies regardless whether the enemies come barehanded or with knives or with sticks. How can you survive if all you know is round house kick? Let's say your success rate with round house kick is 50%. Now you test another indicator or another martial art move, such as head punch, against all the data and all the enemies; and you have 49% success rate. And so on, you have tested all the indicators and you conclude that technical analysis or martial arts is no better than flipping a coin.

    True, technical analysis tries to ignore the fundamentals. But, a big but, humans don't work like robots. People change their strategies, apply different fighting styles and use various indicators or no indicators at all, depending on what they have seen or heard, what news info or new book they read, or what pretty girls they slept with.

    I guess it is the human factors that are missing when those authors do their "evidence based analysis of technical analysis." And if my premise above if true, then I guess that explains why traders can statistically become more successful with experience, and the fact that there are studies to support this correlation between experience and success, and that many of them do use technical analysis, I must conclude that TA is not useless like coin flip but should be used like martial arts.
  2. gmst


    why bother whether TA works or not. If you can make money with it consistently, let the naysayers go to garbage-can and you make money merrily and plan on buying your next BMW.
  3. smaranam


    you will get by your beliefs
  4. Wrong. TA is the corner psychic in real finance.

    You need to change your moniker as this post contains neither math or logic.
  5. How much TA does it take to model the simple fact that price and volume flow like waves on a beach? Have you ever sat on a beach for hours at various times of the day and night simply watching the tide? Watching a market on a one-second chart yields the same experience and insights. TA? My screen is a shitpot full of it. I am still waiting for it to work reliably compared to tidal price action.
  6. Some people like to believe in things.

    If something doesn't work, they think, maybe it needs to us used in combination with something else that doesn't work.


    All you need to do is spend a rainy weekend backtesting this stuff, and it all becomes pretty clear.

    Once you've done this, morons become very easy to spot.
  7. Where TA got off track was, the technical analysts forgot what it was they were analyzing.

    If you go back to Murphy, his idea was that people act in predictable ways.

    So in the beginning, it was all about people.

    TA freaks became increasingly anti social.

    They got lost in their charts and forgot what those charts represent.
  8. +

    Master debaterz have not made it to home plate
  9. kut2k2


    TA works, but at least 99% of the stuff that is printed in TA books is a waste of time. If any of it ever did work (and there's some evidence of that), it stopped working once it became widely known and utilized.

    Hence the need to keep any currently working TA a secret and not spread it around just for bragging rights or some other idiocy. Just enjoy your profits once you figure it out.

    As far as your martial arts analogy, I'm not convinced. The market isn't fighting you, it just doesn't care whether you win or lose. Which can be a good thing in the long run. It means you have better odds than casino gamblers, because the casino owners really are your opponents in the long run (hence the ban on card counting).
  10. zdreg


    if technical analysis were very useful, gypsy tea leave readers would be the kings of investing.
    #10     Nov 30, 2012