Technical Analysis and Liquidity Provision KENNETH A. KAVAJECZ University of Wisconsin - Madison - Department of Finance; University of Pennsylvania - Finance Department ELIZABETH R. ODDERS-WHITE University of Wisconsin - Madison - School of Business -------------------------------------------------------------------------------- Rodney L. White Center for Financial Research Working Paper No. 11-02 Abstract: The apparent conflict between the level of resources dedicated to technical analysis by practitioners and academic theories of market efficiency is a long-standing puzzle. We offer an alternative explanation for the value of technical analysis that is consistent with market efficiency - specifically, that it reveals information about liquidity provision. We find evidence consistent with the hypotheses that support and resistance levels coincide with peaks in depth on the limit order book and that moving average forecasts reveal information about the relative position of depth on the book. These results demonstrate that technical analysis can have value even in an efficient market, and provide a practical method for estimating the level of liquidity on the book.
99% of what academics do is rigorously prove what's obvious. That doesn't mean it doesn't add any value though.
http://www.nyse.com/about/1047054054472.html Thanks for the heads up on the paper Vlad. I'll have to read it soon. How are you doing these days vladiator? As I remember you had quite a unique strategy that you were trading successfully, possibly with some backers from the academic world. Care to update us? I hope its all good news as your approach to research was far beyond most. Hope its all paying off.
Hi opmtrader! You are welcome. I'm doing very well. Just moved to West Coast and trying to adjust to having to wake up so freaking early in the morning to close the overnight positions. Speaking of which, (knock knock on wood), not a single losing day since last June. Admittedly, the fund only opens positions on about 2 days per week on average. But still, this steak surprises even me. I'm working on something else at the moment but the fund is in autopilot (and apparently doing much better than when I was actively involved... I guess that speaks volume about my execution abilities... The research is paying off quite a bit. Cheers, V.