I have used TA 44 years, have tried, backtested dozens of other approaches. I found TA easiest to backtest, but TA is an entry for me. The other 99% of system is risk management. For me my edge is risk management.
Sorry, I should have said TA by itself. I'm sure TA along with FA and other Macro Economic factors works to some extent (sort of a gestalt sense of the markets as a whole). My understanding is that TA by itself has never been demonstrated to be very successful; but I guess it also depends upon how you define the domain of TA, and in any case it would be hard to use TA in a vacuum.
Handle123, you got that right. There are multiple parts to a good trading system, technical analysis (including analysis of trends), risk management, position sizing, etc. All have to be part of a good trading system and you have to backtest your trading system to make sure you have an edge or positive expectation.
TA works for some people; but not so much for others. I am not a fan of looking at what happened in the past however if you have discovered an edge in this good on you. It doesn't work for me but it doesn't mean it won't work for others.
MrAgi, you can read about it too... https://www.elitetrader.com/et/thre...ht-in-the-books-section-at-amazon-com.358096/ FWIW, I've convinced myself of the validity of the kind of TA I use by testing it and determining that it has been profitable in the specific futures markets I trade most years over the last 20 years or so. That testing gives me the confidence to keep trading the system during the periods when it is going through a temporary drawdown.
If TA doesn't work every daytrader would be straight out gambling or relying on gut instinct. Since the majority of traders are daytraders that strongly contradicts your theory that TA is BS. Most traders who fail or either bad at TA or using the wrong indicators. In addition, to the many other reasons like poor risk management, lack of discipline, timing of entries & exits etc. However, I do find that certain timeframes TA does become non-sensible bs. A good example is when futures reopens at 6pm. The action is very often times erratic, manipulative and counterintuitive to TA. Algo's & big money can manipulate the price action whichever way they want due to the decrease in volume as compared to during the day.
Yep. After the TA is when the rubber hits the road. You can take valid TA and turn it into negative expectation. Likewise, you can take barely positive and turn it into a reasonable, risk adjusted system But all that takes work. IMO, people ask this question, either looking for an easy answer, or silver bullet, or "edge", but don't understand there is NO GETTING AROUND the work required to actually trade the TA over the long term. TA is the easy part. Entry-Exit-scaling-hedging etc (aka risk management) is the harder part. You can't just throw caution to the winds or go on TA silver bullet autopilot. After TA, many are mentally exhausted and start the psychological downward spiral when the actual trading starts. When in actuality, TA is like the top of the 2nd inning. People think a "TA setup" is equivalent to an "Entry signal", DONE. How quaint, circa 1970!
Anything worth doing, involves doing some work. Experts in their field, be it a heart surgeon, airline pilot, top hedge fund manager, etc. all put in the time and effort to be the best in their fields. A lot of new retail traders, use TA superficially. That is they analyze the stockcharts by drawing lines on it, slapping numerous indicators and think they are good to go. You have to tie together the concepts of trend, candlesticks, support and resistance, etc. Very few traders will take the time to properly analyze the stockchart they are looking at. Then, they complain, look TA does not work. They want instant success with little work. If you want to be the best in any field, you have to put in a lot more effort in it.
In an effort to take this threat a step further, I think technology has greatly impacted market predictability. Computer algo trading creates and responds to market movements instantly. In some ways, they create elements of predictability when they operate along the same criteria. It's like if all YouTube stock picking talking heads said the same thing based on basic TA patterns, you'd expect their followers to look for those patterns and act in unison. Suddenly, even if TA was all bs, it no longer is because enough users trade on it. With the advent of AI, we're taking the compute power to such a level that the history of all trading with thousands of variables can be used for predictive trading. Its win rate will be significantly higher than the best trader has ever been able to achieve. The question will be, are these going to be or remain legal for long?
The inevitable slid into TA works because it is self-reinforcing because the crowd uses it, especially so when said about Elliott Waves. Yet, as I have posted a few times before EWT did not exist in the time of the 1929 crash, still somehow it worked in retrospect before Elliott himself started to apply it:-