Does TA work? CTAs, who by and large favor variations on Technical Analysis, including some EW, Gann, Fib, etc. Yes some probably use Fundamental and other methods, but that seems likely a minority fraction. CTAs, who by and large should be those who have some mastery over the TA field. One would think these people would include those using both classical TA and all the variations on it that people here in this and other threads claim are successful. This is the performance of the TOP 40 CTAs of 400 who are registered to this site: http://www.managedfutures.com/Indices.html 2006 est. 0.71 2005...4.51 2004...2.57 2003...15.99 2002...15.22 2001...5.39 2000...10.63 1999...0.87 1998...12.61 1997...10.22 1996...16.04 1995...13.16 1994...-5.46 1993...14.66 1992...0.89 1991...15.12 1990...37.15 This is even worse, due to survivor bias, where CTAs who go under are removed from contention, and makes th e results look better (described on site). Given the use of leverage, and the fact this is the BEST of the CTAs, still many years they underperform a simple money market fund and many other years underperform the unleveraged market indices.
Couldn't have said it better myself: "The only thing we know for certain about technical analysis is that it's possible to make a living publishing a newsletter on the subject." Martin S. Fridson, Investment Illusions "Technical analysts are the witch doctors of our business. By deciphering stock price movement patterns and volume changes, these Merlins believe they can forecast the future." William Gross, Everything You've Heard About Investing is Wrong! The one principal that applies to nearly all these so-called "technical approaches" is that one should buy because a stock or the market has gone up and one should sell because it has declined. This is the exact opposite of sound business sense everywhere else, and it is most unlikely that it can lead to lasting success in Wall Street. In our own stock-market experience and observation, extending over 50 years, we have not known a single person who has consistently or lastingly made money by thus "following the market." We do not hesitate to declare that this approach is as fallacious as it is popular. Benjamin Graham, The Intelligent Investor "Technical analysis is doomed to fail by the statistical fact that stock prices are nearly random; the market's patterns from the past provide no clue about its future. Not surprisingly, studies conducted by academicians at universities like MIT, Chicago, and Stanford dating as far back as the 1960s have found that the technical theories do not beat the market, especially after deducting transaction fees. It is amazing that technical analysis still exists on Wall Street. One cynical view is that technicians generate higher commissions for brokers because they recommend frequent movement in and out of the market." William A. Sherden, The Fortune Sellers: The Big Business of Selling and Buying Predictions
Give Park and Irwin (2004) a read. They reviewed 92 studies. Among the 58 successful ways to use TA to make money that they reviewed, it turns out that prediction can be crossed off the list as a requirement to trade successfully. Also cross off using statisitics as a necessary tool for doing TA. It is very common for people to think as you do. The reason most often is repeated failure using TA improperly. As we review your trading record and posts, we see why you screwed up with TA. It is not necessary to use an entry/exit strategy while incorporating TA into a trading strategy. You will notice that it is a habitual preactice of those who screw up analyzing TA's applications to do the following: 1. leave one of the market variables out of the analysis. Usually volume. 2. To feel it is necessary to predict. It is NEVER necessary to predict. What purpose does prediction serve. besides it not working what purpose could it serve? 3. To focus on entires and skip considerations of exits. Using entries and exits is unnecessary in the applications of TA to trading. A few of the deeply proven aspects of TA include: 1. Support and Resistance. 2. Price movement from S to R and R to S in trends. 3. Gap retracements. 4. Computerized trading. The foundation of market operation is a two part statement. The statement is in a particular mathematical form that also happens to dictate a very good mathematical means for designing and implementing trading strategies. Let's say you think. You read an hypothesis. You think through and formulate a proof for the hypothesis. For any person who thinks and can solve rational opportunities, there are consequences. A common one is wealth and riches. Hypothesis: trends are contained within one another. The slopes of the trends go from steepest to least steep according to the realm of the containment. If you can think, you get to find out something. Be pragmatic and look at three concurrent trends in a moment of time. In market terms, using the mathematics of the fundamental market operating statement, there are 8 combinations of the three trend shells. How hard is it to think about this? When do you (or a thinking person) get to the point where you understand the consequences of proving the hypothesis? What would it be like if anyone in ET could do it? Or if anyone at Goldman Saks could do it? Or if any quant could do it? Because the slopes of the shells have only one possible relationship, it is simply like having the Law of gravity for the solar system. It is simply like having the Maxwell equations for electro mag theory. It is like having the stong and weak force and all of the above to know that symmetry is not part of quantitative physics. If you could think, what would it be like to come to understand what controls price movement? How long does a person who thinks go before he determines where market control lies? TA is what allows people to come to understand how markets work. There are 32 types of traders listed in a commonly used heirarchy of traders. Guess what? It is clear for each type of trader how TA is used to do the trading. It is almost possible to imagine that you still do not even know what kind of trader you are still trying to be. It may be likely that before you pooped out mentally, that you never understood much of anything about how markets work. Failure causes problems. Repeated failure causes irreversable problems. Are you conducting a fight to get back across a line that is impossible to come back over? Repeated failure causes fear, anxiety and anger. the same people who proved that TA works also have proven that a person who is screwing up trading exhibits fear, anxiety and anger. And they proved that this combo diminnishing trading performance in a statisitcally significant way. These kinds of people often try to out trade people who are operating using support, comfort and confidence as their touch stones. It doesn't work for these people, ever. You ignored my prior post that introduced the results of Park and Irwin (2004). Why? was it fear, anxiety or anger with the fact that Park and Irwin totally refute you in spades? A wasted mind is a terrible thing. Get into some other kind of endeavor if it is possible.
You've hit on the problem right there, Buy1Sell2--- these people are not looking to increase the probability of a better entry/exit. They have never thought of such a thing, even less about how to measure it. Most are not morons, but rather, stuck conceptually at "input trading methodology, output P/L", or even worse, predicting future prices.
This has got to be one of the worst threads at EliteTrader.com involving TA discussions. rcanfiel has clearly defined what aspects of TA are not alllowed in this debate even though it took him many posts over several different threads to say what he's really talking about. Yet, many in this thread I know for fact that are arguing with him that TA works do not use the type of TA that rcanfiel saids does not work. The question is why are you guys arguing with him when you don't use the type of TA he saids does not work. I'll answer that question myself later below. These are some things I've gather from these conversations I've had with them myself or via viewing their discussions with others: * Traders with profit loss statements that shows they are profitable while using TA even though they are unwilling to share the methods (I won't bother posting that link to them again)... Accordingly to rcanfiel and marketsurfer its most likely just luck. * If you can statistically prove that a price action only TA method is profitable... It's not allowed in this debate by them or its probably just a matter of time before it doesn't work. * If it can't be coded for some computer test... It's not part of this debate accordingly to them. My point is that they know that some aspects of TA works but that's not the stuff they are discussing here because they consider that stuff subjective (art like) regardless if its a rule based method. Conclusion, you guys don't use the TA they (rcanfiel or marketsurfer) are debating about. Getting back to that question above about why we are arguing with him about TA when we don't even use the stuff he's actually talking about. Answer - I think most in this thread (including me) are mad about the blanket statement put over the entire field of technical analysis. Yet, it's no longer an issue with me because I know what type of TA he's actually talking about and its a type of TA I don't use nor have I ever used... Coded TA System all by itself with no other inputs for trade decisions. Last of all, I'll repeat my statement from an earlier post in this thread. rcanfiel is a system designer that has tested/reseached over 1500 systems and did find merits in 1%. He's at ET because he wants you to prove to him that your coded TA system is profitable. ***In other words, he wants you to give him your system.*** If your not using TA via a system code...he's not interested in you nor is marketsurfer interested in you. Heck, if your not using TA via a system code you shouldn't be arguing with these guys in the first place. I wonder what rcanfiel plans to do with your system code if he gets it. Will he trade it for himself, sell it at his fee-based website, take aspects from it to improve his own systems or share it with others and call it his (you get no credit for designing it)??? You got something that works...this is the last guy on this planet you want to give access to it. P.S. Out of curiosity, does CNBC still interview William Gross of PIMCO? I enjoyed his analysis of those interest rates charts and it helped me to find a few profitable seasonal patterns involving Treasuries. Mark
Quote from NihabaAshi: "He's at ET because he wants you to prove to him that your coded TA system is profitable. ***In other words, he wants you to give him your system.*** If your not using TA via a system code...he's not interested in you nor is marketsurfer interested in you. Heck, if your not using TA via a system code you shouldn't be arguing with these guys in the first place. I wonder what rcanfiel plans to do with your system code if he gets it. " ================= This is a huge stretch. I have zero interest in getting systems from anyone. Nor do I particularly wish them, thank you. I find that people have a far more rosy picture of their trading abilities than what holds up under testing by other objective parties. Thus the point of this thread. The interesting systems I have used are not extracted from brain dumps on forums and turned into code. Any systems I have reviewed are easily available on a dozen major sites, numerous trade magazines, are received by email, fax, postal mail or otherwise etc.
Can anyone give me a definition of "subjective" technical analysis? Is it a situation where as a devout TA devotee, you design some sort of trading protocol based on some combination of price and/or volume and/or time but then allow "market intuition" or sixth sense or whatever, to occasionally permit you to disregard your carefully constructed protocol? Or is it that you have simply constructed your "own" set of TA tools which allow you to do certain special things in the market? Or is it something else altogether? lj
Subjective simply means two people may draw opposite or markedly different conclusions from the same data set. There isn't much subjectivity in drawing trendlines through 2 price points and seeing if price subsequently fails to make it across to the parallel channel line drawn through a third price point. Some people really need to get out of their own way.
If that is the definition of subjectivity as it relates to TA, it would seem to me that either one or both of the traders "interpreting" the data set don't know what they are looking at or else the data set itself is nonsensical [either intrinsically or because it is being incorrectly "applied"] or both of these. You can draw a straight line connecting two data points but is that a line which means anything? Perhaps it is a contextual thing, which is to say that under certain circumstances drawing a line between two data points does mean something. I don't know but I do know I wouldn't put a lot of money on a two point line unless the conditions were very, very special. lj