the basic flaws in TA

Discussion in 'Technical Analysis' started by marketsurfer, Nov 18, 2005.

  1. Hi,

    As a reformed heavy TA trader, having seen the light of the basic flawed logic at the core of TA, I am starting this thread to see what will develop. Perhaps, I will come back into the fold of TA traders..... keeping an open mind.

    1. I often hear newtonian physics referenced when TA is discussed, generally, it goes like this--- " an object in motion tends to remain in motion, untill acted upon by an outside force" obviously the TA practioner is refering to price-- price will continue in the same direction that it is traveling untill acted upon by an outside force. This is absolutely insane ! price is not an object in motion, regardless of what it looks like on a chart. I have heard the gurus of TA and trendtrading refer to this analogy. If the basic analogy contains serious flaws, how can the rest of the concept support itself??

    2. All factors are reflected in price, therefore all one needs is the price to make succesful trades. Once again this commonly stated "fact" by TA practioners is serious lacking when examined. price is but one aspect of true analysis and understanding, The TA practioners handicap themselves by repeating mantras such as this.

    can anyone add to the list of plain stupid TA "facts" ?

    more to come.....

    surfer :)
  2. the main problem with TA is that many off the shelf "indicators" were formulated by people that are not sophsiticated in stats, prob, etc.

    I have to agree with point 2, though.

    At the intersection of the demand and supply curves is the equilibrium. Therefore, the price at any given time is the result of all agents's demand and supply. However, it is important to realize that these curves are constantly shifting, therefore price changes.

    Factors that affect the security will be priced into the equilibrium price, because the price is what an agent is willing to pay for it. Now the basis of his demand can be whatever (and can be as ridiculous as wanting to lose money a la tharp). But the price he is willing to pay is the result of his depth or shallowness of his "analysis".

    Thus all factors are included in price becuase on a macro level, when different agents act on different factors, all will come to a consensus, even for a split second, on what the security is worth at any given time.

    but there is a fundamental difference to this and TA. Low level TA tries to determine trends in prices. However, to understand how price fluctuates IN THE FUTURE, we cannot rely on price alone because many factors that drive the price are lost since price is just one number. Therefore, because price reflects all the factors at any given time, but it is very difficult to detect what drives prices because it is like reading the first word of every sentence in a book.

    However, it is not to say that we cannot derive anything out of it. A sentence that starts with "He" in the beginnning of the book is probably introducing the character. Therefore, although a lot of information is lost by just looking at price, we can still create proabilities of what the sentence in general is about, because of the first word.

    Therefore, TA is not useless in a sense because it can give us probabilities.
  3. then how do you explain succsesful TA traders? Luck :confused: ?
  4. doublea


    Many traders and gurus think that the 200 dma works as a major support or a resistance. So say price is above the 200 dma and someone who is short will look for an opportunity to take profits near the 200 dma, on the other hand there are other people who want to initiate long positions near the 200 dma. This combination will eventually end up supporting the price at/near the 200dma at least for the short term. This is how TA works. It is a self fulfilling prophecy, nothing else.

    TA is like a broken clock. Even a broken clock tells the accurate time twice a day.
  5. doublea


    Name please?????
  6. I trade on only TA, i just started in september, up 10 percent...Thats success isnt it?
  7. doublea


    You're probably an exception not a rule. There was a guy here no_pm_please few years ago. He used TA only and was very successful too.
  8. There are plenty of pure TA traders...Many floor traders are pure TA. It's not the tool, it's the trader.
  9. LMFAO.....that long? really?

  10. Ed Seykota, Paul Tudor Jones.

    #10     Nov 18, 2005