The Science of Technical Analysis

Discussion in 'Technical Analysis' started by TraderSystem, Oct 6, 2007.

  1. Yes. You are:

    Professor Illogic WhinyPants:
    "I will sue you for libel so watch out for my lawyers" even though I do the same thing to other people - one of the most caustic persons on ET

    "Baron, remove these posts because it hurts my feelings"

    "I claim to be a professor even though I make constant errors in basic knowledge like 'to a tea'"

    Does that about cover it? And didn't you claim to be ignoring my posts "again"? Does anything you say ever come true?

    #31     Dec 8, 2007
  2. JackR


    I found the book Evidence-Based Technical Analysis: Applying the Scientific Method and Statistical Inference to Trading Signals to be interesting and germane to this thread.

    It is a very nice amalgamation of the disciplines needed to understand and evaluate a system based on technical analysis.

    It is not a"cook book", indeed in almost every instance, the technical analysis techniques discussed or tested fail. But, all are tested on an individual basis, not in conjunction with other "rules."

    If you go to the link below read the reviews of the book. Most are well thought out and not trite.

    #32     Dec 8, 2007
  3. When one states that TA works or doesn't work makes a mistake. TA is not something that "works", it's just a tool: price patterns or moving averages, stochastic indicators and other derivatives from price data.

    While application of TA may work or not. Then again, when one says it works or doesn't work makes a huge mistake, because you cannot make such a general statement for the whole universe. You have to define timeframe, time period, tools and instruments used, and then it's not enough. It involves many more considerations of how you prove if something works, for example: do you use stops or not in your idea testing? what exit strategy? etc. etc. After all of this, you have to define what does it mean "works" and compare it against control groups. Would you use Sharpe ratio? MAR? Total result in points? Average daily/weekly/monthly return? Some other statistic? The possibilities are endless.

    So if anyone just throws in a few MAs on the chart, and somehow sees that it doesn't provide results they expected, and comes to conclusion that "TA doesn't work", they're just fooling themselves.
    #33     Dec 8, 2007
  4. Nattdog


    Rather than ask "does ta work" it may be more fruitful to ask a more specific question that can be properly refuted with evidence.

    Scientific TA is defined by and distinguished from regular TA by the scientific method.

    So, relevant issues to discuss here might be things such as:

    -how to generate a useful hypothesis?

    -Ideas for possible predictive relationships.

    -examples or steps taken to quantify discretionary ideas into a precise, useful, refutable statement.

    -how to apply scientific method for hypothesis testing in specific

    -alternate types of hypothesis testing, experiences, techniques

    -effects of changing cycles on a tested hypothesis

    -simulation methods

    -Useful technologies and software for scientific trading

    -Scope of testing: General principals vs. specific trading rules.

    -full automation vs. quant assisted discretionary trading.
    #34     Dec 8, 2007
  5. most here are not scientists. you are asking non-scientists to comment on the science.. :confused:

    at best, the only thing you can expect from this crowd is experience.. not science. at best. you've asked the wrong Q
    #35     Dec 8, 2007
  6. I think there are enough technical indicators to drive you crazy. I keep it simple and tell myself 'the trend is your friend' and go with it. Long term or short term its worked for me. Fib numbers sound facinating however I have never unlocked their secret.
    #36     Dec 8, 2007
  7. cd23


    I agree that your list is where to do the work.

    hyp finds fault with my comments.

    It is my opinion that the specific place to hypothesize is with Boolean statements and nothing else. The advantage that comes to the fore immediately is that you have eliminated probability as part of the effort. Building a set of TA tools, all of which are Boolean algebra based, allows one to have a comprehensive system for trading.

    If there is single thing that affords automation it is this kind of modelling and subsequent development.

    I named myself after two math elements: convergence and divergence. And I named the two cases of the four possible for items taken two at a time: cases 2 and 3.

    There are many many TA elements and most of them do not pass the test of utility.

    The OP proposes to go through them and detail out their scientific nature, if any. I would say most everyone who is a serious trader looks at everything he can in order to improve his trading. I certainly keep track of all the indicators and how they perform as the markets mature. I mark up pages of TA from A to Z with especial interest in adjusting the default settings of the designers.

    It is interesting to watch the better known traders do these adjustments over time. I also make note of when various platforms make changes in their defaults.

    TA capability is periodically added to platforms as well; this is a measure of how contemporary they are. I feel as time passes the requirement to use several platforms in tandem will be lessened.

    Another of the most powerful adjuncts of TA is to make the tools used dynamic; so, in any case, it is a good idea to use vectors rather than scalors.

    I hope you forward the thread by using the items on the list as they relate to what you are doing. It is a great list and it can be applied in many places.
    #37     Dec 8, 2007
  8. This is ok as long as you understand that indicators is just one area out of many areas under the umbrella called Technical Analysis.

    Those involved in debates about Technical Analysis will either forget, intentionally ignore or attempt to minimize the above fact.

    Simply, what ever conclusions you come to about indicators can not be applied as a generalistic nor blanket statement about Technical Analysis itself.

    Those that make blanket statements, their commentary needs to be taken with a grain of salt.

    Indicators are just well marketed, easily discussed than any other area of Technical Analysis...

    They (indicators) easily seduce many traders into thinking its the only girl at a dance club on ladies night.

    Thus, if she's ugly to you...

    Open your eyes because there's other girls at the club.

    Last of all, those that have not figure out that there's a lot more to successful trading via Technical Analysis than just an entry signal shouldn't be trading at all.

    Most profitable traders I know that use Technical Analysis are not using indicators.

    P.S. Indicators got coined the term classical TA in the early 90's only after all the charting/data vendors use them as the primary marketing campaign of their software or data.

    I bet only a few know what was called classical TA in the 60's, 70's and 80's.

    #38     Dec 8, 2007
  9. That is humorous. I have the diploma in my desk. I am sure you hvae your G.E.D. in yours. But OK, "Professor Logic". Let's see you demonstrate even a smidgeon of your knowledge (I suspect you are going to run off to a math friend for the answer).

    This was in my third year (BS) comp sci class. This should be easy for a "logic" professor. Give a comprehensive proof of the following math logic problem. [You should use proof by contradiction or proof by induction for your answer]:

    You have a box of triominoes and an arbitrarily large chessboard whose one side is a power of two. Prove that in every case, the chessboard will always have one empty space.
    #39     Dec 8, 2007
  10. This book generally concurs with the institutional investigations and studies of standard technical analysis. But the TA aficianados generally respond with "not true!!!" or "works for me!!!" So it is rarely a fair fight. The TA you see in books does not make money.
    #40     Dec 8, 2007