TA debunked?

Technical Analysis Debunked: 5 Reasons Why We Don't Believe In Charting | Stockopedia Features

Maybe?

I'll get me groundhog...

DionysusToast said:

I'll get me groundhog...

Click to expand...

how did I guess you'd be first up, toastie.

Well, we all got to find some reason to trade.

bashatrader said:

Maybe?

Click to expand...

Yeah. And maybe not. It is used, successfully.

Gotta love the articles bashing ta when the authors don't have the intellect to understand ta and how human behavior, and repeated patterns play out.

Trading is such a free field activity packed with choices and so much data can be inputted that it is not suprising that it can be done badly in an infinite number of ways. So TA as the basic philosophy of trading can be made to look ineffective. But there is no way that the basic truths of TA are incorrect -
1. prices moving in a given direction have a stronger tendency to continue than to reverse
2. price trends are interrupted by minor periods of neutral or counter-trend price action.

i.e., rising prices go up - but not in a straight line.

If you only know those two things, you can work out a profitable trading strategy. Most strategies will fail, but not because these TA truths are incorrect, but because of faulty money management, exacerbated by decisions to rely on technical indicators which are assumed to reduce risk.

Can't remember exactly how it goes, but there's some Mark Twain quote about how history doesn't repeat itself, but rhymes with itself (I'm sure he put it more poetically than that). But the gist is that using TA (ie expecting historical patterns to repeat themselves) isn't going to be an exact science. I reckon TA gets a hard time, much like weathermen do - we have unrealistic expectations of how often they can get it right. Nothing can really predict the future, they're just making predictions based on past data.

Mrs M said:

Nothing can really predict the future, they're just making predictions based on past data.

Click to expand...

Can someone please tell me where everyone gets this ridiculous idea that TA is predictive ? Is it written in a book somewhere ?, is there a website where this nonsense is being promoted ?

Where did this ridiculous urban myth start, and why does an alleged trading forum allow it to continue ?

I could point you to thousands of books, articles, and websites where there is clear and definite proof provided that TA is non predictive. There's a mountain of evidence to support that view.

Despite all of the evidence to the contrary, trading forums are filled with people discussing the predictive capabilities of TA. What is it about forums that lead to such irrational behavior ?

1. prices moving in a given direction have a stronger tendency to continue than to reverse
2. price trends are interrupted by minor periods of neutral or counter-trend price action.

i.e., rising prices go up - but not in a straight line.

Click to expand...

This has got to be the best 2 sentences I have ever read on t2w.

the hare said:

Can someone please tell me where everyone gets this ridiculous idea that TA is predictive ? Is it written in a book somewhere ?, is there a website where this nonsense is being promoted ?

Where did this ridiculous urban myth start, and why does an alleged trading forum allow it to continue ?

I could point you to thousands of books, articles, and websites where there is clear and definite proof provided that TA is non predictive. There's a mountain of evidence to support that view.

Despite all of the evidence to the contrary, trading forums are filled with people discussing the predictive capabilities of TA. What is it about forums that lead to such irrational behavior ?

Click to expand...

Don't these kinds of debates all hinge on what you consider TA, and what you mean by predict?

If I look at the price of the Dow and see it sitting around 12900 (so I've used some TA) today and I say tomorrow's close, price will be above 10000 is that not predictive?

Shakone said:

Don't these kinds of debates all hinge on what you consider TA, and what you mean by predict?

Click to expand...

The key point about any predictive model for me is that it the outcome over any sample of predictions has to be significantly better than random chance.

If you wanted to be pedantic I suppose you could have a predictive model that was no better than random chance, and still be predicting.

the hare said:

The key point about any predictive model for me is that it the outcome over any sample of predictions has to be significantly better than random chance.

If you wanted to be pedantic I suppose you could have a predictive model that was no better than random chance, and still be predicting.

Click to expand...

Yes and given the price of an instrument, couldn't you make predictions as I have above about where price will or will not go with greater than random chance? Therefore isn't price predictive by your definition. And therefore if TA is any analysis using past price, and price as it is unfolding right now, then of course it is predictive.

I thought perhaps you meant prediction as being a certain thing.

Shakone said:

Don't these kinds of debates all hinge on what you consider TA, and what you mean by predict?

If I look at the price of the Dow and see it sitting around 12900 (so I've used some TA) today and I say tomorrow's close, price will be above 10000 is that not predictive?

Click to expand...

I you accept the premis that TA is not predictive your statement is one of what the greater probability is, not a prediction, - there is a difference, nuanced as it may be to some (I don't mean you.)

G/L

I think part of the problem with TA is that there is so much to5h written about it that people misrepresent it or think it's something that it is not.

There is no doubt in my mind that a solid trading edge can be formed from a strategy with an element of random entry however I also believe it is possible to construct an edge with a historic probability of working out.

Of course we do not know the certain outcome of the next trade but we do have a historic probability. lets say the last 1000 times a,b,c & d happened 90% of the time we get X, 10% of the time we get Y. On the next trade #1001 do you think X or Y is more likely. We cannot predict that X will happen but over the next 10 trades X is likely to happen 9 times and Y once, all on past performance alone, everything else being equal.

From my observations the markets are much more neuro-behavioral than I originally thought. Traders bring all of their own irrationality and biases to the marketplace.

Previous support and resistance and/or round numbers are areas where there is likely to be a battle between buyers and sellers (and liquidity games). So I like to look at a chart and say ok if price comes to this point again there is going to be a battle for control.

Assume there is no TA, no charts, how does one determine;

1. which direction to enter a trade
2. where is the exit point
3. where is the stop

Say yesterday's closing price was £100

bbmac said:

I you accept the premis that TA is not predictive your statement is one of what the greater probability is, not a prediction, - there is a difference, nuanced as it may be to some (I don't mean you.)

G/L

Click to expand...

Yes. It's a matter of what you consider predict to mean. And I think i've debated on this with you before, as you have a very different definition of predict, which is not a wrong definition, it's yours, but not mine. I don't think it's nuanced, as that would imply there is some sort of subtle distinction between a correct interpretation and an incorrect one, when there isn't. Except for you.

Perhaps my view on this is because I think EVERYTHING is a case of probabilities. Nothing is certain. I've looked for things that are certain, but there really aren't any. Even things with probability 1 aren't certain.

And yet another problem with this debate is that if I say TA is any analysis carried out upon price, and price history, there will always be someone who comes along and says, no, TA is indicators and stochastics. Which it is to them. These debates never get anywhere. But the key issue to trading is, can you conclude from past price data, a point of entry and method to trade after point of entry that gives you a probabilistic edge, at least for a time. And the answer is yes. And there's no amount of papers attempting to prove that price is a random walk, never predictable, a martingale, a black Scholes SDE, a Brownian motion, an efficient market or any other concept that is going to make me change my mind from what I know from experience to be true.

Atilla said:

Assume there is no TA, no charts, how does one determine;

1. which direction to enter a trade
2. where is the exit point
3. where is the stop

Say yesterday's closing price was £100

Click to expand...

Well you could look at the time and sale + order book only and trade from that without a chart if you wanted to. Some people would lead you to believe that this is superior to trading off a chart with/without volume studies. The reality of course is nothing is superior everything is what it is and you use it accordingly to trade your edge.

Some tape readers will even poo poo historical patterns on charts then proceed to identify price patterns that have occurred in the past on the tape. A bias or something more sinister..............

Shakone said:

Even things with probability 1 aren't certain.

Click to expand...

now you got me. are you including the probability of the laws of probability breaking down.

Shakone said:

These debates never get anywhere.

Click to expand...

very true, everyone leaves with the same opinion as they started with. some people do seem to get shouty though when anything other than their strategy could possibly work ever. lol. Then some people have a HSA and try and push their points, all very predictable.

Shakone said:

But the key issue to trading is, can you conclude from past price data, a point of entry and method to trade after point of entry that gives you a probabilistic edge, at least for a time. And the answer is yes. And there's no amount of papers attempting to prove that price is a random walk, never predictable, a martingale, a black Scholes SDE, a Brownian motion, an efficient market or any other concept that is going to make me change my mind from what I know from experience to be true.

Click to expand...

+1 100% spot on. markets are not random imo. The majority of trades are still made/controlled by humans, hence the market is much more neuro-behavioral than we think and not random.

Consider the following:

1. Anchoring . This is the tendency for traders and investors to base perception on the most readily available information.

2. Recency Bias. This is the tendency for traders and investors to place more importance on events that have happened recently.

The above 2 human traits can be traded.

I don't know what you all fussing about. T! Ts and @ss works for me every time

It's pretty simple to understand what is wrong with textbook technical analysis.

First, two important elementary school concepts:

Cause & Effect
Action & Reaction

No-one needs to look those up, right? Still - people will study price action (AKA Effect AKA Reaction) for years looking for the answers.

TA is the science of looking at effect hoping to find cause.

This is not to say market activity cannot tip your hand to what caused a move.

This is not to say the only effects are fundamental and are outside of what can be seen on a chart. Markets get out of balance for instance.

You just wont find cause in most TA textbooks. It has to be said that forums are improving nowadays, everyone tried pin bars already and are becoming more savvy.

Perhaps there is hope yet.