Does Technical Analysis really work??

[mark_varney47]

So does it really work?? Or is it just trying to find a reason to justify a trade?? For me, when I have spoken with Technicals they have always been rather vague about what might happen at a certain point in time.Sure ,they are all 100% accurate when they look at historical data,but what about in real time and the real world.I remain to be convinced.Has anybody ever done a study to see how accurate these guys really are??

 

[fxmarkets]

It works with some . Acts as a guide plenty use it to help make entry exit decisions, but thats just a part of it ,like you say all those looking back historically are probably bolstering their belief about it, but entering with it when your money is on the line in relative now time can make people behave in very odd ways.

Perhaps if people applied technical analysis to themselves first,their money second and the market third, then the debate over technical analysis as to whether it works would be a bit like debating does a bear sh*t in the woods. hmmm but some bears are confined to concrete cells .


If you have techical analysis working well for you then it will but on all three aspects m,m,m.

 

[dwilyn]

Does Technical Analysis really work?

Yes. As Trader Vic says, as long as you use technical analysis along with fundamental analysis and remember that you need an overall philosopy that encompasses your approach which in my mind is best summed up as 1. Preserve your capital, 2. Go for consistent profits and only when you have got those two down to a fine art, take a crack at getting superior returns. Technical analysis is only part of the whole picture. You need the buttressing and affirmation of fundamentals to improve your accuracy rate.

 

[Rhody Trader]

So does it really work?? Or is it just trying to find a reason to justify a trade??

No matter what method one employs, using something as a reason to justify a trade is a disaster waiting to happen. If one goes in to market analysis with a preconceived bias, then they're probably only going to see that which supports their view.

Does technical analysis work? Having used it for years, I would say yes. Does it work for everyone. No. Then again, neither does fundamental analysis, or quantitative analysis, or divination of any of a variety of types.

As has already been noted, it all starts with the trader analyzing her/himself, then finding the right appraoch.

 

[wwatson1]

Tried and tested follower

Working fine for me

 

[Splitlink]

So does it really work?? Or is it just trying to find a reason to justify a trade?? For me, when I have spoken with Technicals they have always been rather vague about what might happen at a certain point in time.Sure ,they are all 100% accurate when they look at historical data,but what about in real time and the real world.I remain to be convinced.Has anybody ever done a study to see how accurate these guys really are??

It's a statistical process. Traders search for patterns that repeat themeselves, decide what the %age rate of success is and act on that. Successful traders are not bothered with trying to trying to justify anything, they act on the information that they see and if it goes against them they close the trade, trying to keep the loss as small as possible.

Forget the 100% correct part. It does not happen. When your pattern no longer looks right just try to keep the loss to a minimum.

Split

 

[dwilyn]

Does Technical analysis really work?

I like your comment Splitlink. especially the 100% part. The market has taught me a little humility on more than one occasion, especially when I "knew better" and held on too long. I never had any problems in making what I considered to be informed buying decisions but selling-letting go- even with stoplosses, warnings etc has been my bete noir. I'm getting better and technical analysis has really helped me to take that final step and buy but I still view technical analysis as a tool not a black box with all of the answers. Strong possibilities yes. High probabilities? The market will often turn on you and make you eat some humble pie. As you can tell, I'm a pretty humble guy at this stage in my life.

 

[TWI]

Discipline, patience and the ability to pull the trigger is what works.

Everything else is just detail.

 

[nine]

No. Of course it doesn't. You should stick with fundemental analysis mark.

 

[Splitlink]

No. Of course it doesn't. You should stick with fundemental analysis mark.

It depends what Mark is doing. Day trading or,even for a few days, is too short a time scale for fundamentals, IMO. Longer term, a combination of both, I suggest. Certainly, I would never buy a so- called sound company if the chart showed me that it was going down, and you can't beat a chart for showing you that. Neither would I buy a share with lousy figures just because it was going up.

Split

 

[Tuffty]

"Has anybody ever done a study to see how accurate these guys really are?"

What is fairly annoying is that the majority of Technical Analysis books don't give any stats to back up their pattern claims - perhaps because it would be too much work to really identify the pattern and test it so they'd never publish any books.

 

[Anonymous]

If someone tells you to enter a long interbank currency at a particular point because, as he claims, it has reached bottom, and he adds, put a stop lower than the entry point, think again.

It goes something like this:

Contracts A, B, and C are related. A is related to X and Y. A is further related to A2, A3, A4.

If X and Y shows that A has reached bottom,

but A, B and C is a three way arbitrage, and A and A2 is correlated by about 1.

The fact that X and Y shows that A has reached bottom does not mean A will not be pushed further down by the three-way arbitrage or over-selling of A2.

 

[TWI]

I have been using both for many years and I think that to say that you are a technical analyst or to say that you are a fundamental analyst is to blind yourself to half the picture. Fundamentals allow you to determine longer term supply/demand imbalances and so form an opinion about the medium to longer term direction of a market. Technical analysis is the best way to time your entries and exits providing you have discovered how to use something that works for you.
This is particularly relevant when looking at commodity markets which have an associated cost of production and quite often a cyclical supply/demand cycle.
If you can determine the bigger picture then better to stick with that direction and not attempt to go counter trend, Quite often the time to buy is when you look at the chart and really find it hard to pull trigger, but so long as you are comfortable with that bigger picture you will have enough of an edge.
Discipline, patience and pulling trigger like I said before, are IMO the 3 keys.

 

[mark_varney47]

It depends what Mark is doing. Day trading or,even for a few days, is too short a time scale for fundamentals, IMO. Longer term, a combination of both, I suggest. Certainly, I would never buy a so- called sound company if the chart showed me that it was going down, and you can't beat a chart for showing you that. Neither would I buy a share with lousy figures just because it was going up.

Split

The reason for my original question was, that I work for a Derivatives trading firm and we have a lot of independent traders trading their own money.They all swear by technicals and look at every indicator under the sun, but very few of them make consistent profits,maybe 10%.I think that as they are mainly day trading,they are not letting their positions give them enough profit before they close them out.

 

[dbphoenix]

The reason for my original question was, that I work for a Derivatives trading firm and we have a lot of independent traders trading their own money.They all swear by technicals and look at every indicator under the sun, but very few of them make consistent profits,maybe 10%.I think that as they are mainly day trading,they are not letting their positions give them enough profit before they close them out.

The question, then, is not whether TA "works" or not but whether these people know what they're doing. That's an entirely different proposition.

You can build a perfectly atrocious bookcase. Does that mean that hammers and saws "don't work"?

 

[Tuffty]

Mark, You imply staff/trader turnover must be 90% as the 10% winners will stay and the others will leave when the money runs out. Now that's a fast moving market!

 

[dwilyn]

Does Technical Analysis really wotk.

Twalker said it all. Looking at only Technical analysis only gives you part of the picture but working with and using technical analysis along with all of the other data that is now out there only increases the odds that when you do pull the trigger you at least shoot in the right direction. Why would any knowledgeable investor ignore a whole area of data that if applied properly only enhances his decision making process? To malign technical analysis as a viable means of improving prognostication is short sighted. A better question would be "How and why can Technical Analysis assist an investor to improve his odds?".

 

[wwatson1]

It's Essential

Technical analysis highlight's point's of strength and weakness within a given market.

Without volume and price analysis you are trading blind. :|

 

[fxmarkets]

A better question would be "How and why can Technical Analysis assist an investor to improve his odds?".

Thats for you to discover. But it can highlight opportunies when there are opportunities of risk worth assuming/trading, you then need to act so TA is a part of the whole. And there are thousands of combinations of possible TA indicators and ones which you create, If you like solving puzzles ,being creative ,then you have many thousands of hours ahead maybe in your quest. Then you still need to learn how to assume and trade that risk.

 

[Satori]

Well I can only speak from my personal experiences, but my trading improved when I placed less emphasis on fundamentals and more on technicals.

It is not, however, that simple because when I started to place more emphasis on technicals, I also started to place more emphasis on money management, discipline and position sizing and that has probably had the greatest overall effect on my success rates.

I think in general I look at fundamentals more for longer term trades and not at all for my 'bread and butter' trading range of 1-16 weeks (approx); for that trading range and, perhaps most importantly, my own trading style, I find fundamentals more of a distraction than an asset. It could be argued that all that is known about fundamentals is in the price anyway.

That said, I'm a firm believer that there are many ways to crack the market, so my or anyone else's trading style does not have any claim to being the only way.