Does technical analysis work or not?

[timsk]

. . . Sounds like a bunch of do-do but it actually works.
The pic I show is a good example of the 2 indicators I swear by. (Both indicators are common everyday indicators found on most charting packages.)

Hi Penny Picks,
Welcome to T2W.

Good post: you explain clearly and simply what you do and how you do it. Sadly, I'm afraid I'm not sold. Fair play, if it works for you that's great and, doubtless, you don't care one way or the other what I think. ;-) Nonetheless, for me, your indicators highlight their weaknesses (lagging in most cases) and why, IMO, traders use them in the wrong way. Allow me to explain . . .

By the time the Aroon indicates 'buy' on the 13th, price has already risen 20% or so from when the ADX gave its 'heads up'. If you're trading EoD then, presumably, you would have entered long on the 14th, say at the open around $6.25. That day creates a doji (bearish for some in this context) and is followed by a large red candle on the 15th. By close of play that day, your trade would have been in the red. Sure enough, price did then rally to a high of around $7.00 giving you a potential profit of $0.75 cents per share if you managed to get out at the peak. Price then drops back to $6.00 (below your entry), before making a double top at $7.00 (again, bearish for some in this context). From the 14th onward, the trade would have been in the red - or barely above break even - until the massive bull green candle in the new year. Are you really going to sit through all that because some technical indicator triggered 'buy' in mid November?

If this works for you, then I suspect there's a few devilishly 'proprietary' details that you're omitting to tell us, (which is fine, btw). Based on this chart and the description provided, I'm afraid I struggle to see how this can be a profitable stand alone strategy.
Tim.

 

[Penny Picks]

UR right tim. There's a couple of things I didn't include. I did layout my method in another post today. I learned along time ago to verify a trade signal before placing a trade. I'm not after every penny that can be had; just a big share of them.

Some say the ADX/+-d is ok by it's self; maybe. However, the AROON gives the ADX some authority. I don't believe all that much in luck when it comes to trading. You can use a lot of other indicators but what I'm using works for me.

OH. Here's some of the hidden things in my trading method.
1... Good Stock Screener service ( I use Market Club -- I'm not affiliated with them, just a member)
2... Small Cap / Penny stocks.
3... Trends up. (Monthly / Weekly / Daily) I will trade on the Weekly with the Daily for an entry buy. (I don't know if I can show a chart)
4... Debt/Equity Ratio. (Less debt, More Equity)
5... Good Volume > 100k or so. Weak volume indicates a Pump & Dump candidate.

A trade example. $200 to invest. Stock ABC @ .015 Buy 13000 ~ ( Adjust for expenses)

The odds of that stock reaching .15 / .20 is pretty good; if it rolls over you can always bailout. That's pretty good for a $190 or so investment.

You don't get that percentage of a move in the mega-priced stocks.

This clear up what I do?

 

[babyjake1961]

Bucket shops that are on the other side of people’s trades actively promote the teaching/preaching of technical analysis. Leads me to believe one cannot predict the market’s movements with it.

 

[adatherton]

TA works fine, but you have to understand that it only works, say 65-70% of the time. When it fails, it can fail spectacularly, but that's what stops are for. TA is very good at giving you high ratio trades (ie we will bounce off the 200MA, so maybe a 1% stop below that, and a potential 5-10% bounce). Bulkowski (thepatternsite.com) has ranked all the patterns, and finds, for example double bottoms are very reliable. But it works more than it doesn't, and if you stick to good rations, you can consistently win.

 

[tomorton]

Bucket shops that are on the other side of people’s trades actively promote the teaching/preaching of technical analysis. Leads me to believe one cannot predict the market’s movements with it.

Evidence?

 

[babyjake1961]

For your iron-clad rock-solid evidence, kindly check the free "educational" materials they offer to lure punters into active trading (and losing to them).

 

[tomorton]

For your iron-clad rock-solid evidence, kindly check the free "educational" materials they offer to lure punters into active trading (and losing to them).

The fact that these firms promote a TA approach to trading isn't evidence that TA doesn't work, just evidence that they want more customers and they're using the most effective means to bring them in. So, if TA is the most effective means to bring new blood into trading, maybe that's evidence that TA works and that's why its so popular. Your evidence therefore only shows that nasty people use TA. Presumably, if the scam brokers are going to rig the game and scam you out of money, it doesn't matter to them whether TA works or not, you're never going to be able to make profits and withdraw them.

So, again, where's your evidence that TA doesn't work?

 

[babyjake1961]

The bucket shops don't need to rig the game with odds already heavily in their favour in the long run. The game is an entirely random one while technical analysis creates an illusion it's not. Just because there were some patterns in the past doesn't mean they will keep repeating. More than often they won't, and that's how the punters' money will be transferred to those on their other side of their trades - the bucket shops, that is.

 

[tomorton]

The bucket shops don't need to rig the game with odds already heavily in their favour in the long run. The game is an entirely random one while technical analysis creates an illusion it's not. Just because there were some patterns in the past doesn't mean they will keep repeating. More than often they won't, and that's how the punters' money will be transferred to those on their other side of their trades - the bucket shops, that is.

You're obsessed with bucket shops.

Whoever they are, they are not the reason most new traders wipe out quickly. Nor is TA. Its because they never learn to trade effectively. Most are trying to self-teach and have lazy, greedy, impulsive and impatient ideas about how much wealth they will soon have. Most are not using TA in any rational or effective way. Whose fault is it if new traders don't bother to learn how to trade and go ahead and abuse what systems are available.

You're letting the true culprits off the hook - it is the new traders who give trading a bad profile, not salesmen or TA.

 

[NVP]

like everything else in trading...........sometimes it does work and sometimes it doesnt .....

 

[NVP]

The bucket shops don't need to rig the game with odds already heavily in their favour in the long run. The game is an entirely random one while technical analysis creates an illusion it's not. Just because there were some patterns in the past doesn't mean they will keep repeating. More than often they won't, and that's how the punters' money will be transferred to those on their other side of their trades - the bucket shops, that is.

most "traders" cant trade their way out of a paper bag............they dont even need bucket shops to help them do it .....

 

[babyjake1961]

Entire regulated exchanges act as bucket shops. Take IG-owned Nadex for one.

CFTC Nadex Review: Two Market Makers Account for 99% of Flow (https://www.financemagnates.com/ins...dex-review-two-market-makers-account-99-flow/)

"Market Risk Management and Group One Futures Trading LLC took the other side of the transaction in 99 percent of all cases. MRM was on one side of approximately 70 percent of trades, and Group One 29 percent."

Market Risk Management Inc operates as a subsidiary of IG Group Holdings plc (https://www.bloomberg.com/research/stocks/private/snapshot.asp?privcapId=49446444)

 

[tomorton]

Can't think of a good reason to trade on Nadex.

 

[babyjake1961]

The same goes for Forex brokers and pretty much any retail trading setup available to punters.

 

[tomorton]

The same goes for Forex brokers and pretty much any retail trading setup available to punters.

I guess it ain't going too well for you?

As I've said elsewhere I've had a pleasant end to 2018 trading, with a simple new strategy that has brought me in just over 5% in 6 days for not much work. And this was through spreadbetting. I guess a lot of people would call that a bucket shop. I don't mind. Taking a break from trading now until January but quietly confident.

What's your plan?

 

[babyjake1961]

If you think you’ll keep making that with any degree of consistency, you’re plain fooling yourself, or else you would end up with all the money in the world.

 

[tomorton]

If you think you’ll keep making that with any degree of consistency, you’re plain fooling yourself, or else you would end up with all the money in the world.

Maybe I already have.......
Bwah hah hah hah!

 

[babyjake1961]

LOL. Doubt it.

 

[ifmcinstitute]

Technical analysis is a tool and like any other tool, it works sometimes under the right circumstance.

 

[babyjake1961]

Technical analysis is a tool and like any other tool, it works sometimes under the right circumstance.

Works until it doesn’t.