Backtesting, in my opinion, doesn't work well because usually the results are not convicing, or it'll become bad in practice even if it appears to be good. That statistic study used in academics doesn't work well most of the time in the markets, because
many things are happening at the same time, so when your trading setup is aligned with
other information that you're not watching, you'll probably have a gain, and when you aren't, it'll definitely produce a loss. So, why should I care with technical analysis in the first place? For me, the main purpose of technical analysis is not "to work" but to be a analysis tool, like fundamental analysis. It's a tool. People who like fundamental analysis love to ridiculize technical analysis, but, let's be honest here: if fundamental analysis was the "thing", wouldn't everyone out there be rich? Both are tools. And like any tool, you have to use them and find a way that works for you. The difference here is that using a hammer is not that hard, but those analysis tools are damn hard to master it. It could be compared to learn how to use the Japanese martial arts weapon called
nunchaku. You'll hurt yourself many times in order to learn how to use it.
So, how do you use technicaly analysis in a way that actually works? I wish I had a simple answer for that, but the more I learn about it and the market itself, the more I understand it's more like a
complex art that everyone has to master it for themselves. It's a lonely path. That's because it depends on many things. Do you want to be a position, swing or daytrader? Do you want to trade only one financial instrument or many at the same time? Do you want to trade other markets like the options market too? The more you approach the price of "now", the harder it is. Yes, day trading is the most difficult of them.
Anyway, in terms of understanding the market, it started to work for me when I was aware of many charts at the same time. Instead of making isolated studies in one chart specifically, you should start with the monthly chart, understand it, then go to the weekly chart and do the same thing, and then the daily chart, and you decide where you stop.
In terms of trading itself, you should always trade in a slower time frame inside a longer time frame trend. The daily 20 moving average is (almost) the same as the 5 moving average of the weekly chart. So you have to think you're trading in the weekly chart
through the daily chart (synchronize the charts). In day trading, I'm trading the daily chart through the 60 minutes through the 15 minutes chart, then 5 and 1 minute chart, like filtering.
Also, I will never trade like "buying 1 tick higher than that candle's high" but "buying 1 tick lower that candle's low". With that, you're always taking a position when someone thinks it's time to reverse or is giving up their position. It means: liquidity time. That's what people are looking for.
Be careful with reversions. What causes reversions are (example of a reversion to downtrend): 1) a breakout with the close price higher than the resistance level, 2) violations of previous highs, 3) divergence in the RSI and/ou stochastic, 4) a higher timeframe
synchronizing a new close in a point of demand excess, starting a new candle distant from the moving averages (the most important point), like a breakout in the daily chart in the friday, for example, or even better: in the last day of the month. What moves a chart is always a chart above it.
Anyway, there is no such a thing like "does it work?" It's like asking if a hammer works. You have to find a way that works for you based on your objectives and worldview. It doesn't mean you have to use it. If you prefer something else, like fundamental analysis, go for it.
