Technical analysis – does it work?

[Davidee]

Hello,

I recently tried to see if simple methods of technical analysis could be used to forecast the Forex market price 30 days in the future and tested it on daily data (one forecast each day) from 2000 – 2010. The results were worse than simply assuming the price would be the same in 30 days time as it was today exchange rate forecasts

So does technical analysis actually even work at all? What is your opinion and why?

 

[intradaybill]

Why should we take it for granted that you know what you are doing or that you even understand TA?

Don't take this personally.

 

[BeginnerJoe]

If it worked you would find a lot of rich people here. Have you seen any ?

 

[the hare]

its not supposed to predict anything. Thats where you are going wrong.

 

[eegozi]

its not supposed to predict anything. Thats where you are going wrong.

+1. People that think TA does not work do not know how to use it . Yes it works. To ask that it will predict a certain price in 30 days is stretching it a bit though.

It should be thought of like foot prints in the sand or waves in the ocean telling you where the people with the biggest amounts of money are going. Follow their footprints or waves. So those with the most money to move around have a hard time hiding their foot prints. The whole point is that you follow the big money footprints and jump onto the "waves" that these "BIG FISH" create in the ocean. Who cares why they buy or sell just identify that they are doing it and stay out of there way and join them whichever way they are going.

So TA should help you identify price momentum, trend, and direction. Thats it. So it is NOT predictive,...it is by definition lagging. The idea is to not lag weeks/months behind the big money,...days or hours is better.

Good Luck

 

[BeginnerJoe]

Good Luck

If it works then why does he need luck ?

 

[eegozi]

If it works then why does he need luck ?

Because not everyone learns to use it correctly. It takes a bit of luck to realize where you are going wrong before you get it right. I guess that why most people here think its worthless,...because they never were lucky enough to put the pieces of the puzzle together correctly.

:cheesy:

 

[the hare]

If it works then why does he need luck ?

Luck is enormously important in this business. I'd probably argue that learning to identify when lucks on your side is probably the most important skill you can develop.

 

[Pipsaholic]

People just want the easy way and don't want to spend any time or money on educating themselves. Yes, it works why do banks use TA because it doesn't work?

 

[barjon]

Luck is enormously important in this business. I'd probably argue that learning to identify when lucks on your side is probably the most important skill you can develop.

maybe less important than identifying bad luck, hare. After all, those no stop-loss guys can have many doses of good luck as price comes back from the depths, but it only takes one dollop of bad luck to wipe them out.

 

[the hare]

maybe less important than identifying bad luck, hare.

That is very true.

 

[nile_croc]

TA might work and then again it might not. It depends on how it's used. As a crystal ball, it will most likely be useless. When used more like a windsock, and as a tool to manage risk it can be very effective.

 

[eegozi]

maybe less important than identifying bad luck, hare. After all, those no stop-loss guys can have many doses of good luck as price comes back from the depths, but it only takes one dollop of bad luck to wipe them out.

I guess part of the luck is hopefully you were one of the lucky ones to NOT get the STWNSL gene. STWNSL gene is a dominant gene so whether you go it from your mother or father you are effected.

For those that dont know the STWNSL gene is Stupid Trader With NO Stop Loss gene.

:shuriken:

 

[bbmac]

I don't know how many times this needs saying but here goes:

TA or indeed any other type of analysis can only provide you witha n edge. The edge needs to be developed with a positive expectancy, clearly The OP's use of TA didn't produce such, and from the limited info he has provided in his initial post I doubt that he really understands what an edge is, and equally importnat -is not.

The questions he poses in his initial post'...does technical analysis actually even work at all? What is your opinion and why?' can be answered as follows:

a. Yes TA can be used to develop a trading edge with a positive expectancy.
b. Why? Because I have 1st hand experience and 2nd hand knowledge that others have done the same.

G/L

 

[eegozi]

I don't know how many times this needs saying but here goes:

TA or indeed any other type of analysis can only provide you witha n edge. The edge needs to be developed with a positive expectancy, clearly The OP's use of TA didn't produce such, and from the limited info he has provided in his initial post I doubt that he really understands what an edge is, and equally importnat -is not.

The questions he poses in his initial post'...does technical analysis actually even work at all? What is your opinion and why?' can be answered as follows:

a. Yes TA can be used to develop a trading edge with a positive expectancy.
b. Why? Because I have 1st hand experience and 2nd hand knowledge that others have done the same.

G/L

...+1000

 

[BeginnerJoe]

People just want the easy way and don't want to spend any time or money on educating themselves. Yes, it works why do banks use TA because it doesn't work?

How do you know banks use TA ? Maybe they are just taking the other side of your trades knowing with very high certainty you will lose because they can push the price around to knock out your stops ? You need more than money and education, mark my words.

 

[nile_croc]

Banks may use TA mainly for informational purposes. They are sell-side traders and are interested in filling customer orders. They don't use TA for speculation purposes. They don't trade like we do.

 

[kimo'sabby]

Here's how a TA trader thinks.

"Mmm, let's look at the chart. Mmm let's look at the hourlies. Mmm, well it's gone up there, that's also up a bit. That there is well down, and that's right up and it's crossed. Those two are on an even keel,...so that must mean,...yes that's down too. If they cross again within the next hour and that goes beyond the bottom of the one above,...and changes direction then i'm buying this particular market,...tomorrow."

Champion.

 

[eegozi]

Here's how a TA trader thinks.

"Mmm, let's look at the chart. Mmm let's look at the hourlies. Mmm, well it's gone up there, that's also up a bit. That there is well down, and that's right up and it's crossed. Those two are on an even keel,...so that must mean,...yes that's down too. If they cross again within the next hour and that goes beyond the bottom of the one above,...and changes direction then i'm buying this particular market,...tomorrow."

Champion.

Even though what you say is quite humorous and entertaining why dont you offer some constructive criticism rather than destructive criticism. Why not just say that "in my X years of experience TA has not been helpful to me,...I use "XYZ" as my best method of finding good trades and keeping me on the right side of the market"... I never see that from you. Offer an alternative rather than just saying I look at price action. TA is not for everyone and does not work for everyone. It is not predictive and it is lagging. All it does is provide an indictation of which way the wave is going and how hard. Of course you could be wrong and then the TA changes and should indicate that. The indicators are JUST INSTRUMENTS in the trade.

Your stop loss and proper money management skills and psychology make up a BIGGER part of becoming succesful. However,...I find that with TA my confidence in my system improves and the rest falls in line,....psychology improves, stop loss management improves, and I am willing to accept losses more because my emotions are out of the trade,...just do what your instruments tell you to do to stay on course.

If you are looking at the oil pressure guage when you should be looking at speedometer then you dont know what you are doing. If you dont know how to read the instruments on an airplane does that make them useless to fly the plane?

 

[kimo'sabby]

Here's how i trade. "Well, well, well, it's only been open for 45 mins and it's down 1.25%. I'll buy that." (Trading apps on mobile phone)

That's my TA, works a treat.