In finance, technical analysis is an analysis methodology for forecasting the direction of prices through the study of past market data, primarily price and volume [1]
But that also gives it power... the more people act on a given indicator the more powerful (even predictable) it becomes
So then you end up with this weird catch-22 where the indicator only has value because people are watching it, while it is those people watching it that gives them their power.
They aren't going to be as useful for forecasting the big institutional curbstomps that seem to characterize volatility today, but there are other ways of understanding how those guys behave.
It isn't whether or not more and more people know it, it's weather or not they can overcome their emotions to use it effectively. And I think that proportion of people will continue to remain insignificant
That depends, the prices sometimes jump up or down the TA lines and moving averages, that is when lot of people get out but then the trend reverses and follows whatever the original pattern was.
So you still have to make a decision which may or may not be right.
The self fulfilling prophecy aspect of speculative trading is often one of the first thing a trader notices.
Now I really wonder if that's not a necessity of semi chaotic systems. A predictable game has no gain to offer, a fully chaotic game is unplayable.. the players will settle on a few emergent patterns to create a form of ladder.
While I think there are very strong whiffs of alchemy (i.e. belief) in a lot of forms of technical analysis, a number of these patterns have a psychosocial story to them, and the pattern itself is the fingerprint of how that story manifests. (Much like how an earthquake leaves a predictable pattern on a seismograph)
You say alchemy I say superstition. Actually trading at the quant level was the deepest anthropological experiment I ever saw. So much reptilian emotions it was incredible :)
I don’t plan all my investing around it of course, but being able to quickly read a chart with oscillators like RSI, or spotting bearish patterns (head and shoulders, bear flag) can tell me that maybe I should wait a bit more before entering to see if it actually falls, or if it breaks out and establishes a more uptrend
TA = good to get an idea what’s going on in the market until now
I did few times and made some money ( although I am still not sure if it was luck or my skill) but in the end watching the market all the time got boring and I still had to do my job so I stopped.
Many academics have studied momentum, both cross-sectional momentum and time-series momentum, and many quant firms use it as one of their factors in trading stocks, bonds, and commodities.
I’ve been doing a lot of technical analysis for funsies… using market data from the game Old School Runescape (an MMO with a centralized exchange for trades between players).
It’s really fun! Much easier to find success when you’re not in a zero sum competition against a bunch of quants and don’t have your whole livelihood at stake. Highly recommend it for anyone who wants a “day trading simulator” experience.
A better phrasing is “Does anyone use technical analysis exclusively?” …and, perhaps, “As a trader or investor?” A select few billionaires have made their fortune through programmatic trading but I suspect the data is not restricted to stock price history.
I suspect the market has the quality of the particle-wave duality. A little Heisenberg’s Uncertainty Principle in play.
Edit: (e.g. once you find a TA method that works exceptionally well, and the market learns of it, it’ll cease to work as well. Hence the teams of developers at all the firms and funds.)
Not any real money. Technical analysis is toolbox for new traders before they lose money to institutions and quit trading.
Almost all technical analysis is just slicing and dicing a moving average. There is enough of them to try to keep people trading for some time before giving up.
A single price series just doesn't contain much memory.
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[ 3.1 ms ] story [ 51.9 ms ] thread[1]: https://en.wikipedia.org/wiki/Technical_analysis
So then you end up with this weird catch-22 where the indicator only has value because people are watching it, while it is those people watching it that gives them their power.
They aren't going to be as useful for forecasting the big institutional curbstomps that seem to characterize volatility today, but there are other ways of understanding how those guys behave.
So you still have to make a decision which may or may not be right.
Now I really wonder if that's not a necessity of semi chaotic systems. A predictable game has no gain to offer, a fully chaotic game is unplayable.. the players will settle on a few emergent patterns to create a form of ladder.
While I think there are very strong whiffs of alchemy (i.e. belief) in a lot of forms of technical analysis, a number of these patterns have a psychosocial story to them, and the pattern itself is the fingerprint of how that story manifests. (Much like how an earthquake leaves a predictable pattern on a seismograph)
I don’t plan all my investing around it of course, but being able to quickly read a chart with oscillators like RSI, or spotting bearish patterns (head and shoulders, bear flag) can tell me that maybe I should wait a bit more before entering to see if it actually falls, or if it breaks out and establishes a more uptrend
TA = good to get an idea what’s going on in the market until now
The lesson is simple: you can’t predict future price based on price history.
It’s really fun! Much easier to find success when you’re not in a zero sum competition against a bunch of quants and don’t have your whole livelihood at stake. Highly recommend it for anyone who wants a “day trading simulator” experience.
I suspect the market has the quality of the particle-wave duality. A little Heisenberg’s Uncertainty Principle in play.
Edit: (e.g. once you find a TA method that works exceptionally well, and the market learns of it, it’ll cease to work as well. Hence the teams of developers at all the firms and funds.)
Almost all technical analysis is just slicing and dicing a moving average. There is enough of them to try to keep people trading for some time before giving up.
A single price series just doesn't contain much memory.