The answer is of course - yes. But the funny thing about markets is that if enough people believe a thesis it is effectively true. Go figure. People will trade a "vomiting camel" so best to be abreast.
That is, since everyone knows that everyone knows about technical analysis, the value it may have had is long since sucked out of it. And in any submarket where a participant has the market power to paint the tape, all following technical analysis will do is allow then to make traps for you and drive your trading activity in response to the technical analysis.
It is possible that super-long-term technical analysis has some meaning, and there's some generalized principles about how to read things like depth of the market off of the tape, but I'm not convinced deeply about the utility of technical analysis in general.
Keep in mind that the vast majority of the market is driven by institutional investors and the prices are largely set by those big players. Let's say that TA works, but it doesn't scale to that level (i.e. it only provides returns on marginal volume).
TA would never grow large enough to compete with the institutional investors who are actually driving the market, it would never gain pricing authority, and the gains would continue to be available to anybody playing in the margins.
As an analogy- you could say that you're scavenging for scraps behind a big fish. Sure, it doesn't scale. And sure, not everybody can do it or it would fail. But, if there are enough big fish, and you don't mind waiting for scraps, there's food to be had
Note that this is no argument for or against TA, it may still be bogus. I just don't think you can assume it's bogus because it would get priced in
Well that was pretty shallow. Only a single pattern was included and even that performed worse than the index. If you were to include the transaction costs and the cost of time spent analysing that, the perf would be even worse.
So a shallow article with a wrong conclusion.
Since past returns are not a reliable indicator for future returns any back testing will only show if a thing would have worked in the past not in the future.
Yes, well the headline "Is this particular 50/200 day simple moving average crossover strategy just S&P500 astrology?" isn't a sweeping enough generalization
Not really, being the royal court astrologer was a pretty lucrative business back in the day. Hell being the Persian Kings court astrologer could eventually be leveraged into being the chief advisor.
I think a more compelling argument against technical analysis can be found by considering the outcome of a semi-efficient market, and how unlikely it is that simple, purely momentum-based signals haven't already been arbitraged away by the other participants in the market (who have significantly more sophistication and speed-of-execution than anyone publishing technical analysis strategies online)
The Market Wizard series has several good interviews with traders with verified records that significantly outperformed for decades. The ones who used TA invariably say that it used to work but became less and less effective as computers became more prevelant.
I wonder if the crossover strategy would still outperform (on a Sharpe Ratio basis) starting in 2005 instead of 1998.
I also wonder if the crossover strategy would fail to outperform (on a Sharpe Ratio basis) once transaction fees were considered.
It still overperforms after 2005 (0.63 sharpe vs 0.55 for buy&hold). It gets kinda awful after 2015 (0.47 sharpe), with the V-shaped 2020 crash and recovery.
I always assumed any momentum effectiveness was arbitrage on trader volume scales differing by order of magnitude.
E.g. a major player rebalancing a position created distortions that allowed much smaller players to profit, but no distortion on the scale that would allow others trading at major volume to profit
> I always assumed any momentum effectiveness was arbitrage on trader volume scales differing by order of magnitude.
It's an area of active research:
> Students of financial economics have largely attributed the appearance of momentum to cognitive biases, which belong in the realm of behavioral economics. The explanation is that investors are irrational,[4][5] in that they underreact to new information by failing to incorporate news in their transaction prices. However, much as in the case of price bubbles, other research has argued that momentum can be observed even with perfectly rational traders.[6]
It can be and some people treat it like that. But it can also be a tool used to identify trends and trend changes. The chart takes into account everything: financials, narrative, public opinion, future earning potential, etc. All of these inputs are probabilistically weighed against each other in real time. Keep the TA simple and it's an extremely useful tool. Anyone who dismisses TA entirely is leaving money on the table.
There is no reliable evidence that TA generates alpha. In reality you're just fooling yourself with confirmation bias. If TA actually worked then sophisticated institutional traders would quickly arbitrage any advantage away before retail traders could even put in an order.
"There is no reliable evidence that TA generates alpha."
To be fair, there is no reliable evidence that anything really generates alpha (efficient markets, random walk, etc), but there are hedge funds who consistently outperform (Renaissance, Two Sigma, DE Shaw, etc).
So, maybe there are things that work in practice, but there is no way to produce reliable evidence that they work besides looking at track records...
Public markets are fairly efficient, although not perfectly so. The hedge funds that consistently outperform aren't using anything so simplistic as TA on a single ticker. Instead they employ an army of experts armed with enormous computing resources to identify correlations with data outside those markets that no one else has noticed (arbitrage opportunities). They also do proprietary research by commissioning researchers to go out and gather real world data that no one else has, so they are working with an information asymmetry.
Of course, there are also persistent rumors of insider trading. Maybe just sour grapes from inferior traders, but who knows?
A lot of technical analysis's value, in the sense that I understand it and believe most retail traders use it, is based around predicting intermediate timespan market changes to time trading. It's less about beating the market and more about taking its pulse.
Looking at TA statistics generated from daily, weekly, and monthly points, effectively aren't those momentum? Which collapses the question down to "Do stocks exhibit momentum or not?"
I don't understand your point. If TA can't generate alpha then why bother? Whether stocks exhibit momentum or not is irrelevant if you can't profitably trade off of it.
Look at it this way. TA is fundamentally a matter of pattern recognition. If it actually worked then you could program a computer to recognize the patterns and automatically put in trades. But if everyone does that then any profit opportunity is almost instantly arbitaged away, and thus TA quickly stops working (if it ever worked at all).
Yes. In fact we'd be surprised how much of our modern world is just attempts to guess the future, like the ancients, but instead of reading goat entrails or judging the alignment of Venus and Ursa Minor we instead worship the god of "statistics" and "the science". I don't want it to seem as if I am anti-science, not at all, but "the science" is the cargo cult that Feyman warned us of.
And lest you think I am off some examples:
The diet and nutrition studies constantly getting pushed are the new fertility rituals, and the last one didn't work because it didn't please the diet gods, but atkins, or paleo, or weight watchers, or whatever will really work this time.
Econimics is worshiping the god of the harvest to ensure a bountiful crop, and when their predictions fail to come to pass, it's because the goat entrails were read wrong, or the math was off, never because the whole thing is useless.
Psychology is self evident if one examines the replication crises.
The point is we aren't really that much superior to the ancients in many ways. Sure we've figured out some of the fundamental laws of nature and are able to use them better, but that's mostly been the work of a few geniuses over the past 400 years and much less because we as humanity are far superior.
So, the author picks the most basic indicator applied in a way that most would not use it in modern times, questions its usefulness and compares it to astrology.
Why do people bother writing blog posts void of insight? This isn't even useful for SEO...
I'm surprised that this made the front page. This is the investing equivalent of someone new to programming writing a single benchmark of some if statements versus a switch and blogging about which one was faster. The results are far more likely to be random noise than anything meaningful.
I think this type of calculation is valuable exploration for anyone to try out if they are interested in investing, and is a great way to get some hands-on learning with real data. I'm glad for the author and for anyone who reads this and decides to replicate it or extend it for their own practice and leaning. It's just that the results are not notable in the slightest.
Though it's a rare counterexample to Betteridge's Law of Headlines!
Reddit stock gurus do the opposite of what a legit person would do. Unlike "world's smartest billionaire" Jim Simons, who's operations are super secret, finance influencers share their picks as a way to grow followers and sound smart. If the modern equivalent of haruspicy (technical analysis) worked as well as claimed, these con artists would realize they could make more money keeping quiet.
Except for the "stock gurus" like these guys who were running pump and dumps (https://www.sec.gov/news/press-release/2022-221). They buy early, hype up a stock, and then bail after they've convinced enough other fools to buy in
It doesn't have to be. As long as you can specify what your system actually does, you can test it, and you can falsify it as a hypothesis about how the market works.
However it has to be done in a statistically sound way. Just showing a backtest that makes money or beats the market is not enough evidence.
If a meteorite hits earth, aliens are discovered, quantum computing breaks encryption, someone launches a nuclear bomb, etc, any of those will affect the stock market by a lot. Technical analysis can't predict a meteorite or any of those other things, therefore it cannot work.
It "might work if nothing significant happens" but that is just a weasel way of saying it doesn't work.
Now if you're saying you decided to invest in something and you're trying to get an entrypoint and you spot a moment of large deviation from the mean and you use that to influence your operational buying mechanics like how you space out your buys or time them, that I can definitely see. But online you always see these two very different things mixed together.
Behavior is different at different scales but I see your point. I typically walk to my car after an event, but if I see a group take off running with urgency I will probably do the same thing. Know what I mean?
It depend on whether they are also trying to use each other's bids to determine each other's psychology. At that point you may be observing a recursive system (I know that he knows that I know that he knows...) and can't be sure how many layers of reasoning each actor is employing.
You may think so, until it’s revealed that one of the bidders makes all bidding decisions by roll of a die / flip of a coin (you can invent some scheme for doing so).
The goal of technical analysis is to find pools of supply and demand at different price points, much like a clustering algorithm. It is reductive by its very nature but it's still a useful approximation because big interpretable clusters can absolutely drive price action and it's helpful to have a model for that. On a good day, you might get the biggest 2 or 3 clusters correct to within 10% and miss several others totaling 1000000x the size and importance of a hypothetical bozo trading based on a coin flip, and this highly imperfect outcome would still be enormously valuable and worth pursuing.
It's like politicians assembling a platform by considering the sizes and interests of voting blocs. This strategy was always going to be a reductive, imperfect, noisy mess but that doesn't make it irrational or useless.
Not with the prices alone. You need a context to use the prices for insight. They could literally be using the bids as a channel to communicate with each other because they are colluding, or as a performance for observers.
Depends on how "real". A microbe discovered on some rock 60 trillion miles away isn't really going to move the markets. An alien attack fleet entering our solar system...maybe go long Raytheon.
This is where my thoughts went as well. Harry Turtledove is prolific at coming up with scenarios where aliens are capable of interstellar travel but not good at war. His World War series sets up a slightly more plausible scenario. If you haven’t read it, it’s worthwhile and I don’t want to spoil it here. An interesting aspect of it though was the aliens having finite resources with very long delays in resupply. They underestimate humanity who takes advantage of this to slowly turn the tide.
Paxys thanks for the short story, I truly enjoyed that and it was also rather funny.
Regarding the case for lowtech interstellar travellers: I can accept the idea that there is some symple physics trick to make a jump drive that we haven't discovered, fair enough. Just as in the story, there would also had to be a similar undiscovered trick for antigravity, since otherwise they have no way of getting to orbit.
Can you however build a ship that can resist vacuum and provide life support with 16th century tech? I guess perhaps your species might be able to live in vacuum, needs only a bit of heat and doesn't need to breathe gasses?
- - -
Anyway, I’d like to recommend another book. High Crusade by Poul Anderson[0]. In the first chapter pacifist aliens land in 13th century England and get immediately massacred by the locals. Now the king has a starship.
It's a lot more simple than that. You don't need to discover aliens to move the market in unexpected ways. A crop failure halfway across the world, a border skirmish between two countries, discovery of a new oil reserve, a ship blocking a canal, a tech company not selling as many phones as anticipated in a quarter...all have ripple effects through the economy and can screw all market projections. Stuff like this isn't a "black swan"...it happens every month.
If you want to use math and statistics to get an edge in the market then become a quant trader. People who aren't smart enough for that but want to feel smart get into "technical analysis".
Cicada populations in two different countries emerge the same year, decimating sesame crops while Indonesian crops remain unscathed and the futures shoot through the roof.
Yet, similarly to brownian motion, the thousands of events that cooccur more or less cancel each other out in the grand scheme of things.
Does non-technical analysis work for those events? Nope. TA can incorporate all currently known information about the likelihood of those events though. As they say on WSB, it's priced in.
Because you are not drawing a teacup, you are looking at price patterns. IF you believe in efficient markets, price should be an indicator of "all currently known information"
If you believe in efficient market and things being priced in then there is no past price information that can affect future price as future price is entirely martingale. You can’t both believe in technical analysis and in market efficiency.
Burgers' equation models traffic flow. Traffic comes from humans and humans behave in patterns. What difference does it make if it's a PDE or a teacup?
You can predict situations like crop failure - if you're an expert in agriculture and have access to data that impacts crop yields.
Some things, like weather and major political issues are easily obtained bits of information and are high-impact events. Data like satellite imaging of fields are available at a price and will tell an awful lot about what best-case production figures will be like. Lastly, insider information is around too - asking companies what they planted, sales data on seeds/fertilizer, etc. If a disease is hitting one company, it's probably hitting a lot of them, especially true with live stock.
People do pay for this information, and they use it to trade futures. Which is how it eventually gets "priced in."
Forecasting is a huge factor in a successful agriculture business. Which is part of why a lot of niche industries tend towards vertical integration - it's much easier to forecast demand when you produce a lot of derivative products. Buy your own stuff; if you planted a surplus then create new products / markets, if there's a shortage, cut production on lower profit items.
It can be an input, but is it a significant input?
If I know for a fact that a company is about to collapse and I establish a short position, will anybody notice? It depends on a lot of factors, but I could make an assload of money on puts without nudging the market.
Technical analysis is all about answering the question: are you able to filter who know something vs those that don't merely by looking at a buy signal? The answer: no, not really. Insiders acted well in advance of the SVB issues being made public, and there are lot of other examples of people making guaranteed bets that weren't obvious in the technicals. The noise is just too much.
By the time the signal is clear, the market has "priced" it in, and now you're just trying to predict the random actions of the know-nothing crowd.
Technicals are always after-the-fact. Since enough people with deep knowledge have to have already moved on that information in order for the market to have reacted to it.
It's much like trying to predict a fire by watching a crowd running away and hit the fire alarm. You didn't predict the fire and you can't have predicted the fire. Maybe you could have noticed one person booking it for the exit and follow along, but you still didn't know what was happening and were going on blind faith.
>If I know for a fact that a company is about to collapse and I establish a short position, will anybody notice? It depends on a lot of factors, but I could make an assload of money on puts without nudging the market.
Assuming you are the only person who knows for sure that this company will collapse, technical analysis is the wrong tool to use and all other strategies, experts, big money players will also fail.
Assuming you aren't the only person who knows for sure that this company will collapse the price will reflect this knowledge.
>It's much like trying to predict a fire by watching a crowd running away and hit the fire alarm. You didn't predict the fire and you can't have predicted the fire. Maybe you could have noticed one person booking it for the exit and follow along, but you still didn't know what was happening and were going on blind faith.
It's nothing like that at all, and reasoning with analogy is pointless because the discussion becomes about the analogy not the issue at hand. But I will try. If people running away is people selling stock, it doesn't matter if there is a fire or not. Selling stock impacts price regardless of if the event is real or not. And as you know, having been in a building where the fire alarm was activated, people don't rush to the exists. Some small number leave right away. The vast majority won't enter the building. The remaining people look to others and as more leave the momentum builds until the mass moves out.
And once the fire department arrives and gives the ok they will go back in. But since we are talking about stocks, not all buyers won't be waiting for that. They'll have put their money elsewhere, money may go back into the stock slowly. Obviously this won't work on the top 3 most popular stocks in a raging bull market that everyone is paying attention to. In that case, people will be waiting to jump back in.
By the time you have this information and are reasonably act on it, it has already been priced in by participants with deeper pockets, better access, and rapid processing of relevant information sources.
The prediction of a crop failure isn't a binary event and money isn't deployed in a binary strategy. It becomes more or less likely over time.
Also, the situation is very dynamic with an unknown and very large number of variables, even with something as seemingly simple as a crop failure. Such as such as a countries deciding to ban exports to secure food security, lack of access to fertilizer due to sanctions against major fertilizer producers in wheat producing countries, the politics of national and local water rights.
All these factors have parties with inside information acting on them (see members of congress trading stocks) which no player with big pockets will have access to but is all reflected in the price.
Nobody is saying these things are binary events. But betting that you're going to more accurately guess the odds of these events than dedicated players with enormous sums of money behind them and who are supported by professional research teams is… maybe not a strategy with positive expected value.
Doing that is not technical analysis. Technical analysis is predicting stock prices strictly from the previous price history.
The steel-man position for technical analysis is that humans are herd animals, who tend to do things in similar, predictable ways. Such as, people who pick stocks like to sell and take profits after the stock reaches some nice, round number. When enough people do this, it can result in repeatable, predictable patterns in prices.
The massive caveat there is of course that while that might be true in the absence of outside stimuli, any news always trumps that. It doesn't matter how nice your patterns are, if it comes out that the company somehow did worse than expected, it's price is going to fall, and if it did better than expected, it's going to rise. Trading on technicals might be something that works if you are really fucking careful, but it seems to me like you are picking quarters in front of a steamroller, in a way. The actual reliable profits from technical analysis are always going to be small, and the risks of investing with no understanding of the fundamentals seems fraught.
> Technical analysis is predicting stock prices strictly from the previous price history.
Is this true? For example, is using AI models that take into price history, current and historical events, insider and/or institutional trading, analyst opinions -- would that not be considered technical analysis? I know this is just a matter of semantics, but curious as to what is considered TA nowadays.
Not really. When you add that much information that gets into 'analysis' rather than 'technical analysis'. A bit like medicine vs traditional medicine.
Technical analysis is specifically the stupid line drawings you see on stock charts that try to predict trend lines from the motion of the previous lines
>Technical analysis can't predict a meteorite or any of those other things, therefore it cannot work.
This feels like you're attacking a strawman version of technical analysis. The claim isn't that you can predict future price movements with perfect accuracy, it's that you can predict it well enough that you can make some money from it. None of our economic models can predict a meteor hitting the earth either. Does that mean we should conclude that all of them "cannot work"?
The fundamental problem is that everyone else—particularly people with unfathomably deeper pockets and much better access to information to you—can do the same TA as you. To whatever extent it does work, that opportunity is rapidly exhausted.
So all that’s left is the unpredictable bits, and those are what you’re at the mercy of. And the unpredictable bits are happening constantly.
Something to be said about playing in pockets of the market those fat cats stay away from due to lack of the liquidity needed, market cap constraints, etc. There it can be a more level playing field for us minnows.
I would be willing to bet significant sums of money that virtually 100% of your trades, in any any of these "pockets of the market", have one of those fat cats as your counterparty.
In this case profit exhaustion doesn't really work. The assumption of technical analysis is that those with the deeper pockets move the market in certain ways and patterns and it's the job of the short-term speculator to anticipate those ways.
But if you assume enough rich people do technical analysis and pattern day trading you can earn money by doing what's essentially technical analysis, but with different patterns - ones designed to capitalize on the old patterns used by the rich.
Keep in mind, I'm not saying technical analysis works. I don't think it does, but that's without seriously examining the evidence. I'm just saying that the diminishing profit argument doesn't work. At least not as presented.
> The assumption of technical analysis is that those with the deeper pockets move the market in certain ways and patterns and it's the job of the short-term speculator to anticipate those ways.
if this were the case, it seems likely that others with deeper pockets than you, perhaps other high frequency traders, would rapidly exhaust those profit opportunities
Which they do. Many kinds of HFT trading strategies actually look a lot like a more mathematically rigorous version of technical analysis. It is very likely that they take all of the alpha that TA traders used to get.
HFTs generally consider shorter timescales (both in the feature set and the forward horizon) than human TA would lean on, and make tremendous use of microstructure information rather than outright price movements.
Having said that, “let’s take difference to EMA” is pretty the one-size-fits-all solution, and there are no shortage of firms looking at minute to hour long trades to gobble up anything human TA practitioners would ever try to trade.
> HFTs generally consider shorter timescales than human TA would lean on
This just further emphasizes the point that retail investors relying on TA are having their lunch eaten. HFTs are picking the minute opportunities because that's all that exists. If there were longer-term strategies that were reliably profitable, do you think they simply ignore them?
sub-minute opportunities are absolutely not all that exist, in many ways it’s the opposite. The hft opportunity space is extremely competitive, and much more zero sum than the mid/low frequency space. A relatively small set of players compete for the lions share of anything one might consider high frequency. The set of trades you compete for and the relevant information to generate forecasts is limited / similar across firms, and table-stakes on engineering side are very high.
> If there were long term strategies that were reliably profitable, do you think they would simply ignore them?
Yes? Mid frequency trading (say holding period of 5 minutes to ~1 hour) is a totally different class of quantitative trading, from the features you use to how you build portfolios (if at all) to how you execute on forecasts. At least one top-of-the-game hft firm (that already relied on forecasts instead of speed) got burned on their first attempt to enter mid frequency.
> At least one top-of-the-game hft firm (that already relied on forecasts instead of speed) got burned on their first attempt to enter mid frequency.
Put differently: "A bunch of smart people who have proven to be able to reliably extract profits from microsecond trades tried their hand at exploiting patterns on longer timescales and were unable to. Even though I have less money, information, access to markets, and am just one person, I believe I can succeed where they failed."
I don’t know why you think I’m saying TA works. The only thing I’ve said is that HFTs are by and large not responsible for trading away those inefficiencies
I’ll add that most hft firms are trying to move to longer time horizons. Some with great success, some mixed, some not at all. There’s not much unclaimed pie left in the hft world
The thing is there's no reason why new patterns can't exist, created by the patterns of the HFTs, who could create new profit opportunities for other HFTs or day-traders.
Now, perhaps each new generation of patterns would have diminishing returns over the previous generation. My intuition is that this almost certainly true. But either an argument or evidence has to exist for it and I'm not aware of any.
> The thing is there's no reason why new patterns can't exist, created by the patterns of the HFTs, who could create new profit opportunities for other HFTs
correct, exactly what I'm saying, any opportunities, including those derived from other opportunities being seized, would themselves be seized by such deep pockets and HFT firms
> The assumption of technical analysis is that those with the deeper pockets move the market in certain ways and patterns
If those with deeper pockets had reliably exploitable trading strategies, other teams with equally deep pockets would be exploiting them. You need to simultaneously believe that widely known and understood patterns exist which are profitable to exploit but also that nobody with large sums of money and a financial incentive to profit is interested in taking that easy money.
You're wrong in your conclusion, even though the argument looks good.
The opportunity is there for the average person to take, but it needs sufficient skill / training, like any other skill. I can't "prove it" to you, but I already proved it to myself and many people in the trading community did.
You don't need any sophisticated tools or huge amounts of money. It's bloody difficult though, not just for the technical reasons (there are many strategies but most go beyond a MA crossover, even though I'm not denying even that can produce alpha -- I don't know or care), but mostly for psychological reasons. And psychology is what's behind many of the patterns you see in the markets.
Every year there are people who beat the indexes and there are people who perform worse than the indexes. Every successive year some proportion of the winners stay winners and some become losers. The interesting thing to note is that—if you look at the statistics—winning one year has almost no bearing on whether or not you win the next year.
Still, there are participants who flipped that weighted coin year after year and caught heads five years in a row. It doesn't mean they have a successful strategy. It just means that if you flip a 45/55 coin five years in a row, two out of one hundred people will get a string of heads.
I've personally witnessed all of my day-trading friends go through this (I almost said "learn this lesson" but I'm not sure they have). For a while they beat the index and they're convinced their strategy is sound. One day something unexpected happens and they're suddenly in the hole. Often this is compounded by having an enormous tax bill on "gains" that no longer exist, necessitating selling off holdings that are deep in the red, making it even harder to get back to positive.
Do some individuals exist who can reliably beat the markets? Sure. They just are exceedingly likely to not be you, and none of them are offering their services to you.
Agreed about the statistic of failure rate. For consistent profitablity it's probably at or below 2%, even if it's higher in a given year. The reason is not only lack of a strategy that doesn't depend on specific market conditions, but often (unless you're talking about algos) is psychological. Trading is psychologically very difficult.
You're right in that most of the time, the directional probability of the market is close to 50% for a 1:1 trade.
There are instances where the directional probability is significantly above 50% to make a trade have a positive EV (if it's not 1:1, the baseline is not 50%, and there are similarly moments where the directional probability for a different risk-reward is above its baseline for some direction). Different strategies tailor to different RRs, but you can absolutely find those entries.
However, as you said it's easy to get caught up in the illusion of profitability for a given market condition. For example, in a strong bull market like the post COVID stimulus, you could trade to the long side in a large timeframe and just win money because of the anomaly of such a protracted spike in the daily charts.
That's not a sustainable strategy though which explains what happened to your friends. A price action system that takes into account markets structure works in every environment, be it ranging, surging or a bear market.
Learning price action TA takes time to learn though, it's a skill like when we learned to code till the time we got paid for it. And trading, in general, goes against how our brain works. Psychology is the great barrier to profitability once you have a strategy. It explains the high failure rate. it being a hard skill is why there's so few people doing it, But it's not because it needs a very high IQ or Rafa Nadal's strength of mind. Most people could get there, but it takes a lot of effort, and theres so much deception and scamming around it, it's easier to pretend it's impossible based on the amount of people that fail.
I think TA is bad because it's priced in but your argument seems like nonsense.
It boils down to "the market is probabilistic and you can't know for sure it won't get impacted by things" but if TA gives you even a couple % edge (with black swans averaging out in both directions) it would have been worth it.
You're conflating micro and macro price movements. Sure, you can't predict black swan events with technical analysis, but it wouldn't be out of the question to predict short term fluctuations based on a mixture of market psychology and herd thinking.
I don't employ any technical analysis in trading, nor am I a strong advocate, but technical analysis is more about reactionary psychology than about predicting the future. In the most micro sense, the market is dictated by single individuals buying and selling stock, and in the broadest sense, it's a statistical result of millions, or billions of unknowns. Those are two totally different games.
To add, it provides a general measure of sentiment. It's a measure of actions taken rather than words. It's not a crystal ball, but does give a slight edge if you figure out which indicators to use.
I've used it for years and had very good success when I was actively trading (traded longer timeframes. Usually made weekly/monthly trades) to the point I was able to live off of it. The last couple of years I've taken off from trading to focus on developing my business, but will likely jump back once that launches and is in a good enough place, as it's both a time and emotional drain.
While I agree that TA is an invalid method for investing, I disagree with your take on it. What you describe are, charitably, outlier events. Statistical models generally aren't useful for predicting singular events, even if they aren't outliers. So you aren't really invalidating the use of TA with that argument.
While the made-up character is similar, Astrology is far richer in concepts, orchestration and story telling.
Technical analysis is the ultimate dumbification of market structure and dynamics, which in itself is a major dumbification of the formal economy, which in itself is a major simplification of the stuff-that-matters(TM).
The objective of technical analysis is to get as many low-information actors as possible to transact with as low-cost as possible technology (I would totally not be surprised if current "technical analysis" verbiage is 100% automated).
Astrology has more of a culturally evolved or emerged nature. Of course, it's peddled by entrepreneurs who have an incentive to "make it up". Yet it's oddly coherent (with itself), at least from the POV of an uninterested person who encounters it a few times over decades.
Technical analysis is literally made up.
I think there's a gradient where technical analysis is in the far right and psychonalysis in the far left, with astrology in the middle. I can't discern it clearly on an empty stomach right now though.
"checkmate, atheists!" is an old meme. I think it might have originated from this video (but maybe it predates it): https://youtu.be/P47OC439x88
I've only ever seen it used sarcastically by atheists making fun of the kinds of arguments that religious folks make. It was a bigger thing during the heyday of new atheism, I don't see a lot of discourse on the topic these days.
Your going to have to define technical analysis for me. I'm questioning very heavily that we're talking about the same thing. You don't believe in trends?
Glad to see this is the top comment. It frustrates me to no end to see people lapping up TA like it is remotely useful when we spent our first semester on finance at university essentially disproving TA signals. It was literally Finance 102.
If you expected to learn useful finance at a university, you already failed as soon as you applied. If anyone there knew what they were doing financially, they wouldnt be there, and especially not teaching Finance 102. In case you were not aware, nearly all professors hate teaching lower level classes, so they naturally get forced on the worst performing professors (the ones that are closest to getting fired).
Concluding that the entirety of TA can not be useful (the Null hypothesis is true for all input signals) just from seeing that a few strawman TA in finance 102 not work is beyond absurd.
If some version of TA worked, then as soon as enough traders adopt that version of TA, it would stop working.
That is not to say that no versions of TA will work. After all Long Term Capital made a fortune on reversion to the mean...right until they went bankrupt. (And then their portfolio went on to make a fortune again. Too bad they were insolvent.) But it will only continue to work if the trading strategy is not widely known, or comes with trading risks.
The fact that you think a finance degree is centered around trading stocks tells me all I need to know about you and your beliefs. And even on the topic of stocks/derivatives, are they teaching the wrong dividend discount model? Or the wrong black-scholes model? Did they get the equation wrong or something? Or are you just mad because they aren’t teaching TA?
And just wondering, using TA, how would you calculate how much to change an M&A offer in order to compensate for including a poison pill?
Does that mean you spent time in university "disproving" e.g. mean regression? Or was it some unrealistically hardcore definition of TA like "any given indicator taken in isolation should lead to profits every time?"
This feels unnaturally harsh and likely incorrect. You seem to be suggesting that statistical tools are useless at predicting trends in time-series data.
If the assertion is true that this is useless for the stock market, that would imply the assertion is equally true for macro-economics, and extending further, climate change.
We are collectively deciding how to spend trillions of dollars based on the outputs of these models. Should we not bother then?
> You seem to be suggesting that statistical tools are useless at predicting trends in time-series data.
TA doesn't use "statistical tools" in any actually meaningful or predictive way. It's digital phrenology. Data-driven tea leaf reading. Programmatic palmistry. It deserves only scorn.
Textbook TA uses a lot of voodoo which, itself, is helpful for understanding market psychology. The fact that maybe 20% of market participants give significance to a simple moving average calculated from a certain number of days or weeks-- useful explanatory information!
But the core proposition of TA is that a scientific approach to analyzing past price movements will at least hint at the future, sometimes. Not all the time. That's not controversial, and wouldn't be in any other discipline either. Whether it can be profitably exploited at a particular scale or by a particular person-- another question entirely.
The interesting thing about applying TA to live markets is ... its adversarial. A pattern becomes known, and that leads it to change. If it doesn't change, we can consider it based in fundamentals. For example, markets are more volatile, on average, in the Fall. Why? Well, it's got to be fundamental because everyone knows this pattern and yet it very often repeats. TA is helpful because we would not identify the fundamental mechanism without first observing the historical cycles of prices.
You have phrased your comment very carefully and I agree, sometimes there might be some value in looking at simple trends, if only for the reason that other market participants do the same.
> But the core proposition of TA is that a scientific approach to analyzing past price movements will at least hint at the future, sometimes. Not all the time.
Will those "hints" be correct more than 50% of the time, though? I mean, if TA did beat coin flips, you could exploit this consistently with a profit. That, however, would be news to me.
You seem to be confused between descriptive, predictive, and explanatory models.
TA is not predictive. It can't help you anticipate the future. If it was, you could make consistent profits by using it, and no one has. If it's right, it's just as often wrong, in which case it's no better than a coin toss or throwing bones or reading tea leaves.
It's not explanatory. It provides no hypotheses for why the market behaves in certain ways. If it did it might have some hope of being predictive, but alas, as I already mentioned, it's not. And thus it can't teach us anything about market behaviours or their underlying causes.
TA might reasonably be thought of as descriptive, in that it gives a (voodoo) framework for describing observed market behaviours. As you say, we might observe the market is more volatile in the fall. But because it offers no explanatory power, we have no way to know why, and since it has no predictive power, it can't tell us if next year will be the same as this year. You're simply expected to believe that, well, it's always been that way, so I'll assume the future will be the same as the past.
As a result, it's frankly not that useful or interesting.
Technical analysis is based on statistics the same way astrology is: that is to say, it incorporates some of the jargon and features shallow, surface-level incorporation and features. TA is worse because it affects more people.
Stock price movements are literally text book examples of unpredictable (or more specifically, random walk) time series in university time series courses. A proper statistics course teaches you that you can predict with great certainty that the mean of the fraction of heads over many coin flips converges to 1/2, while you cannot predict anything about the outcome of the next flip. A good statistics course will also teach you how both can be true. TA is like trying to use statistics to infer something about the outcome of the next coin flip.
Doesn't "technical analysis" mean pretending that you can ignore that it is Tesla or NVIDIA and just believe that the time-series itself tells you what comes next. I.e. you believe that there is some "nature" of stock ticker data independent of the financials and business environment of the particular company.
If stock prices are so easy predict, why aren't you putting your money where your mouth is? :P Or are you? Then I'd love to hear about that obscene fortune you've made so far. :)
In all seriousness, though, there is an entire field of research whose results substantiate GP's point. This is not to say that you can't beat the market but the challenge lies in doing so consistently.
They may have missed it this time, but if you look at a recent stock market history, it was impossible to not make a fortune out of a pretty obvious portfolio. /s
The standard model is not a plain random walk, but a random walk with drift. (Actually a geometric random walk with drift, but thats besides the point.) The drift term for the broader US stock market is usually assumed around 8% (long term average gain based on around a century of data). That works out to around 0.022% a day, which is not what TA traders are looking for.
> I can say with relatively strong confidence that Tesla is going to be worth more than $1 trillion in three years.
How relative is your strong confidence? If you feel this is inevitable, you can become essentially infinitely rich. Why not do it?
Of course so could others. And all your collective trades move the market. At which point it's no longer true. It can't be, not everyone can become infinitely rich.
While we should be sceptical of any and all "models" of reality, we can't lump them all together.
Macroeconomic models have had spectacular fails but are fundamentally a semi-honest attempt to understand how the economy evolves (Only "semi" because ideology can be quite limiting).
Climate change models have a strong physical component that is neither made-up nor manipulated, but may suffer from not capturing biosphere dynamics all its complexity. Thats why there is uncertainty range around scenarios.
Long term investment decisions are in any case never based on TA. That technique is really a made-up pseudoscience tailored to provide comfort and talking points to the widest possible trading audience.
Technical analysis is an insult to technology and should be rebranded to "untechnical analysis".
Technical people would do analysis with state-of-the-art tools, from LLMs applied on github repos to discover lurking security bugs likely to bring stocks crashing, to vision models applied to satellite images to analyze business activity.
A serious question now: if we take all the mainstream news articles (or headlines) for 20 years and correspond them to OHLC data with e.g. hour and day granularity timestamps, could some sort of AI make hourly or daily predictions?
If modern AI can generate average-human-like text and images, couldn’t it day trade as well?
>Technical analysis is the ultimate dumbification of market structure and dynamics
Technical analysis is the macroeconomics (macroeconomics, the discipline taught in school etc) of the stock market! It’s like drawing aggregate demand and supply curves and imagining that they move around monolithically as they drive the economy. Tail wags the dog
The article there looks at ONE use of technical analysis which is a moving average crossover. The nicest houses I know are owned by traders who know how to use technical analysis. it is very interesting that such an uniformed opinion is the top rated comment on YC tho.
WSB goes to options. So you multiply wins, possibly losses or end up with nothing on your yolo bets as your options expire worthless... Like a casino...
This is the correct answer. Selling "advice" and managing portfolios is by far the easiest legal way to make money on the markets.
There was a newsworthy situation in the UK a couple of years ago where a star manager crashed and burned. He locked his trading account, with everyone's money still in it, and continued charging fees.
I always found it strange. You get to charge money win or lose. And then take percentage winnings... No wonder low fee index funds made so much sense...
Back when there were 20 hedge funds, all managed by geniuses, it was rational to pay for uncorrelated outperformance. Now there are 6000 hedge funds, but there aren't 6000 geniuses.
I’ve always loved technical analysis discourse because it’s the starkest example of how to actually make money in financial markets, and that’s to actively cultivate information asymmetry among other market participants. If technical analysis were a successful strategy, it would, like most other techniques that can actually generate sustainable alpha, be a closely guarded secret. But it’s not. It’s something people shout about from the rooftops trying to get rubes to follow the bait. It’s the same kind of play as wallstreetbets, where you’re tying to increase the amount of stupid, predictable money in your corner of the market.
Not at all. Fundamentally, trading is a positive sum game.
Actual market research directs resources to the most productive companies, helping them grow more quickly and generate positive aggregate value.
Essentially, it's a way to add intelligence and information to the companies that represent the market, to make them more profitable. Specifically, it allows newcomers to grow more quickly if they're more efficent than legacy companies, meaning it's more difficult for the legacy companies to create moats.
Without trading, we might still have IBM at the top of the tech industry, with a massively inefficent organization, low worker salaries and enough market power to keep the competition away, since without a market, startups would need to cover ALL investments using organic profits.
But that's mostly true for medium-long term trading. Short term trading is mostly about speed and finding information or clues faster than anyone else. That part probably generates less net value than it consumes.
"The market" is just a set of order books. I don't find it weird that technical analysis work some times in some markets.
Fully systematic traders exist and make money. Efficient Markets Theory says they shouldn't, but they do anyway. EMH is probably written under stricter/ideal conditions though.
If one wants to take a systematic/technical analysis approach though, I would look at the entire universe of stocks, whereas use a fundamental approach in individual stocks.
> Fully systematic traders exist and make money. Efficient Markets Theory says they shouldn't, but they do anyway.
The post you are responding to already answered this question.
Here is the answer: "it would, like most other techniques that can actually generate sustainable alpha, be a closely guarded secret"
So, to answer the question, the important stuff in the trading strategies that you mentioned, include information asymmetry. Those systemic traders have hidden information, and hidden strategies that they use, and they don't just given everyone open source access to their code.
They make money because growth. Any strategy that is not based on information asymmetry or unique clever use of information makes less than the market on average.
I think it’s more down to adverse selection… while some really smart people might be making decent returns via technical analysis or whatever, they’ll never disclose their strategies since someone else could frontrun them. Instead, the only strategies we get exposed to are the ones that don’t work, since the best way to make money on a strategy that doesn’t work is to find someone to sell it to. Like - it’s clearly possible to make money trading, because a very small amount of people seem to be able to do so somewhat reliably. But if someone is trying to sell you a trading course, they’re almost certainly more of a scam artist than a genius trading savant.
There's plenty of trade secrets in TA as well though. A lot of it comes out because eventually it's beneficial to have fundamentals understood by a larger population so that there's a pool of people to develop the internal tools. Only some of the fundamental TA is common knowledge.
I don’t understand how it’s possible to make money in the stock market unless you have inside information. I deeply suspect the whole game is rigged and there are ways to do insider trading without getting caught, and the real secret to be a successful trader is to find out how to join the club.
To be fair, the fact that [some traders own nice houses] doesn't imply [technical analysis is a good method]. It's possible that the profit from this sort of trading is essentially random, and there are a few people that get a large profit from that random distribution. I've frequently heard this sort of argument, but I don't have the expertise to determine whether it's true.
I don’t know about the nice houses, but technical analysis has one thing in common with astrology: one can make a living selling the ideas to other people.
The people I know with the nicest houses are doctors and lawyers. I don't think either of us have a large enough samples size. Those who do take a large enough sample will see technical analysis is just a rain dance.
How do we even know how these traders make their money? Maybe they make their money through commissions, i.e. trading other people's money, who maybe believe in technical analysis. Or maybe they make their money through arbitrage or market making. Just because someone "knows" technical analysis doesn't mean they make any money doing it.
Actually it totally makes sense. Most people here are/will never be rich. It's the software equivalent of the business professor who talks a big game in class but has never made money or built a business.
> nicest houses I know are owned by traders who know how to use technical analysis
On the sell side, sure--you know when they'll under or overpay. Anyone buying retail flow should be running these models.
Technical analysis just looks at the surface of the order book--the transaction layer. If you're integrating the book, you can see when the surface is misleading and profit from it. There are technical heuristics, e.g. dead cat bounces, round-number tendencies, et cetera which are based in reality, part flow of funds and part psychological. But technicians' sole reliance on stock charts necessitates blindness to those underlying conditions.
In summary, a stock's near-term price history can, on its own, provide information that predicts the next tick. It's just a known subset of a broader set of signals. That the delineation is known makes those relying on these strategies possible to arbitrage.
>The nicest houses I know are owned by traders who know how to use technical analysis.
If you have a large group of people who take risks while trading, and they form strategies indistinguishable from flipping a coin (like technical analysis), then at the end of the day you're going to have a lot of ex-traders who failed to make money and a few that look like rock stars - because taking large risks and being lucky is a "good" way to make money fast. It's the very definition of survivorship bias.
> The nicest houses I know are owned by traders who know how to use technical analysis.
One interesting thing about the stock market is that it’s entirely possible to be successful in it, attributing that success to strategy X, yet to be completely wrong about that.
It’s actually not limited to the stock market – there’s tons of professionals out there that are completely unaware of why what they do works. This makes many people nervous, and they try to come up with a rationalization or mental model for it, and sometimes they get it completely wrong.
> The nicest houses I know are owned by traders who know how to use technical analysis.
By itself that doesn't mean anything, surely you realize?
What percentage of technical analysis traders own the million dollar houses?
You definitely can make huge amounts of money on short term trades if you get lucky. So occasionally a TA trader will become very rich and have a mansion.
But, do more than 50% of them strike it that rich? If not, it's just random.
It's like saying that powerball winners have mansions, therefore the best investment strategy is to buy powerball tickets.
There are very good reasons to believe that. The earliest proponents of HFT may have made money by more efficiently using price information. But now there are so many of them that is no longer possible
It is crime.
The most useful model for understanding international high finance is "organized criminal networks"
Front running is when you take an order from a client and before executing it out your own order in first so you benefit from the bumpe or drop in stock price that the client would cause.
The key here is you have advanced knowledge of the order before it hits the market and you have a legal requirement to execute client orders before your own.
I believe it’s also been ruled to be front running if you get knowledge of the client order in advance of it being sent to the market by a third party.
But having a faster network and computer to allow you to react faster than others is not front running.
Take this is an extreme, if I watch a market ticket and react manually with in 20 minutes to news and you read about the news in the paper the next day, did I front run you by trading before you?
It’s the duty to execute a client order before your own and not tell others abouT the order before it hits the market that is the requirement for front running.
The biggest HFT firms are prop shops. They don't even have clients. There aren't any client orders for them to front run! You know not what of you speak.
This is the cheapest defense of HFT front running. Buying order flow and front running other people's clients is still front running. You see what people want, you get it faster and you sell it back to them after you buy it.
Are there other “bad” (for the general investing public) strategies out there? Sure! Should some of them be illegal, or be made unprofitable by coming up with fairer (for long-term investors) markets and market structures? Definitely!
But that doesn’t make them the same thing as front running. Why call “bad strategy/phenomenon X” “Y” and confuse everybody?
Yes, because it makes it very clear you have no idea of what you speak of, as you don't even know enough to use the correct terms for things.
Front running is to act on confidential information in the market to the detriment of the initiator of the information. Once something is no longer confidential, ie the customer order has been processed, and all the information is open, then there can no longer be any front running.
This is the same argument I've heard before. You give a narrow definition for front running and declare there is no front running by your specific and out dated definition that you set.
What's missing is you actually confronting the problem of people seeing orders and buying based on those orders before the original orders go through. What is your term for that? Playing a game of definitions is a diversion from actually talking about the problem.
What’s the big problem with calling other, problematic practices that are definitionally not front-running by another, less confusing name?
Imagine a public official caught taking bribes and calling that embezzlement, blackmail, or driving under the influence of alcohol. Makes about as much sense to me.
> the problem of people seeing orders and buying based on those orders before the original orders go through.
That would be frontrunning, and illegal, as far as I understand. I don’t think it matters if there’s two parties colliding to commit the same crime.
Are you maybe referring to payment for order flow, which also has its problems (but ironically on average yields price improvements over NBBO for retail traders!), but is not that?
What do you mean by "buying the order of somebody ahead of you"? Can you describe it in a bit more detail so we can see if there's an established name for that?
> people seeing orders and buying based on those orders before the original orders go through
This literally cannot happen unless someone is breaking a law. An order is not visible until after it has executed. What can happen is some actor want to get a better price for their order and thus split up the order into multiple orders that it tries to execute simultaneously. Then someone can act on one of those that process quicker before a second of those split up orders end up executed. And that is fine - propagating changes of price quickly between multiple separate market places is a good thing as it lowers the transaction overhead in general.
Not a 100% AFAIK, there's some sentiment analysis on news as well and I suppose every other piece of machine-interpretable piece of information one can get their hands on. Along with human guidance still.
According to the efficient market hypothesis, information can only be valuable until there has been time for information to circulate through the market, and the market price to reflect that information. This seems to happen in under 15 minutes. That's why 20 minute delayed ticker prices are generally available for free.
HFT lives on happening so fast that the market price has not had time to catch up to the information that a trade is available. But it is a race against others in the same market. And an incredible amount of effort has gone into winning that race and making profits off of the increasingly narrow slice of time that markets are profitably inefficient for.
In general the goal of trading is to know more than other traders.
High frequency trading is knowing about recent trades sooner than others. That's where the profit comes in.
I see a difference here to technical analysis. HFT clearly has a data edge over those who just look at historical trend lines.
I think it's reasonable to say this isn't technical analysis. It's not the historical analysis that gives the edge. It's the extra knowledge they have that gives the edge.
Technical analysis is very much rooted in purely the historical price. If you have a way to predict prices with more knowledge than just the historical price you're getting outside the realm of technical analysis and into the realm of plain regular analysis where you take as much knowledge as you possibly can about the stock and figure out the price based on that huge volume of knowledge.
This is why technical analysis is dumb. It assumes all the knowledge is in the price already and there's no way for some investors to know more than others outside the scope of that. HFT is in fact a great counter to that. Some people know incoming trades before the rest of the market. That extra knowledge allows for vast profits.
No, high frequency trading makes money via arbitraging across markets, market making, and some other strategies that make its actors come out ahead on average.
Technical analysis is largely astrology for stock markets for reasons many others here have already given, as far as I understand. (Note that it’s still possible to make money using a trading scheme based on astrology, namely if the market structure itself makes any participant come out ahead on average, and the scheme isn’t bad enough to outweigh that inherent advantage.)
Ah this is silly. Technical analysis hmis grounded in sone level of useful information and technique. But it is ultimately a game of informed guessing, so in that respect, its a bit like astrology
The entire idea behind technical analysis is that it's a self-fulfilling prophecy. The more people believe in a certain rule, the more that rule turns out to be true.
It might work that way with astrology too, but it's not so clear.
Astrology would be a self-fulfilling prophecy if enough people took it seriously.
For example if everyone agreed on that Gemini means good at science and Leo is good at art, the whole education system would be designed around this belief and it would hugely impact how children think of their own potential.
There is a good example of this in Ancient Rome. By around the time of Augustus Romans were fervent believers in astrology. One of the most notable cases of astrology becoming a self-fulfilling prophecy has to do with the death of the emperor Domitian.
An astrologer named Asclation had earlier predicted that Domitian would die on September 18, 96 AD, and Domitian's enemies used this as a sort of nucleation point to organize his assassination. So although the date was made up, it had the effect of focusing the efforts of the assassins on a particular date, and they were successful in assassinating him on September 18.
The full story that survives probably has some embellishments, but is entertaining. As the day approached Domitian became increasingly nervous. On September 17, he called Asclation before him and asked him if he stood by his prediction. Asclation said he did. Domitian then asked Asclation how Ascaltion himself was to die. Asclation responded that the stars said that he would die by being torn apart by dogs. Domitian then had an idea, and condemned him to death by burning.
Asclation was immediately led to a public square, tied to a stake, and a bonfire was built underneath him. Not long after being lit, however, it suddenly began raining and the downpour quenched the flames. In the wet mess, Asclation's stake tipped over and a pack of dogs found him and devoured him.
This development naturally did not put Domitian's mind at ease. The next day he became a nervous wreck. Around noon, he asked an attendant what time it was. The attendant, who was part of the conspiracy, lied and said that it was an hour later. Seeing that the danger had passed, Domitian relaxed and decided to take a bath. As he was about to go out, an official rushed in and asked for his signature on some documents. The official appeared to have an injury to his arm, but this official was also in on the conspiracy, and his sling concealed a dagger. When he got close to the emperor he stabbed him to death.
Chinese "sign years" are a good example where it seems not to shake out. There's a 12-year cycle between repeating signs, but it doesn't seem that every 12 years you get whole cohorts of specifically intelligent/kind/diligent/cunning/lazy/science-loving/humanities-oriented/whatever children in a given school year, which will nearly universally be composed of only two star signs (Chinese New Year falling about halfway into the school year). It's even more obvious on the 60-year "element-animal" cycle that the world doesn't go 3 generations between people having "fire dragon" or "earth horse" characteristics.
It'd be hard to hide such statistical effects on an yearly interval, whereas the Western zodiac hides its predictive failures by not having signs that are commonly stratified into different groups.
> you ask some parents about santa clause. they say we are athiests, but we pretend to believe in santa clause to make our child happy. then you ask the child about santa clause, and they say i pretend to believe to make my parents happy.
If the Santa Clause is null and void in your belief system, other Clauses, including the Presents Clause, remain in force to the fullest extent possible.
Instead of intruducing "Presents Clause", I think you can extend the "Santa Claus" concept to have several layers of meaning. Presents is one of those layers, but there is also tradition, coziness, familiarity, excitement and playfulness.
While some kids may become very vocal about it when they suddenly stop believing in Santa Claus as a literal being, they children (and adults) can continue enjoying him for as long as they're not embarrased by it.
Having a small child in the family believing (or pretending to believe) can be a way for everyone else to enjoy him. And some families continue to have him even when nobody believes.
The same is sometimes true about religions. People can continue to value them even if they stop believing in the literal Sky-Father.
My formulation makers fun of typical commercial license agreements.
I can see how Santa Claus can live as a fairy tale, with small kids playing with the idea of the entire thing being somehow real, the same way as Goldilocks or Bambi. This is indeed cute, unless taken too seriously.
It's quite a bit harder with religions: they are not a once-a-year pleasantry, but are things that shape your entire view of the world and the way of life. A faintest idea that they are but a cute tale is literally a destruction of a worldview, a catastrophe instead of a mild disappointment. Knowing, say, Christianity or Islam as a cute tale only works for people who never were believers.
> Knowing, say, Christianity or Islam as a cute tale only works for people who never were believers.
Belief comes at many levels of intensity. People with low intensity beliefs can drift away without experiencing a world view collapse.
There are certainly people of most religious backgrounds that continue to practice and enjoy many of the religious traditions and practices even generations after they stop believing in the supernatural parts.
I think it descends from a line about labor in the USSR: "We pretend to work, and they pretend to pay us." Tony Judt in "Thinking the Twentieth Century" had a line about Moscow needing its satellite states to avoid loudly or conspicuously disagreeing with party ideology even if in practice they were able to diverge. "You pretend to believe and we'll pretend to believe you."
At higher levels of simulacra, the statements people make are less about reality, and more about what they want people to believe they believe about reality.
It's definitely not the entire idea. It plays a part, but that's just human psychology. The same reason that round numbers tend to act as support and resistance. These rules are not mystical; they are provable. There are a lot of metrics in Technical Analysis, and most of them I know nothing about. Technical Analysis doesn't claim to know the future (only the liars and fools), but embraces efficient market theory, which is about the present.
There is a well-worn joke in the economics profession that involves two economists – one young and one old – walking down the street together:
The young economist looks down and sees a $20 bill on the street and says, “Hey, look a twenty-dollar bill!”
Without even looking, his older and wiser colleague replies, “Nonsense. If there had been a twenty-dollar lying on the street, someone would have already picked it up by now.”
Replace the twenty dollar with the tens of millions at minimum if basic technical analysis (ie. dead cat bounce level stuff) is leveragable and yeah I think you have a pretty close approximation to reality: more likely you are hallucinating than you found $20 million on the street.
> “Nonsense. If there had been a twenty-dollar lying on the street, someone would have already picked it up by now.”
I don't remember too much from my finance courses in business school but one comment from the professor always stayed with me. He said that if there was any succesful pattern to trading, there are firms on wall street which can afford many orders of magnitude more brain power and compute power than you, so they will zero in on it pretty quick if it works. As soon as they do, it doesn't work anymore. Proof: Otherwise they would all be making infinite profit.
Makes sense. This means any trading algorithm that can be programmed is pretty much obsolete (if it ever was any good) by the time it's working.
You're proving the point of jjav. Jim Simons was an advanced mathmatician able to employ novel ideas to generate an alpha. Institutions with access to top level mathematicians and massive compute resources are still doing that.
But such algorithms only work as long as they're kept secret. As soon as the algorithm is made public, every large institution will incorporate them into their trading robots, meaning the information will become priced in to the market value instantly.
There are really only five ways to beat the market:
1) Insider information. (Illegal)
2) Extensive market research, where you understand the companies better than the market does. (Requires A LOT of work)
3) Direct contribution to the company's success (you need to have the talent of a Elon Musk, Mark Zuckerberg or Bill Gates).
4) Mathematical/computational superiority (you need to be at the level of Jim Simons or have the capital to hire such people)
5) Luck.
Mainstream technical analysis is not on the list.
That being said, I'm sure the current AI revolution is leaving some doors open to massive profits to some clever person able to create a model that predicts patterns better than most other algo trading robots.
But it’s hard to do that when something disproves its own validity so utterly.
If someone has a strategy to predict any amount of value from the market, it would be automated immediately (we’re mostly programmers here so that part’s kind of our bag), and so doing abstract that value away to a machine housed at JP Morgan or Citigroup.
tldr; It’s astrology for finance bros.
At least the crypto hype has died down again for another while. They perfected the above during Covid.
It's kind of like "agile", "big data" or "AI" for tech managers.
While actual finance people use algo trading all the time (meaning technical analysis using secret algorithms), naîve technical analysis is mostly a sales or influencing tool. (Unless the "finance bro" is truely deluded)
The same goes for tech managers. While some actually create agile teams using big data to create useful AI, plenty more just use the terms to inflate their own careers.
Didn't Renaissance Technologies made all their money from technical analysis? Who cares if it is simplification of something, if your goal is to make money, not understand it.
TA means something very specific, its not a proxy for all quantitative analysis. Actors with privileged access to information and superior execution capabilities may from time to time "beat the market". The rest are noise traders that are just being systematically fleeced.
They’ve made their money through a combination of information asymmetry and gray-area or outright illegal practices (e.g. tax shenanigans). Their returns are literally unbelievable if they are operating within the bounds of regulations.
Yes, the glut of websites with stock “analysis” or “news” is almost 100% automated based on a number of financial and technical measures of any given stock. They are, as you say, pretty much worthless.
Yes. Although you should never trade on TA alone, it should be a signal that you trade based on your risk analysis of the situation. TA of index etfs today is saying a buy or sell signal is imminent but risk is still weighted to the downside so I’m staying conservative until the market makes a decision.
That said back in 2018 there were no less than 3 cup and handle indicators on SPY at almost every timeframe. I yolo’d the biggest gain ever because the TA was saying heavy buy and the risk was very low (bought long dated ITM calls with a strict exit date)
>>Technical analysis is the ultimate dumbification of market structure and dynamics, which in itself is a major dumbification of the formal economy, which in itself is a major simplification of the stuff-that-matters(TM).
So basically Python is ultimate dumbification of C, which in itself is a major dumbification of Assembly, which in itself is a major simplification of Gates/Transistors?
At some point we have to deal with abstractions in one way or the other or just continue to indulge in mental verbosity of the most extreme kind.
Abstractions could be leaky but they work for the most part. Which is good enough for most situations.
> Abstractions could be leaky but they work for the most part.
Your abstraction of abstractions is leaky and is not working.
Technical analysis is not an abstraction of market behavior. It the fetichization of linear 2d representations of historical price timeseries.
In your analogy it would be to look at pictures of chips, identify faces and other objects in the clusters of transistors and argue that is the interaction of these patterns that determines chip function.
Not really. Sharing specific useful investing information renders it largely useless. That’s an oversimplification, but the incentives are just very different.
So, it’s hard to go beyond shallow advice without everyone screaming about the latest bubble.
It does seem like HN has a lot of this surface-level stock market discussion. I wonder how much crossover there is here with r/wallstreetbets.
> Is there some investing discussion forum on the web with substance?
I've personally searched for something like this quite a bit in the past and I think ultimately it's the wrong question. It seems to me that a forum of people discussing stock market dynamics is always going to be doomed from the start. I think that's because the ideas actually worth discussing are too complex for even people with above average intelligence/capability.
TLDR: In my opinion, there's basically no where on the internet that you will find an "edge". All of the discussion is too shallow.
Assume that there are ultimately just two approaches you can take to financial trading: fundamental analysis & technical analysis.
Fundamental analysis is almost a solved problem. This is why stock picking is so hard and Warren Buffet types are so rare. I think this is because FA is infinitely more understandable than TA. Companies are evaluated based on their balance sheets/cash flows and compared to peers. It's not simple per se, but it's the sort of thing most people can grasp. It's well established that beating an index fund is difficult and that most stock pickers will not beat an index fund. Investing forums are full of people thinking they will be the exception but we know that most of them will underperform the benchmark.
Then there's technical analysis. Technical analysis of any substance requires a very strong mathematical background. The original post only mentions moving averages. That's essentially a pre-school level understanding of TA and I have strong doubts that a moving average strategy has ever been profitable. Basically any strategy that involves buying/selling based on a moving average or one of it's cousins is more shallow than astrology.
A more advanced practitioner of TA might get into pairs trading/statistical arbitrage. In developed markets (stocks/forex), an individual cannot succeed at this even if they understand how it works. It's just too competitive. Just a few years ago you could be profitable doing this in under-developed markets (.e.g crypto) but I'm not confident an individual could compete in crypto markets anymore.
Then there's even more advanced strategies that are employed at places like Renaissance Technologies. The people that work there tend to have advanced degrees in math/physics.
Another thing that one can also be reasonably sure, is when when things stop working ( for the ones where it was working for a time, and they were talking about it), is that they are going to be very quite about it.
Sometimes the secret is in the open, but seeing it takes a series of long slog steps which most people just can't get themselves to do(for many reasons).
If you see the most fitness and nutrition advice, and you go through it, most of it sounds like pseudo science that would never work. Yet if you go running in the morning, most parks around your home will have these people who are very fit, eating the right things and doing the right stuff.
Its just doing all of this is hard, painful and demands some serious discipline on the very long run. This process in essence now acts as a filter to 99% people out there. Among the 1% degree of success again varies based on other parameters(timing, luck, overall effort in continuous improvements etc). By the time you arrive at 0.1%, the process basically acts as ruthless filter to eliminate people who just can't measure up.
So many times the what works, can be easily learned and known. Doing it, is just a whole different beast altogether.
Depends. I have made substantial profits on a sub-million portfolio on a pure TA algorithm over a span of a couple of years. I have never made the strategy a secret because I knew very well people are too lazy to actually implement it (and the cake is bigger than I could take). And yeah, nobody did.
The funny thing is, HN is one of the few forums where the average user has close to enough mathematical maturity to discuss this sort of finance. Quantitative finance folks rarely come from a pure finance background, it is very different from investment banking or typical bread and butter bulge bracket work.
To do well in quant finance you need the same intuition and talent as a reinforcement/probabilistic learning practitioner — good grasp of statistics and instinct for complex systems with feedback loops like differential equations and dynamics. Market making for example can be formulated as a bellman equation.
I have a very little experience in trading crypto and the only helpful/working for me kind of technical analysis is a moving average. I am excited about learning similar moving-something things.
I would think so, because if it was indeed that straightforward (pattern X reveals future movement Y), it would inherently mean that the stock market is easy to predict and that markets are rational.
Markets aren't easy to predict (that's why people who DO predict them correctly make bank) nor are they rational.
TA can provide historical reference points, sure, and in some cases can indicate that something is likely to happen (to a degree, anyway), but cannot accurately predict anything consistently.
If anyone is interested in doing stock picking, at least seriously, I would recommend that they first read A Random Walk Down Wall Street, which just celebrated its fiftieth anniversary and released its thirteenth edition in January:
And then read Security Analysis (Seventh Edition just released, 1934 original publication) and understand why "A Random Walk Down Wall street" is mostly BS...
And then read (original co-author) Graham's last published interview ("A Conversation with Benjamin Graham", Financial Analysts Journal, September/October 1976):
> In selecting the common stock portfolio, do you advise careful study of and selectivity among different issues?
> In general, no. I am no longer an advocate of elaborate techniques of security analysis in order to find superior value opportunities. This was a rewarding activity, say, 40 years ago, when our textbook "Graham and Dodd" was first published; but the situation has changed a great deal since then. In the old days any well-trained security analyst could do a good professional job of selecting undervalued issues through detailed studies; but in the light of the enormous amount of research now being carried on, I doubt whether in most cases such extensive efforts will generate sufficiently superior selections to justify their cost. To that very limited extent I'm on the side of the "efficient market" school of thought now generally accepted by the professors.
There is probably even more "enormous amount of research" going in the decades since he said those words. Hedge funds are using satellite imagery to get an information edge:
What are you, as an individual investor, doing to get an edge over other market participants?
With a much smaller portfolio it is a lot easier to be more nimble, but you're going to spend hours researching things. If you find that enjoyable, go nuts; but for most folks the market returns of index funds will probably allow them to meet their financial goals (e.g., retirement nest egg), and so IMHO the time is probably better spent with family and friends.
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[ 0.25 ms ] story [ 438 ms ] threadAlso, this is a really pitiful article. Very short, badly written, proves nothing. Why is it getting this many upvotes?
That is, since everyone knows that everyone knows about technical analysis, the value it may have had is long since sucked out of it. And in any submarket where a participant has the market power to paint the tape, all following technical analysis will do is allow then to make traps for you and drive your trading activity in response to the technical analysis.
It is possible that super-long-term technical analysis has some meaning, and there's some generalized principles about how to read things like depth of the market off of the tape, but I'm not convinced deeply about the utility of technical analysis in general.
TA would never grow large enough to compete with the institutional investors who are actually driving the market, it would never gain pricing authority, and the gains would continue to be available to anybody playing in the margins.
As an analogy- you could say that you're scavenging for scraps behind a big fish. Sure, it doesn't scale. And sure, not everybody can do it or it would fail. But, if there are enough big fish, and you don't mind waiting for scraps, there's food to be had
Note that this is no argument for or against TA, it may still be bogus. I just don't think you can assume it's bogus because it would get priced in
I wonder if the crossover strategy would still outperform (on a Sharpe Ratio basis) starting in 2005 instead of 1998.
I also wonder if the crossover strategy would fail to outperform (on a Sharpe Ratio basis) once transaction fees were considered.
E.g. a major player rebalancing a position created distortions that allowed much smaller players to profit, but no distortion on the scale that would allow others trading at major volume to profit
It's an area of active research:
> Students of financial economics have largely attributed the appearance of momentum to cognitive biases, which belong in the realm of behavioral economics. The explanation is that investors are irrational,[4][5] in that they underreact to new information by failing to incorporate news in their transaction prices. However, much as in the case of price bubbles, other research has argued that momentum can be observed even with perfectly rational traders.[6]
* https://en.wikipedia.org/wiki/Momentum_(finance)
* https://en.wikipedia.org/wiki/Carhart_four-factor_model
Though the market, size, and value factors appear to explain >90% of returns (at least using US data):
* https://www.ifa.com/articles/momentum_fourth_factor
To be fair, there is no reliable evidence that anything really generates alpha (efficient markets, random walk, etc), but there are hedge funds who consistently outperform (Renaissance, Two Sigma, DE Shaw, etc).
So, maybe there are things that work in practice, but there is no way to produce reliable evidence that they work besides looking at track records...
Of course, there are also persistent rumors of insider trading. Maybe just sour grapes from inferior traders, but who knows?
A lot of technical analysis's value, in the sense that I understand it and believe most retail traders use it, is based around predicting intermediate timespan market changes to time trading. It's less about beating the market and more about taking its pulse.
Looking at TA statistics generated from daily, weekly, and monthly points, effectively aren't those momentum? Which collapses the question down to "Do stocks exhibit momentum or not?"
Look at it this way. TA is fundamentally a matter of pattern recognition. If it actually worked then you could program a computer to recognize the patterns and automatically put in trades. But if everyone does that then any profit opportunity is almost instantly arbitaged away, and thus TA quickly stops working (if it ever worked at all).
And lest you think I am off some examples:
The diet and nutrition studies constantly getting pushed are the new fertility rituals, and the last one didn't work because it didn't please the diet gods, but atkins, or paleo, or weight watchers, or whatever will really work this time.
Econimics is worshiping the god of the harvest to ensure a bountiful crop, and when their predictions fail to come to pass, it's because the goat entrails were read wrong, or the math was off, never because the whole thing is useless.
Psychology is self evident if one examines the replication crises.
The point is we aren't really that much superior to the ancients in many ways. Sure we've figured out some of the fundamental laws of nature and are able to use them better, but that's mostly been the work of a few geniuses over the past 400 years and much less because we as humanity are far superior.
Why do people bother writing blog posts void of insight? This isn't even useful for SEO...
I think this type of calculation is valuable exploration for anyone to try out if they are interested in investing, and is a great way to get some hands-on learning with real data. I'm glad for the author and for anyone who reads this and decides to replicate it or extend it for their own practice and leaning. It's just that the results are not notable in the slightest.
Though it's a rare counterexample to Betteridge's Law of Headlines!
Disclaimer: I would not advise you try it as a way to get rich quick, but it's fun to read about!
However it has to be done in a statistically sound way. Just showing a backtest that makes money or beats the market is not enough evidence.
https://www.bloomberg.com/news/articles/2020-06-03/bitcoin-b...
https://archive.ph/teoSo
It "might work if nothing significant happens" but that is just a weasel way of saying it doesn't work.
Now if you're saying you decided to invest in something and you're trying to get an entrypoint and you spot a moment of large deviation from the mean and you use that to influence your operational buying mechanics like how you space out your buys or time them, that I can definitely see. But online you always see these two very different things mixed together.
More importantly, it's backed by genuine human intent to buy whatever the coin says. There is information in that too.
This is very far from the zero information situation that you were trying to set up, lol.
The goal of technical analysis is to find pools of supply and demand at different price points, much like a clustering algorithm. It is reductive by its very nature but it's still a useful approximation because big interpretable clusters can absolutely drive price action and it's helpful to have a model for that. On a good day, you might get the biggest 2 or 3 clusters correct to within 10% and miss several others totaling 1000000x the size and importance of a hypothetical bozo trading based on a coin flip, and this highly imperfect outcome would still be enormously valuable and worth pursuing.
It's like politicians assembling a platform by considering the sizes and interests of voting blocs. This strategy was always going to be a reductive, imperfect, noisy mess but that doesn't make it irrational or useless.
There is a UAP disclosure hearing in the US House tomorrow:
https://www.theguardian.com/world/2023/jul/21/ufos-congress-...
Are you shorting Tech on the idea that w/e we have now is inferior to theirs?
Do you go long on War on the idea that we'll start fighting them?
--
Perhaps more difficult, what do you trade if Aliens aren't real?
If they aren’t, I dunno? Business as usual cause its already priced in.
Not very realistic, but interesting nonetheless.
Regarding the case for lowtech interstellar travellers: I can accept the idea that there is some symple physics trick to make a jump drive that we haven't discovered, fair enough. Just as in the story, there would also had to be a similar undiscovered trick for antigravity, since otherwise they have no way of getting to orbit.
Can you however build a ship that can resist vacuum and provide life support with 16th century tech? I guess perhaps your species might be able to live in vacuum, needs only a bit of heat and doesn't need to breathe gasses?
- - -
Anyway, I’d like to recommend another book. High Crusade by Poul Anderson[0]. In the first chapter pacifist aliens land in 13th century England and get immediately massacred by the locals. Now the king has a starship.
[0] - https://en.wikipedia.org/wiki/The_High_Crusade
If you want to use math and statistics to get an edge in the market then become a quant trader. People who aren't smart enough for that but want to feel smart get into "technical analysis".
Yet, similarly to brownian motion, the thousands of events that cooccur more or less cancel each other out in the grand scheme of things.
https://www.youtube.com/watch?v=kxh2X6NjuhY
Some things, like weather and major political issues are easily obtained bits of information and are high-impact events. Data like satellite imaging of fields are available at a price and will tell an awful lot about what best-case production figures will be like. Lastly, insider information is around too - asking companies what they planted, sales data on seeds/fertilizer, etc. If a disease is hitting one company, it's probably hitting a lot of them, especially true with live stock.
People do pay for this information, and they use it to trade futures. Which is how it eventually gets "priced in."
Forecasting is a huge factor in a successful agriculture business. Which is part of why a lot of niche industries tend towards vertical integration - it's much easier to forecast demand when you produce a lot of derivative products. Buy your own stuff; if you planted a surplus then create new products / markets, if there's a shortage, cut production on lower profit items.
Experts predict crop failures, big money acts on those predictions and moves securities price and volume, which technical analysts examine.
Therefore, the experts prediction is input for technical analysis.
If I know for a fact that a company is about to collapse and I establish a short position, will anybody notice? It depends on a lot of factors, but I could make an assload of money on puts without nudging the market.
Technical analysis is all about answering the question: are you able to filter who know something vs those that don't merely by looking at a buy signal? The answer: no, not really. Insiders acted well in advance of the SVB issues being made public, and there are lot of other examples of people making guaranteed bets that weren't obvious in the technicals. The noise is just too much.
By the time the signal is clear, the market has "priced" it in, and now you're just trying to predict the random actions of the know-nothing crowd.
Technicals are always after-the-fact. Since enough people with deep knowledge have to have already moved on that information in order for the market to have reacted to it.
It's much like trying to predict a fire by watching a crowd running away and hit the fire alarm. You didn't predict the fire and you can't have predicted the fire. Maybe you could have noticed one person booking it for the exit and follow along, but you still didn't know what was happening and were going on blind faith.
Assuming you are the only person who knows for sure that this company will collapse, technical analysis is the wrong tool to use and all other strategies, experts, big money players will also fail.
Assuming you aren't the only person who knows for sure that this company will collapse the price will reflect this knowledge.
>It's much like trying to predict a fire by watching a crowd running away and hit the fire alarm. You didn't predict the fire and you can't have predicted the fire. Maybe you could have noticed one person booking it for the exit and follow along, but you still didn't know what was happening and were going on blind faith.
It's nothing like that at all, and reasoning with analogy is pointless because the discussion becomes about the analogy not the issue at hand. But I will try. If people running away is people selling stock, it doesn't matter if there is a fire or not. Selling stock impacts price regardless of if the event is real or not. And as you know, having been in a building where the fire alarm was activated, people don't rush to the exists. Some small number leave right away. The vast majority won't enter the building. The remaining people look to others and as more leave the momentum builds until the mass moves out.
And once the fire department arrives and gives the ok they will go back in. But since we are talking about stocks, not all buyers won't be waiting for that. They'll have put their money elsewhere, money may go back into the stock slowly. Obviously this won't work on the top 3 most popular stocks in a raging bull market that everyone is paying attention to. In that case, people will be waiting to jump back in.
Also, the situation is very dynamic with an unknown and very large number of variables, even with something as seemingly simple as a crop failure. Such as such as a countries deciding to ban exports to secure food security, lack of access to fertilizer due to sanctions against major fertilizer producers in wheat producing countries, the politics of national and local water rights.
All these factors have parties with inside information acting on them (see members of congress trading stocks) which no player with big pockets will have access to but is all reflected in the price.
The steel-man position for technical analysis is that humans are herd animals, who tend to do things in similar, predictable ways. Such as, people who pick stocks like to sell and take profits after the stock reaches some nice, round number. When enough people do this, it can result in repeatable, predictable patterns in prices.
The massive caveat there is of course that while that might be true in the absence of outside stimuli, any news always trumps that. It doesn't matter how nice your patterns are, if it comes out that the company somehow did worse than expected, it's price is going to fall, and if it did better than expected, it's going to rise. Trading on technicals might be something that works if you are really fucking careful, but it seems to me like you are picking quarters in front of a steamroller, in a way. The actual reliable profits from technical analysis are always going to be small, and the risks of investing with no understanding of the fundamentals seems fraught.
Is this true? For example, is using AI models that take into price history, current and historical events, insider and/or institutional trading, analyst opinions -- would that not be considered technical analysis? I know this is just a matter of semantics, but curious as to what is considered TA nowadays.
Technical analysis is specifically the stupid line drawings you see on stock charts that try to predict trend lines from the motion of the previous lines
This feels like you're attacking a strawman version of technical analysis. The claim isn't that you can predict future price movements with perfect accuracy, it's that you can predict it well enough that you can make some money from it. None of our economic models can predict a meteor hitting the earth either. Does that mean we should conclude that all of them "cannot work"?
So all that’s left is the unpredictable bits, and those are what you’re at the mercy of. And the unpredictable bits are happening constantly.
But if you assume enough rich people do technical analysis and pattern day trading you can earn money by doing what's essentially technical analysis, but with different patterns - ones designed to capitalize on the old patterns used by the rich.
Keep in mind, I'm not saying technical analysis works. I don't think it does, but that's without seriously examining the evidence. I'm just saying that the diminishing profit argument doesn't work. At least not as presented.
if this were the case, it seems likely that others with deeper pockets than you, perhaps other high frequency traders, would rapidly exhaust those profit opportunities
Having said that, “let’s take difference to EMA” is pretty the one-size-fits-all solution, and there are no shortage of firms looking at minute to hour long trades to gobble up anything human TA practitioners would ever try to trade.
This just further emphasizes the point that retail investors relying on TA are having their lunch eaten. HFTs are picking the minute opportunities because that's all that exists. If there were longer-term strategies that were reliably profitable, do you think they simply ignore them?
> If there were long term strategies that were reliably profitable, do you think they would simply ignore them?
Yes? Mid frequency trading (say holding period of 5 minutes to ~1 hour) is a totally different class of quantitative trading, from the features you use to how you build portfolios (if at all) to how you execute on forecasts. At least one top-of-the-game hft firm (that already relied on forecasts instead of speed) got burned on their first attempt to enter mid frequency.
Put differently: "A bunch of smart people who have proven to be able to reliably extract profits from microsecond trades tried their hand at exploiting patterns on longer timescales and were unable to. Even though I have less money, information, access to markets, and am just one person, I believe I can succeed where they failed."
Now, perhaps each new generation of patterns would have diminishing returns over the previous generation. My intuition is that this almost certainly true. But either an argument or evidence has to exist for it and I'm not aware of any.
correct, exactly what I'm saying, any opportunities, including those derived from other opportunities being seized, would themselves be seized by such deep pockets and HFT firms
> ...or day-traders.
unfortunately I doubt it, due to the above
If those with deeper pockets had reliably exploitable trading strategies, other teams with equally deep pockets would be exploiting them. You need to simultaneously believe that widely known and understood patterns exist which are profitable to exploit but also that nobody with large sums of money and a financial incentive to profit is interested in taking that easy money.
The opportunity is there for the average person to take, but it needs sufficient skill / training, like any other skill. I can't "prove it" to you, but I already proved it to myself and many people in the trading community did.
You don't need any sophisticated tools or huge amounts of money. It's bloody difficult though, not just for the technical reasons (there are many strategies but most go beyond a MA crossover, even though I'm not denying even that can produce alpha -- I don't know or care), but mostly for psychological reasons. And psychology is what's behind many of the patterns you see in the markets.
Every year there are people who beat the indexes and there are people who perform worse than the indexes. Every successive year some proportion of the winners stay winners and some become losers. The interesting thing to note is that—if you look at the statistics—winning one year has almost no bearing on whether or not you win the next year.
Still, there are participants who flipped that weighted coin year after year and caught heads five years in a row. It doesn't mean they have a successful strategy. It just means that if you flip a 45/55 coin five years in a row, two out of one hundred people will get a string of heads.
I've personally witnessed all of my day-trading friends go through this (I almost said "learn this lesson" but I'm not sure they have). For a while they beat the index and they're convinced their strategy is sound. One day something unexpected happens and they're suddenly in the hole. Often this is compounded by having an enormous tax bill on "gains" that no longer exist, necessitating selling off holdings that are deep in the red, making it even harder to get back to positive.
Do some individuals exist who can reliably beat the markets? Sure. They just are exceedingly likely to not be you, and none of them are offering their services to you.
You're right in that most of the time, the directional probability of the market is close to 50% for a 1:1 trade.
There are instances where the directional probability is significantly above 50% to make a trade have a positive EV (if it's not 1:1, the baseline is not 50%, and there are similarly moments where the directional probability for a different risk-reward is above its baseline for some direction). Different strategies tailor to different RRs, but you can absolutely find those entries.
However, as you said it's easy to get caught up in the illusion of profitability for a given market condition. For example, in a strong bull market like the post COVID stimulus, you could trade to the long side in a large timeframe and just win money because of the anomaly of such a protracted spike in the daily charts.
That's not a sustainable strategy though which explains what happened to your friends. A price action system that takes into account markets structure works in every environment, be it ranging, surging or a bear market.
Learning price action TA takes time to learn though, it's a skill like when we learned to code till the time we got paid for it. And trading, in general, goes against how our brain works. Psychology is the great barrier to profitability once you have a strategy. It explains the high failure rate. it being a hard skill is why there's so few people doing it, But it's not because it needs a very high IQ or Rafa Nadal's strength of mind. Most people could get there, but it takes a lot of effort, and theres so much deception and scamming around it, it's easier to pretend it's impossible based on the amount of people that fail.
It boils down to "the market is probabilistic and you can't know for sure it won't get impacted by things" but if TA gives you even a couple % edge (with black swans averaging out in both directions) it would have been worth it.
I don't employ any technical analysis in trading, nor am I a strong advocate, but technical analysis is more about reactionary psychology than about predicting the future. In the most micro sense, the market is dictated by single individuals buying and selling stock, and in the broadest sense, it's a statistical result of millions, or billions of unknowns. Those are two totally different games.
I've used it for years and had very good success when I was actively trading (traded longer timeframes. Usually made weekly/monthly trades) to the point I was able to live off of it. The last couple of years I've taken off from trading to focus on developing my business, but will likely jump back once that launches and is in a good enough place, as it's both a time and emotional drain.
... when you draw the figures use in technical analysis, the predictions will depend on the relative scales you choose for the x- and y-axis.
Case closed.
While the made-up character is similar, Astrology is far richer in concepts, orchestration and story telling.
Technical analysis is the ultimate dumbification of market structure and dynamics, which in itself is a major dumbification of the formal economy, which in itself is a major simplification of the stuff-that-matters(TM).
The objective of technical analysis is to get as many low-information actors as possible to transact with as low-cost as possible technology (I would totally not be surprised if current "technical analysis" verbiage is 100% automated).
Technical analysis is literally made up.
I think there's a gradient where technical analysis is in the far right and psychonalysis in the far left, with astrology in the middle. I can't discern it clearly on an empty stomach right now though.
Checkmate atheists
Sadly the actual zodiac and astrology do not agree on the month boundaries. And that is because astrologers are using an out of date calendar.
https://www.astronomy.com/astronomy-for-beginners/why-your-z...
Also [0].
[0] https://www.newadvent.org/cathen/02018e.htm
I've only ever seen it used sarcastically by atheists making fun of the kinds of arguments that religious folks make. It was a bigger thing during the heyday of new atheism, I don't see a lot of discourse on the topic these days.
ngmi
Concluding that the entirety of TA can not be useful (the Null hypothesis is true for all input signals) just from seeing that a few strawman TA in finance 102 not work is beyond absurd.
That is not to say that no versions of TA will work. After all Long Term Capital made a fortune on reversion to the mean...right until they went bankrupt. (And then their portfolio went on to make a fortune again. Too bad they were insolvent.) But it will only continue to work if the trading strategy is not widely known, or comes with trading risks.
And just wondering, using TA, how would you calculate how much to change an M&A offer in order to compensate for including a poison pill?
Just curious about the details, thanks.
If the assertion is true that this is useless for the stock market, that would imply the assertion is equally true for macro-economics, and extending further, climate change.
We are collectively deciding how to spend trillions of dollars based on the outputs of these models. Should we not bother then?
TA doesn't use "statistical tools" in any actually meaningful or predictive way. It's digital phrenology. Data-driven tea leaf reading. Programmatic palmistry. It deserves only scorn.
But the core proposition of TA is that a scientific approach to analyzing past price movements will at least hint at the future, sometimes. Not all the time. That's not controversial, and wouldn't be in any other discipline either. Whether it can be profitably exploited at a particular scale or by a particular person-- another question entirely.
The interesting thing about applying TA to live markets is ... its adversarial. A pattern becomes known, and that leads it to change. If it doesn't change, we can consider it based in fundamentals. For example, markets are more volatile, on average, in the Fall. Why? Well, it's got to be fundamental because everyone knows this pattern and yet it very often repeats. TA is helpful because we would not identify the fundamental mechanism without first observing the historical cycles of prices.
> But the core proposition of TA is that a scientific approach to analyzing past price movements will at least hint at the future, sometimes. Not all the time.
Will those "hints" be correct more than 50% of the time, though? I mean, if TA did beat coin flips, you could exploit this consistently with a profit. That, however, would be news to me.
TA is not predictive. It can't help you anticipate the future. If it was, you could make consistent profits by using it, and no one has. If it's right, it's just as often wrong, in which case it's no better than a coin toss or throwing bones or reading tea leaves.
It's not explanatory. It provides no hypotheses for why the market behaves in certain ways. If it did it might have some hope of being predictive, but alas, as I already mentioned, it's not. And thus it can't teach us anything about market behaviours or their underlying causes.
TA might reasonably be thought of as descriptive, in that it gives a (voodoo) framework for describing observed market behaviours. As you say, we might observe the market is more volatile in the fall. But because it offers no explanatory power, we have no way to know why, and since it has no predictive power, it can't tell us if next year will be the same as this year. You're simply expected to believe that, well, it's always been that way, so I'll assume the future will be the same as the past.
As a result, it's frankly not that useful or interesting.
No, the suggestion is that technical analysis is useless at predicting future trends in stock prices.
I never understand the above argument.
How is that possibly true on long time scales?
I can say with relatively strong confidence that Tesla is going to be worth more than $1 trillion in three years.
In March, it was clear NVIDIA would boom in the scale of one year. Just, nobody knew how soon and how fast.
So the walk is not random in these cases...
So is the walk pseudorandom? Random with a bias?
It clearly can't be purely random.
In all seriousness, though, there is an entire field of research whose results substantiate GP's point. This is not to say that you can't beat the market but the challenge lies in doing so consistently.
How relative is your strong confidence? If you feel this is inevitable, you can become essentially infinitely rich. Why not do it?
Of course so could others. And all your collective trades move the market. At which point it's no longer true. It can't be, not everyone can become infinitely rich.
Macroeconomic models have had spectacular fails but are fundamentally a semi-honest attempt to understand how the economy evolves (Only "semi" because ideology can be quite limiting).
Climate change models have a strong physical component that is neither made-up nor manipulated, but may suffer from not capturing biosphere dynamics all its complexity. Thats why there is uncertainty range around scenarios.
Long term investment decisions are in any case never based on TA. That technique is really a made-up pseudoscience tailored to provide comfort and talking points to the widest possible trading audience.
Technical people would do analysis with state-of-the-art tools, from LLMs applied on github repos to discover lurking security bugs likely to bring stocks crashing, to vision models applied to satellite images to analyze business activity.
But I have to say, I'm not sure if it's a joke at all.
If modern AI can generate average-human-like text and images, couldn’t it day trade as well?
Technical analysis is the macroeconomics (macroeconomics, the discipline taught in school etc) of the stock market! It’s like drawing aggregate demand and supply curves and imagining that they move around monolithically as they drive the economy. Tail wags the dog
I don't win; I'm out the dollar.
I buy a stock for a dollar.
It goes down 50% tomorrow. Then up 25% the next day and so on it fluctuates like a train going through the mountains.
One point in time it is low and another point in time it is high. I prefer to leave the train when it is high on the mountain.
i e. Picking a stock is a gamble but unlike the lottery I get to play the same game with the same money everyday until I win or die.
Only part of it....
Buy low, sell high, use other people's money
That's a good point. Best traders know how to use technical analysis, they just don't use it to invest their own money.
There was a newsworthy situation in the UK a couple of years ago where a star manager crashed and burned. He locked his trading account, with everyone's money still in it, and continued charging fees.
Apparently this is quite legal.
Actual market research directs resources to the most productive companies, helping them grow more quickly and generate positive aggregate value.
Essentially, it's a way to add intelligence and information to the companies that represent the market, to make them more profitable. Specifically, it allows newcomers to grow more quickly if they're more efficent than legacy companies, meaning it's more difficult for the legacy companies to create moats.
Without trading, we might still have IBM at the top of the tech industry, with a massively inefficent organization, low worker salaries and enough market power to keep the competition away, since without a market, startups would need to cover ALL investments using organic profits.
But that's mostly true for medium-long term trading. Short term trading is mostly about speed and finding information or clues faster than anyone else. That part probably generates less net value than it consumes.
Fully systematic traders exist and make money. Efficient Markets Theory says they shouldn't, but they do anyway. EMH is probably written under stricter/ideal conditions though.
If one wants to take a systematic/technical analysis approach though, I would look at the entire universe of stocks, whereas use a fundamental approach in individual stocks.
But yeah. I'm just an amature. What do I know.
The post you are responding to already answered this question.
Here is the answer: "it would, like most other techniques that can actually generate sustainable alpha, be a closely guarded secret"
So, to answer the question, the important stuff in the trading strategies that you mentioned, include information asymmetry. Those systemic traders have hidden information, and hidden strategies that they use, and they don't just given everyone open source access to their code.
On the sell side, sure--you know when they'll under or overpay. Anyone buying retail flow should be running these models.
Technical analysis just looks at the surface of the order book--the transaction layer. If you're integrating the book, you can see when the surface is misleading and profit from it. There are technical heuristics, e.g. dead cat bounces, round-number tendencies, et cetera which are based in reality, part flow of funds and part psychological. But technicians' sole reliance on stock charts necessitates blindness to those underlying conditions.
In summary, a stock's near-term price history can, on its own, provide information that predicts the next tick. It's just a known subset of a broader set of signals. That the delineation is known makes those relying on these strategies possible to arbitrage.
If you have a large group of people who take risks while trading, and they form strategies indistinguishable from flipping a coin (like technical analysis), then at the end of the day you're going to have a lot of ex-traders who failed to make money and a few that look like rock stars - because taking large risks and being lucky is a "good" way to make money fast. It's the very definition of survivorship bias.
One interesting thing about the stock market is that it’s entirely possible to be successful in it, attributing that success to strategy X, yet to be completely wrong about that.
It’s actually not limited to the stock market – there’s tons of professionals out there that are completely unaware of why what they do works. This makes many people nervous, and they try to come up with a rationalization or mental model for it, and sometimes they get it completely wrong.
By itself that doesn't mean anything, surely you realize?
What percentage of technical analysis traders own the million dollar houses?
You definitely can make huge amounts of money on short term trades if you get lucky. So occasionally a TA trader will become very rich and have a mansion.
But, do more than 50% of them strike it that rich? If not, it's just random.
It's like saying that powerball winners have mansions, therefore the best investment strategy is to buy powerball tickets.
Yes
Front running is illegal
HFT is front running
There are very good reasons to believe that. The earliest proponents of HFT may have made money by more efficiently using price information. But now there are so many of them that is no longer possible
It is crime.
The most useful model for understanding international high finance is "organized criminal networks"
Front running is when you take an order from a client and before executing it out your own order in first so you benefit from the bumpe or drop in stock price that the client would cause.
The key here is you have advanced knowledge of the order before it hits the market and you have a legal requirement to execute client orders before your own.
I believe it’s also been ruled to be front running if you get knowledge of the client order in advance of it being sent to the market by a third party.
But having a faster network and computer to allow you to react faster than others is not front running.
Take this is an extreme, if I watch a market ticket and react manually with in 20 minutes to news and you read about the news in the paper the next day, did I front run you by trading before you?
It’s the duty to execute a client order before your own and not tell others abouT the order before it hits the market that is the requirement for front running.
Are there other “bad” (for the general investing public) strategies out there? Sure! Should some of them be illegal, or be made unprofitable by coming up with fairer (for long-term investors) markets and market structures? Definitely!
But that doesn’t make them the same thing as front running. Why call “bad strategy/phenomenon X” “Y” and confuse everybody?
Front running is to act on confidential information in the market to the detriment of the initiator of the information. Once something is no longer confidential, ie the customer order has been processed, and all the information is open, then there can no longer be any front running.
What's missing is you actually confronting the problem of people seeing orders and buying based on those orders before the original orders go through. What is your term for that? Playing a game of definitions is a diversion from actually talking about the problem.
Imagine a public official caught taking bribes and calling that embezzlement, blackmail, or driving under the influence of alcohol. Makes about as much sense to me.
> the problem of people seeing orders and buying based on those orders before the original orders go through.
That would be frontrunning, and illegal, as far as I understand. I don’t think it matters if there’s two parties colliding to commit the same crime.
Are you maybe referring to payment for order flow, which also has its problems (but ironically on average yields price improvements over NBBO for retail traders!), but is not that?
This literally cannot happen unless someone is breaking a law. An order is not visible until after it has executed. What can happen is some actor want to get a better price for their order and thus split up the order into multiple orders that it tries to execute simultaneously. Then someone can act on one of those that process quicker before a second of those split up orders end up executed. And that is fine - propagating changes of price quickly between multiple separate market places is a good thing as it lowers the transaction overhead in general.
HFT lives on happening so fast that the market price has not had time to catch up to the information that a trade is available. But it is a race against others in the same market. And an incredible amount of effort has gone into winning that race and making profits off of the increasingly narrow slice of time that markets are profitably inefficient for.
High frequency trading is knowing about recent trades sooner than others. That's where the profit comes in.
I see a difference here to technical analysis. HFT clearly has a data edge over those who just look at historical trend lines.
I think it's reasonable to say this isn't technical analysis. It's not the historical analysis that gives the edge. It's the extra knowledge they have that gives the edge.
Technical analysis is very much rooted in purely the historical price. If you have a way to predict prices with more knowledge than just the historical price you're getting outside the realm of technical analysis and into the realm of plain regular analysis where you take as much knowledge as you possibly can about the stock and figure out the price based on that huge volume of knowledge.
This is why technical analysis is dumb. It assumes all the knowledge is in the price already and there's no way for some investors to know more than others outside the scope of that. HFT is in fact a great counter to that. Some people know incoming trades before the rest of the market. That extra knowledge allows for vast profits.
btilly's comment has a good practical explanation of HFT that expands on this
You having a faster computer and network is just your alpha.
Front running is where I take your order to buy a large amount of a stock and buy some for my self first before executing your order.
Being faster is perfectly legal.
Trading Based on a clients order is not.
Technical analysis is largely astrology for stock markets for reasons many others here have already given, as far as I understand. (Note that it’s still possible to make money using a trading scheme based on astrology, namely if the market structure itself makes any participant come out ahead on average, and the scheme isn’t bad enough to outweigh that inherent advantage.)
It might work that way with astrology too, but it's not so clear.
For example if everyone agreed on that Gemini means good at science and Leo is good at art, the whole education system would be designed around this belief and it would hugely impact how children think of their own potential.
Humans would totally do this. If anything, I'm pleased by the fact that we don't do it quite as much as we could...
https://blog.rongarret.info/2020/09/can-facts-be-racist.html
An astrologer named Asclation had earlier predicted that Domitian would die on September 18, 96 AD, and Domitian's enemies used this as a sort of nucleation point to organize his assassination. So although the date was made up, it had the effect of focusing the efforts of the assassins on a particular date, and they were successful in assassinating him on September 18.
The full story that survives probably has some embellishments, but is entertaining. As the day approached Domitian became increasingly nervous. On September 17, he called Asclation before him and asked him if he stood by his prediction. Asclation said he did. Domitian then asked Asclation how Ascaltion himself was to die. Asclation responded that the stars said that he would die by being torn apart by dogs. Domitian then had an idea, and condemned him to death by burning.
Asclation was immediately led to a public square, tied to a stake, and a bonfire was built underneath him. Not long after being lit, however, it suddenly began raining and the downpour quenched the flames. In the wet mess, Asclation's stake tipped over and a pack of dogs found him and devoured him.
This development naturally did not put Domitian's mind at ease. The next day he became a nervous wreck. Around noon, he asked an attendant what time it was. The attendant, who was part of the conspiracy, lied and said that it was an hour later. Seeing that the danger had passed, Domitian relaxed and decided to take a bath. As he was about to go out, an official rushed in and asked for his signature on some documents. The official appeared to have an injury to his arm, but this official was also in on the conspiracy, and his sling concealed a dagger. When he got close to the emperor he stabbed him to death.
It'd be hard to hide such statistical effects on an yearly interval, whereas the Western zodiac hides its predictive failures by not having signs that are commonly stratified into different groups.
> you ask some parents about santa clause. they say we are athiests, but we pretend to believe in santa clause to make our child happy. then you ask the child about santa clause, and they say i pretend to believe to make my parents happy.
While some kids may become very vocal about it when they suddenly stop believing in Santa Claus as a literal being, they children (and adults) can continue enjoying him for as long as they're not embarrased by it.
Having a small child in the family believing (or pretending to believe) can be a way for everyone else to enjoy him. And some families continue to have him even when nobody believes.
The same is sometimes true about religions. People can continue to value them even if they stop believing in the literal Sky-Father.
I can see how Santa Claus can live as a fairy tale, with small kids playing with the idea of the entire thing being somehow real, the same way as Goldilocks or Bambi. This is indeed cute, unless taken too seriously.
It's quite a bit harder with religions: they are not a once-a-year pleasantry, but are things that shape your entire view of the world and the way of life. A faintest idea that they are but a cute tale is literally a destruction of a worldview, a catastrophe instead of a mild disappointment. Knowing, say, Christianity or Islam as a cute tale only works for people who never were believers.
Belief comes at many levels of intensity. People with low intensity beliefs can drift away without experiencing a world view collapse.
There are certainly people of most religious backgrounds that continue to practice and enjoy many of the religious traditions and practices even generations after they stop believing in the supernatural parts.
I think it descends from a line about labor in the USSR: "We pretend to work, and they pretend to pay us." Tony Judt in "Thinking the Twentieth Century" had a line about Moscow needing its satellite states to avoid loudly or conspicuously disagreeing with party ideology even if in practice they were able to diverge. "You pretend to believe and we'll pretend to believe you."
At higher levels of simulacra, the statements people make are less about reality, and more about what they want people to believe they believe about reality.
-- Upton Sinclair (?)
This is how it works for the child and Santa.
https://en.m.wikipedia.org/wiki/Abilene_paradox
The young economist looks down and sees a $20 bill on the street and says, “Hey, look a twenty-dollar bill!”
Without even looking, his older and wiser colleague replies, “Nonsense. If there had been a twenty-dollar lying on the street, someone would have already picked it up by now.”
I don't remember too much from my finance courses in business school but one comment from the professor always stayed with me. He said that if there was any succesful pattern to trading, there are firms on wall street which can afford many orders of magnitude more brain power and compute power than you, so they will zero in on it pretty quick if it works. As soon as they do, it doesn't work anymore. Proof: Otherwise they would all be making infinite profit.
Makes sense. This means any trading algorithm that can be programmed is pretty much obsolete (if it ever was any good) by the time it's working.
But such algorithms only work as long as they're kept secret. As soon as the algorithm is made public, every large institution will incorporate them into their trading robots, meaning the information will become priced in to the market value instantly.
There are really only five ways to beat the market:
1) Insider information. (Illegal) 2) Extensive market research, where you understand the companies better than the market does. (Requires A LOT of work) 3) Direct contribution to the company's success (you need to have the talent of a Elon Musk, Mark Zuckerberg or Bill Gates). 4) Mathematical/computational superiority (you need to be at the level of Jim Simons or have the capital to hire such people) 5) Luck.
Mainstream technical analysis is not on the list.
That being said, I'm sure the current AI revolution is leaving some doors open to massive profits to some clever person able to create a model that predicts patterns better than most other algo trading robots.
1.) You don’t get it.
2.) Let me explain.
3.) Science and maths.
4.) I’m no expert I believe in 3 though.
5.) Nothing is 100% accurate.
6.) Full Deepak Chopra.
But it’s hard to do that when something disproves its own validity so utterly.
If someone has a strategy to predict any amount of value from the market, it would be automated immediately (we’re mostly programmers here so that part’s kind of our bag), and so doing abstract that value away to a machine housed at JP Morgan or Citigroup.
tldr; It’s astrology for finance bros.
At least the crypto hype has died down again for another while. They perfected the above during Covid.
While actual finance people use algo trading all the time (meaning technical analysis using secret algorithms), naîve technical analysis is mostly a sales or influencing tool. (Unless the "finance bro" is truely deluded)
The same goes for tech managers. While some actually create agile teams using big data to create useful AI, plenty more just use the terms to inflate their own careers.
It's kind of like a group of lions hunting a giraffe. Globally it's adverserial, but within the lion pride, it's cooperative.
That said back in 2018 there were no less than 3 cup and handle indicators on SPY at almost every timeframe. I yolo’d the biggest gain ever because the TA was saying heavy buy and the risk was very low (bought long dated ITM calls with a strict exit date)
There are lots of giant trend following and quant funds that will likely fall into "technical analysis" category.
So basically Python is ultimate dumbification of C, which in itself is a major dumbification of Assembly, which in itself is a major simplification of Gates/Transistors?
At some point we have to deal with abstractions in one way or the other or just continue to indulge in mental verbosity of the most extreme kind.
Abstractions could be leaky but they work for the most part. Which is good enough for most situations.
Your abstraction of abstractions is leaky and is not working.
Technical analysis is not an abstraction of market behavior. It the fetichization of linear 2d representations of historical price timeseries.
In your analogy it would be to look at pictures of chips, identify faces and other objects in the clusters of transistors and argue that is the interaction of these patterns that determines chip function.
In general, investment discussions on HN are very shallow.
Is there some investing discussion forum on the web with substance?
So, it’s hard to go beyond shallow advice without everyone screaming about the latest bubble.
> Is there some investing discussion forum on the web with substance?
I've personally searched for something like this quite a bit in the past and I think ultimately it's the wrong question. It seems to me that a forum of people discussing stock market dynamics is always going to be doomed from the start. I think that's because the ideas actually worth discussing are too complex for even people with above average intelligence/capability.
TLDR: In my opinion, there's basically no where on the internet that you will find an "edge". All of the discussion is too shallow.
Assume that there are ultimately just two approaches you can take to financial trading: fundamental analysis & technical analysis.
Fundamental analysis is almost a solved problem. This is why stock picking is so hard and Warren Buffet types are so rare. I think this is because FA is infinitely more understandable than TA. Companies are evaluated based on their balance sheets/cash flows and compared to peers. It's not simple per se, but it's the sort of thing most people can grasp. It's well established that beating an index fund is difficult and that most stock pickers will not beat an index fund. Investing forums are full of people thinking they will be the exception but we know that most of them will underperform the benchmark.
Then there's technical analysis. Technical analysis of any substance requires a very strong mathematical background. The original post only mentions moving averages. That's essentially a pre-school level understanding of TA and I have strong doubts that a moving average strategy has ever been profitable. Basically any strategy that involves buying/selling based on a moving average or one of it's cousins is more shallow than astrology.
A more advanced practitioner of TA might get into pairs trading/statistical arbitrage. In developed markets (stocks/forex), an individual cannot succeed at this even if they understand how it works. It's just too competitive. Just a few years ago you could be profitable doing this in under-developed markets (.e.g crypto) but I'm not confident an individual could compete in crypto markets anymore.
Then there's even more advanced strategies that are employed at places like Renaissance Technologies. The people that work there tend to have advanced degrees in math/physics.
If you see the most fitness and nutrition advice, and you go through it, most of it sounds like pseudo science that would never work. Yet if you go running in the morning, most parks around your home will have these people who are very fit, eating the right things and doing the right stuff.
Its just doing all of this is hard, painful and demands some serious discipline on the very long run. This process in essence now acts as a filter to 99% people out there. Among the 1% degree of success again varies based on other parameters(timing, luck, overall effort in continuous improvements etc). By the time you arrive at 0.1%, the process basically acts as ruthless filter to eliminate people who just can't measure up.
So many times the what works, can be easily learned and known. Doing it, is just a whole different beast altogether.
(That particular strategy doesn't work anymore)
To do well in quant finance you need the same intuition and talent as a reinforcement/probabilistic learning practitioner — good grasp of statistics and instinct for complex systems with feedback loops like differential equations and dynamics. Market making for example can be formulated as a bellman equation.
Markets aren't easy to predict (that's why people who DO predict them correctly make bank) nor are they rational.
TA can provide historical reference points, sure, and in some cases can indicate that something is likely to happen (to a degree, anyway), but cannot accurately predict anything consistently.
* https://en.wikipedia.org/wiki/A_Random_Walk_Down_Wall_Street
If you just want to have fun (5-10% of your assets/portfolio), then just have fun.
tl;dr: Don't. And if you do, don't tell anyone about it or it will go away.
*https://en.wikipedia.org/wiki/Security_Analysis_(book)
And then read (original co-author) Graham's last published interview ("A Conversation with Benjamin Graham", Financial Analysts Journal, September/October 1976):
> In selecting the common stock portfolio, do you advise careful study of and selectivity among different issues?
> In general, no. I am no longer an advocate of elaborate techniques of security analysis in order to find superior value opportunities. This was a rewarding activity, say, 40 years ago, when our textbook "Graham and Dodd" was first published; but the situation has changed a great deal since then. In the old days any well-trained security analyst could do a good professional job of selecting undervalued issues through detailed studies; but in the light of the enormous amount of research now being carried on, I doubt whether in most cases such extensive efforts will generate sufficiently superior selections to justify their cost. To that very limited extent I'm on the side of the "efficient market" school of thought now generally accepted by the professors.
* http://www.grahamanddoddsville.net/wordpress/Files/Gurus/Ben...
There is probably even more "enormous amount of research" going in the decades since he said those words. Hedge funds are using satellite imagery to get an information edge:
* https://newsroom.haas.berkeley.edu/how-hedge-funds-use-satel...
* https://www.theatlantic.com/magazine/archive/2019/05/stock-v...
What are you, as an individual investor, doing to get an edge over other market participants?
With a much smaller portfolio it is a lot easier to be more nimble, but you're going to spend hours researching things. If you find that enjoyable, go nuts; but for most folks the market returns of index funds will probably allow them to meet their financial goals (e.g., retirement nest egg), and so IMHO the time is probably better spent with family and friends.