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Not to be rude but I stopped reading at "MACD". TA is not the go-to strategy in stock trading for a reason. Indicators like MACD, RSI, Bollinger Bands etc re-pa

Not to be rude but I stopped reading at "MACD". TA is not the go-to strategy in stock trading for a reason. Indicators like MACD, RSI, Bollinger Bands etc re-paint a lot. So the perfect signals everyone sees on the charts are, for the most part, are just "profitable system" mirage.

dperfect 9y ago
Thanks. The conclusions may be obvious to experts in algo trading (and I heard similar things about the problems of TA for stock trading prior to doing this), but it was educational for me to go through the exercise because (1) it confirmed to me that the crypto markets behave similar to other markets, and (2) it helped me understand exactly where and how a technical indicator like MACD falls short for making trade decisions. Before trying it myself, I was somewhat skeptical when reading about how these indicators don't work well. The overlays on charts always looked like good buy/sell indicators, so I didn't really understand why they couldn't make for a good algorithm. Only after trying it myself did I gain insight as to why they don't actually work so well. I guess it's better to learn the hard way than to learn the hard-and-painful way with real money ;)
- jonkiddy 9y ago
  It isn't clear to me why technical indicators aren't viable.
- ValentineC 9y ago
  > Only after trying it myself did I gain insight as to why they don't actually work so well. Would you care to elaborate on which indicators you tried, and what happened?
  - dperfect 9y ago
    From my experience with MACD specifically, it basically came down to the fact that with longer periods (or less sensitive thresholds), you lose out on most of a price swing by the time your trigger fires, and with shorter periods (or more sensitive thresholds), you end up making a lot of trades that don't move the needle (can also rack up significant fees if you aren't careful). You can find something reasonable in the middle, but by doing so, you're decreasing both risk and potential returns. There are at least two other important considerations apart from the indicator itself: how to actually execute effectively with limited funds (when your trigger fires, do you trade everything you can, only a certain percentage, or some variable amount based on technical factors? - that's an entirely separate algorithmic rabbit hole); and even if you do find a good algorithm and it performs great in backtesting historical data, it's almost always harder to achieve the same results in real market conditions (it's difficult to simulate the spread and dynamics of limited market depth).
dmak 9y ago
What is an example of a "go-to strategy in stock trading"?
- 24gttghh 9y ago
  1. Buy undervalued groups of stocks 2. Hold on to them for a few decades 3. Profit.
unethical_ban 9y ago
TA is "Technical Analysis", according to Google. You're telling me those indicators are NOT used by rules-based traders in the stock market?
- spookthesunset 9y ago
  The reason TA is a bunch of malarkey is because if somebody could simply look at a chart to predict future price movements than everybody else would do it to, making such prediction worthless. Same is true of anything else that is public knowledge. Once everybody has that knowledge, you lose the ability to profit off it. It is one of the core foundations that underpin up modern finance (something that Bitcoin advocates would be keen to learn about...) - see also [Efficient Market Hypothesis](https://en.wikipedia.org/wiki/Efficient-market_hypothesis https://en.wikipedia.org/wiki/Efficient-market_hypothesis), [Modigliani and Miller Capital Structure Theory](https://en.wikipedia.org/wiki/Modigliani%E2%80%93Miller_theorem https://en.wikipedia.org/wiki/Modigliani%E2%80%93Miller_theo...), or the [Modern Portfolio Theory](https://en.wikipedia.org/wiki/Modern_portfolio_theory https://en.wikipedia.org/wiki/Modern_portfolio_theory). In short, TA has refuted time and time again. It's complete garbage used only by amatures.
  - unethical_ban 9y ago
    I can't argue on merit, and I agree that if everyone used it, it would be worthless. The insiders and professional market researchers would do best, then the group who uses TA, then the buy/hold crowd, then the shoot-the-rabbit sell-low-buy-high group. I don't think TA is complete garbage, but I agree it's not a fundamental.

dperfect 9y ago

Thanks. The conclusions may be obvious to experts in algo trading (and I heard similar things about the problems of TA for stock trading prior to doing this), but it was educational for me to go through the exercise because (1) it confirmed to me that the crypto markets behave similar to other markets, and (2) it helped me understand exactly where and how a technical indicator like MACD falls short for making trade decisions. Before trying it myself, I was somewhat skeptical when reading about how these indicators don't work well. The overlays on charts always looked like good buy/sell indicators, so I didn't really understand why they couldn't make for a good algorithm. Only after trying it myself did I gain insight as to why they don't actually work so well. I guess it's better to learn the hard way than to learn the hard-and-painful way with real money ;)

jonkiddy 9y ago
It isn't clear to me why technical indicators aren't viable.
ValentineC 9y ago
> Only after trying it myself did I gain insight as to why they don't actually work so well. Would you care to elaborate on which indicators you tried, and what happened?
- dperfect 9y ago
  From my experience with MACD specifically, it basically came down to the fact that with longer periods (or less sensitive thresholds), you lose out on most of a price swing by the time your trigger fires, and with shorter periods (or more sensitive thresholds), you end up making a lot of trades that don't move the needle (can also rack up significant fees if you aren't careful). You can find something reasonable in the middle, but by doing so, you're decreasing both risk and potential returns. There are at least two other important considerations apart from the indicator itself: how to actually execute effectively with limited funds (when your trigger fires, do you trade everything you can, only a certain percentage, or some variable amount based on technical factors? - that's an entirely separate algorithmic rabbit hole); and even if you do find a good algorithm and it performs great in backtesting historical data, it's almost always harder to achieve the same results in real market conditions (it's difficult to simulate the spread and dynamics of limited market depth).

dmak 9y ago

What is an example of a "go-to strategy in stock trading"?

24gttghh 9y ago
1. Buy undervalued groups of stocks 2. Hold on to them for a few decades 3. Profit.

unethical_ban 9y ago

TA is "Technical Analysis", according to Google. You're telling me those indicators are NOT used by rules-based traders in the stock market?

spookthesunset 9y ago
The reason TA is a bunch of malarkey is because if somebody could simply look at a chart to predict future price movements than everybody else would do it to, making such prediction worthless. Same is true of anything else that is public knowledge. Once everybody has that knowledge, you lose the ability to profit off it. It is one of the core foundations that underpin up modern finance (something that Bitcoin advocates would be keen to learn about...) - see also [Efficient Market Hypothesis](https://en.wikipedia.org/wiki/Efficient-market_hypothesis https://en.wikipedia.org/wiki/Efficient-market_hypothesis), [Modigliani and Miller Capital Structure Theory](https://en.wikipedia.org/wiki/Modigliani%E2%80%93Miller_theorem https://en.wikipedia.org/wiki/Modigliani%E2%80%93Miller_theo...), or the [Modern Portfolio Theory](https://en.wikipedia.org/wiki/Modern_portfolio_theory https://en.wikipedia.org/wiki/Modern_portfolio_theory). In short, TA has refuted time and time again. It's complete garbage used only by amatures.
- unethical_ban 9y ago
  I can't argue on merit, and I agree that if everyone used it, it would be worthless. The insiders and professional market researchers would do best, then the group who uses TA, then the buy/hold crowd, then the shoot-the-rabbit sell-low-buy-high group. I don't think TA is complete garbage, but I agree it's not a fundamental.