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I've never seen anything that makes me think 'Technical Analysis' of stock market indicators is anything more than a pseudoscience. It's fun and spooky, but is

by ANH 16y ago

I've never seen anything that makes me think 'Technical Analysis' of stock market indicators is anything more than a pseudoscience. It's fun and spooky, but is it any better than throwing darts?

akkartik 16y ago
In an ideal world, technical analysis tries to model psychological effects that are statistically significant in a population of humans. Don't buy just because you see a W, or crap like that. But if you understand why a W is an interesting pattern, and what it's based on, it can be a valuable signal to digest. I don't know enough to trade purely based on technicals, and I'm not sure anybody should. But when I want to buy a stock I wait until it's oversold (http://clearstation.etrade.com/cgi-bin/details?Symbol=goog http://clearstation.etrade.com/cgi-bin/details?Symbol=goog) That usually saves a few bucks.
Keyframe 16y ago
It kind of works because everyone else thinks it works. Self fulfilling prophecy. It's like looking at traffic lights and thinking traffic should move the way they dictate it - it works because, almost, everyone participating in traffic follows the same signs.
btilly 16y ago
No, it is generally complete BS. It survives on human gullibility, and the observation by stock brokers that promoting technical analysis is good for trading volume. A good book that addresses this A Random Walk Down Wall St. That said the particular "omen" they are talking about does have some merit. Normally there is a broad correlation between different stocks, so you don't typically get both lots of highs and lows at the same time. (This correlation is why the DOW, which just tracks a small number of indicator stocks, is correlated with much broader sets of stocks.) But you can get lots of highs and lows at the same time if the market is very volatile. Volatile markets sometimes go down very sharply. Of course causation goes the other way. Fears that the market could drop cause volatility, and sometimes those fears are proven right. That said we can and do measure market volatility directly. (For instance every options pricing model does that.) And that gives a much more fine-tuned predictor of risk than this "omen".
davepeck 16y ago
Technical analysis has always seemed like nonsense to me, too. I've never once seen an example that seemed to have a firm logical or mathematical foundation. Has an authoritative source ever debunked it?

by ANH 16y ago

I've never seen anything that makes me think 'Technical Analysis' of stock market indicators is anything more than a pseudoscience. It's fun and spooky, but is it any better than throwing darts?

akkartik 16y ago

In an ideal world, technical analysis tries to model psychological effects that are statistically significant in a population of humans. Don't buy just because you see a W, or crap like that. But if you understand why a W is an interesting pattern, and what it's based on, it can be a valuable signal to digest. I don't know enough to trade purely based on technicals, and I'm not sure anybody should. But when I want to buy a stock I wait until it's oversold (http://clearstation.etrade.com/cgi-bin/details?Symbol=goog http://clearstation.etrade.com/cgi-bin/details?Symbol=goog) That usually saves a few bucks.

Keyframe 16y ago

It kind of works because everyone else thinks it works. Self fulfilling prophecy. It's like looking at traffic lights and thinking traffic should move the way they dictate it - it works because, almost, everyone participating in traffic follows the same signs.

btilly 16y ago

No, it is generally complete BS. It survives on human gullibility, and the observation by stock brokers that promoting technical analysis is good for trading volume. A good book that addresses this A Random Walk Down Wall St. That said the particular "omen" they are talking about does have some merit. Normally there is a broad correlation between different stocks, so you don't typically get both lots of highs and lows at the same time. (This correlation is why the DOW, which just tracks a small number of indicator stocks, is correlated with much broader sets of stocks.) But you can get lots of highs and lows at the same time if the market is very volatile. Volatile markets sometimes go down very sharply. Of course causation goes the other way. Fears that the market could drop cause volatility, and sometimes those fears are proven right. That said we can and do measure market volatility directly. (For instance every options pricing model does that.) And that gives a much more fine-tuned predictor of risk than this "omen".

davepeck 16y ago

Technical analysis has always seemed like nonsense to me, too. I've never once seen an example that seemed to have a firm logical or mathematical foundation. Has an authoritative source ever debunked it?