7 ms·

Here are the best arguments for why TA works IMO: - The patterns are real in that they can be used to roughly identify groups of buyers and sellers who have pr

Here are the best arguments for why TA works IMO: - The patterns are real in that they can be used to roughly identify groups of buyers and sellers who have price floors and ceilings. E.g. it's a way of gauging the momentum of a trend. However the signal:noise ratio is very high especially when traders try to act on these patterns so that their activity drowns out the original signal - The patterns then become a schelling point and those who can read the patterns faster can front-run those who read it more slowly. The patterns themselves become reality rather than just a representation of reality. The value is most likely fully drained from it in that there is no longer any alpha but remains sorta-kinda truish occasionally like "if they don't look you in the eyes it means they're lying" or "changing the lighting improves productivity"

rkimb 3y ago
So to summarize, the opportunity of pattern trading is self-fulfilling, which also means if any become unfashionable then the signal will cease to exist. From that fact alone we can conclude there is no basis in the economic reality of the business or its public stock. Greater fool theory, essentially.
drexlspivey 3y ago
It’s very easy to tell if it works. If you go to an interview with Goldman Sachs and mention that you are an expert in TA what would be their reaction?
- nonethewiser 3y ago
  This is not an endorsement of TA but look at what they do, not say. They are highly influneced by chart movements. Price predictions and buy/sell recommendations are constrained by recent trends and observed prices. Even if they want to say they are driven by fundamentals. These “fundamentals” change in reaction to price action.
  - PaulDavisThe1st 3y ago
    > This is not an endorsement of TA but look at what they do, not say So do they hire you, or do they not?
    - nonethewiser 3y ago
      Goldman Sachs is a weird authority to appeal to. And even if you want to you’ll be appealing to an authority that endorses aspects of TA.
  - mcguire 3y ago
    Yes. If you value a stock based on fundamentals, including estimates of the company's future performance, at $10 and the current asking price is $100 you don't want to buy it. Vice versa, you would.
  - NovemberWhiskey 3y ago
    >This is not an endorsement of TA but look at what they do, not say. What they do is make-market, rather than conduct proprietary trades, and spend huge amounts of time, money and effort on risk management that's based on hedging the risk in the book rather than forming an idea about which way the market is going to move.
- btilly 3y ago
  Their reaction is likely to hire you to write a newsletter to their customers, to convince their customers to trade on your strategies. Brokers don't particularly care whether their customers make money. But they do like customers who trade early, and trade often.
- throwaway743 3y ago
  Why would you be interviewing for a job if you were successful in using TA?
  - mcguire 3y ago
    The best way to make money in finance is to manage other peoples' money.
    - throwaway743 3y ago
      But if one can make money on their own, why let someone else own their time, unless they don't value their time as much?
      - malux85 3y ago
        Because if you work with other peoples money, there's a LOT more of it, so you can trade 100x more often and size your positions over a greater range. Source: I'm a quant
        mcguire 3y ago
        Is that a strange way of saying, "if you work with other peoples money, some of it stays with you".
        malux85 3y ago
        We provide value by increasing their wealth, and take a % for doing so, they benefit and we benefit. This concept is new to you?
      - iopq 3y ago
        Okay, do you want to make 100% of profit or loss on your portfolio of $1,000,000? or do you want to make 1% of $100,000,000 win or lose, you still get paid every year?
- jjav 3y ago
  > If you go to an interview with Goldman Sachs and mention that you are an expert in TA The key point is that if you were a consistent expert in TA you don't need to interview anywhere. You can be a billionaire trading from home.
nemo44x 3y ago
"The patterns themselves become reality rather than just a representation of reality." This is known as a "hyperstition". It's a cool concept that I believe is more and more relevant as the world becomes more and more connected. Things like "meme magic", etc.
- zer0tonin 3y ago
  I think in the context of finance, "hyperstition" is more known as "reflexivity".

rkimb 3y ago

So to summarize, the opportunity of pattern trading is self-fulfilling, which also means if any become unfashionable then the signal will cease to exist. From that fact alone we can conclude there is no basis in the economic reality of the business or its public stock. Greater fool theory, essentially.

drexlspivey 3y ago

It’s very easy to tell if it works. If you go to an interview with Goldman Sachs and mention that you are an expert in TA what would be their reaction?

nonethewiser 3y ago
This is not an endorsement of TA but look at what they do, not say. They are highly influneced by chart movements. Price predictions and buy/sell recommendations are constrained by recent trends and observed prices. Even if they want to say they are driven by fundamentals. These “fundamentals” change in reaction to price action.
- PaulDavisThe1st 3y ago
  > This is not an endorsement of TA but look at what they do, not say So do they hire you, or do they not?
  - nonethewiser 3y ago
    Goldman Sachs is a weird authority to appeal to. And even if you want to you’ll be appealing to an authority that endorses aspects of TA.
- mcguire 3y ago
  Yes. If you value a stock based on fundamentals, including estimates of the company's future performance, at $10 and the current asking price is $100 you don't want to buy it. Vice versa, you would.
- NovemberWhiskey 3y ago
  >This is not an endorsement of TA but look at what they do, not say. What they do is make-market, rather than conduct proprietary trades, and spend huge amounts of time, money and effort on risk management that's based on hedging the risk in the book rather than forming an idea about which way the market is going to move.
btilly 3y ago
Their reaction is likely to hire you to write a newsletter to their customers, to convince their customers to trade on your strategies. Brokers don't particularly care whether their customers make money. But they do like customers who trade early, and trade often.
throwaway743 3y ago
Why would you be interviewing for a job if you were successful in using TA?
- mcguire 3y ago
  The best way to make money in finance is to manage other peoples' money.
  - throwaway743 3y ago
    But if one can make money on their own, why let someone else own their time, unless they don't value their time as much?
    - malux85 3y ago
      Because if you work with other peoples money, there's a LOT more of it, so you can trade 100x more often and size your positions over a greater range. Source: I'm a quant
      - mcguire 3y ago
        Is that a strange way of saying, "if you work with other peoples money, some of it stays with you".
        malux85 3y ago
        We provide value by increasing their wealth, and take a % for doing so, they benefit and we benefit. This concept is new to you?
    - iopq 3y ago
      Okay, do you want to make 100% of profit or loss on your portfolio of $1,000,000? or do you want to make 1% of $100,000,000 win or lose, you still get paid every year?
jjav 3y ago
> If you go to an interview with Goldman Sachs and mention that you are an expert in TA The key point is that if you were a consistent expert in TA you don't need to interview anywhere. You can be a billionaire trading from home.

nemo44x 3y ago

"The patterns themselves become reality rather than just a representation of reality." This is known as a "hyperstition". It's a cool concept that I believe is more and more relevant as the world becomes more and more connected. Things like "meme magic", etc.

zer0tonin 3y ago
I think in the context of finance, "hyperstition" is more known as "reflexivity".