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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 resistan

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.

whimsicalism 3y ago
If there was actually tradeable alpha in technical analysis it would have been arbitraged away a long time ago.
- imnotlost 3y ago
  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.”
  - whimsicalism 3y ago
    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.
  - jjav 3y ago
    > “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.
    - tim333 3y ago
      Then how come this guy became worth $25bn through algo trading? https://en.wikipedia.org/wiki/Jim_Simons_(mathematician) https://en.wikipedia.org/wiki/Jim_Simons_(mathematician)
      - trashtester 3y ago
        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.
  - arvinsim 3y ago
    Isn't this related to the efficient market hypothesis?
highwaylights 3y ago
I try not to read these inevitable rebuttals as: 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.
- trashtester 3y ago
  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.

whimsicalism 3y ago

If there was actually tradeable alpha in technical analysis it would have been arbitraged away a long time ago.

imnotlost 3y ago
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.”
- whimsicalism 3y ago
  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.
- jjav 3y ago
  > “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.
  - tim333 3y ago
    Then how come this guy became worth $25bn through algo trading? https://en.wikipedia.org/wiki/Jim_Simons_(mathematician) https://en.wikipedia.org/wiki/Jim_Simons_(mathematician)
    - trashtester 3y ago
      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.
- arvinsim 3y ago
  Isn't this related to the efficient market hypothesis?

highwaylights 3y ago

I try not to read these inevitable rebuttals as: 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.

trashtester 3y ago
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.