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A free, complete guide to Technical Analysis
- confluence 12y agoFunny, I read this is as a free and complete guide to the effects of confirmation bias. A free and complete guide to bullshit is just bullshit. Technical analysis is a farce.
- akhatri_aus 12y agoIts free to support their main business. Zerodha looks to be a brokerage.
- confluence 12y agoGotta keep the plebs trading. How else will they make bank?
- mahmud 12y agoSo, baiting more suckers, I mean, "day traders".
- SeanDav 12y agoLike most things in life, it isn't quite that simple. There are real inefficiencies in the market which can be highlighted by TA. TA can also be considered a form of Statistical Arbitrage and vice versa. A simple example: There are many traders out there using TA, if sufficient numbers of them start following the same signals then real market impact occurs. You can use TA to establish what signals they are using and then front run them. This shows that TA has real power in some circumstances and there are many more out there. I could go into a lot more detail, but am pressed for time at the moment.
- confluence 12y ago> Like most things in life, it isn't quite that simple. Like most things in life, technical analysis is bullshit. > There are real inefficiencies in the market which can be highlighted by TA. TA can also be considered a form of Statistical Arbitrage and vice versa. Stat arb is not what is commonly known as technical analysis. They are distinct. > A simple example: There are many traders out there using TA, if sufficient numbers of them start following the same signals then real market impact occurs. You can use TA to establish what signals they are using and then front run them. This shows that TA has real power in some circumstances and there are many more out there. Keynesian beauty contests do not provide consistent alpha. If they did, we'd see fewer VCs flame out.
- SeanDav 12y agoI have been a trader for 15 years, I have seen TA absolutely working and I have seen it failing. You can take the opinion of someone that has walked the walk, or not. I have given you a specific example where TA does work, so it can't all be bullshit right?
- confluence 12y ago> You can take the opinion of someone that has walked the walk, or not. In opinions we trust? What kind of a trader are you? > I have been a trader for 15 years, I have seen "go all in on a bunch of calls" absolutely working and I have seen it failing. That sentence is basically void of content. > I have given you a specific example where TA does work, so it can't all be bullshit right? No. You could give me an example of homeopathic medicines used shortly before someone goes into remission. That doesn't mean that cures cancer.
- SeanDav 12y agoAre you being deliberately obtuse? The example I gave is a logical one, which just happens to also work on occasion in the real world. It does not rely on what sort of trader I am, it is a thought scenario, which can and does work in the real world. Logically, if a large number of people are using a specific TA signal to make trades, their trades will move the market to a degree. Then if one knows what that signal is, one can reliably make money using the same TA signal. So even if the actual TA signal is a completely random walk, an alert person can make money from that TA signal if they understand that the market will move because some powerful players are using the same signal for whatever reason. TLDR: A bullshit signal can be used to reliably make money.
- confluence 12y ago> A bullshit signal can be used to reliably make money. Until it doesn't.
- jessaustin 12y ago
- yummyfajitas 12y agoOh wait we're economists - free markets are sacrosanct and they are efficient - if there is an arbitrage opportunity to short surely the rational investors will price it correctly. Not. https://news.ycombinator.com/item?id=4589264#up_4589651 https://news.ycombinator.com/item?id=4589264#up_4589651 Glad to see you've changed your opinion and now believe that the (weak form) Efficient Markets Hypothesis holds.
- confluence 12y agoJust because I said that technical analysis is bullshit does not mean that I think EMT holds. I can also say that using the times bulls shit in Colorado to predict stock prices is bullshit. That once again does not mean that I think EMT holds. It just means that the technique I called out has no predictive value.
- yummyfajitas 12y agoThe claim "technical analysis doesn't work" is the weak form EMH. So yes, you are being inconsistent, unless I've mistakenly interpreted "technical analysis is bullshit" as "technical analysis doesn't work". Is it your belief that technical analysis does work, but is still bullshit?
- confluence 12y agoSorry, I read your statement too quickly. Missed the "weak". I thought you meant EMH holds (as I stated above).
- haliax 12y agoActually, I don't believe this is correct. The weak form EMH claims that any information provided by the price history of a security should already be incorporated into the current price. You can claim that Technical Analysis (construed as patterns in charts and the like) isn't valid and that weak form EMH doesn't hold, if you believe that charting fails to correctly incorporate the relevant information from the price history.
- deleted 12y ago
- Syi 12y agoIf you dont believe in technical analysis at all, what do you use to trade? Are you relying purely on fundamentals, following trends? Or are there other types of analysis that can be applied?
- xiphias 12y agoIt's not complete bullshit, just unusable for trading nowdays: these algorithms that found trends worked until better algorithms were used: http://en.wikipedia.org/wiki/Technical_analysis#Scientific_Technical_Analysis http://en.wikipedia.org/wiki/Technical_analysis#Scientific_T... The results were positive with an overwhelming statistical confidence for each of the patterns using the data set of all S&P 500 stocks daily for the five year period 1992-1996.
- confluence 12y ago> It's not complete bullshit The fact that line even has to be used is a massive red flag. > overwhelming statistical confidence for each of the patterns using the data set of all S&P 500 stocks daily for the five year period 1992-1996. And tech VCs investing in anything from 1995-2000 were positive with an overwhelming statistical confidence that their portfolios were anything but randomly chosen.
- akhatri_aus 12y ago> The results were positive with an overwhelming statistical confidence for each of the patterns using the data set of all S&P 500 stocks daily for the five year period 1992-1996. Looks a bit like cherry picking
- math 12y agoAnyone thinking about doing doing some technical analysis may well become less enthusiastic about the idea if they first played around with generating some random time-series with statistics similar to the real thing and then dwelling on the fact that they look pretty close to the real thing. GARCH(1,1) isn't a bad place to start (although it's not perfect). I just put up some R code on github for this here: https://github.com/mhowlett/garch11 https://github.com/mhowlett/garch11 which I was experimenting with in the past. I can't remember the state of it exactly, but I think it works.
- fleitz 12y agoLooking pretty close to the real random and being actually random are two different things, which is why RNG analysis is so difficult.
- bubblemachine3k 12y agoTechnical analysis doesn't have any science backing it up. However, as most pop books are some form of swing, candlestick, Bollinger bands, mean reversion, it creates a self-fulfilling prophecy. If you're going to play the markets, it's quantitative analysis or go broke. And that is a literal go broke!
- gearhart 12y agoThe guide opens with an analogy suggesting that picking the best stocks to invest in is equivalent to picking the best restaurant to eat at, and that technical analysis is equivalent to looking for the stall with the most people at it. If technical analysis is equivalent to looking for the restaurant with the most people at it, then the restaurant that you're trying to find is the one that, over the period that you intend to eat there, will gain the most new customers, relative to the number of customers it had when you walked in, not the one that's best to eat at. The flawed analogy exactly explains the problem with technical analysis.
- pmelendez 12y ago> "If technical analysis is equivalent to looking for the restaurant with the most people at it, then the restaurant that you're trying to find is the one that, over the period that you intend to eat there, will gain the most new customers," Which pretty much is what you want to achieve in certain markets. For instance, if you are trading with CFDs and want to close your positions in the short term, you want to predict the right direction in an instrument with high volatility, which tends to be correlated with the amount of people trading in the same instrument (restaurant with the most people for a given period of time)
- pmoriarty 12y agoBacktesting[1] is really critical when deciding on whether to use a given technical indicator. I've read too many books and articles, and heard too many anecdotes that make some technical indicator sound fantastic. But until you backtest it (and then forward test it) against a large amount of data, and make sure you're not curve-fitting, I don't think you can have much confidence in it actually working in the real world in the long run (though you may get lucky and have it work for a brief period of time). For backtesting, the best tool I've found is AmiBroker[2]. It's orders of magnitude faster than any other backtesting tool that I've found, and lets me backtest mountains of data against any indicator I can dream up within seconds or minutes, and then go on to the next one. It's pretty awesome (though kind of quirky in that its programming language is array-based). Anyway, highly recommended. [1] - https://en.wikipedia.org/wiki/Backtesting https://en.wikipedia.org/wiki/Backtesting [2] - http://www.amibroker.com/ http://www.amibroker.com/
- oddtarball 12y agoTechnical analysis is far from useless. As an active trader, it's the best tool I have come across. I'm sorry, but to say that it is useless is to admit pure ignorance, or to admit your failure to grasp the concepts and understand how to apply them visually and correctly. People do apply techniques incorrectly, yes. They can get confirmation bias from it, yes. However, that does not invalidate successful traders who trade primarily on technicals. Keep in mind that a "tool" is just that - but not used the same way by everyone - and "this means that" isn't a blanket rule that always works as described. Everything is part of a larger structural puzzle. Also, HFT algos will eat your lunch if your hold period is too short. I don't hold a position for more than a week, MAYBE two, but never less than 45 minutes - and as a retail trader, that makes a huge difference in P/L ratios over time. Through my trading experience I have continuously used less fundamentals and more wonky technical techniques I have come up with. It has given me a massive edge over whoever is on the other side of the trade, and has pulled me quite a long way out of debt and into making a nice living doing it on the side. The side of the story that you don't see in the endless "get rich quick" trading schemes that promise to teach you all of those super awesome secrets is that anyone who knows what they're doing isn't spending any time teaching it to the masses. But, to get back on topic: Well done with this site! It's a great beginner guide to understand what a lot of the basics actually mean. Babypips falls very short.
- thewarrior 12y agoBut what is the empirical basis to things like Fibbonacci retracement levels ?
- PSeitz 12y agoJust put a tools ruler on a chart and you can see the future. Easy as that. And wrong.
- deleted 12y ago[deleted]
- thewarrior 12y agoHow would you account for the effect of other people using Technical analysis on stock prices
- vgrocha 12y agoThe only guys that get rich with technical analysis are the ones that sell books about it.
- _3u10 12y agoThat's true in most industries, don't dig for gold, sell shovels.
- B1narySunset 12y agoTechnical Analysis can be useful, because it enables a systematic approach to trading - eliminating subjectivity when making trading decisions. Consistently exploiting some edge with a well defined set of rules and conservative risk management is key.
- markovbling 12y agoTechnical analysis is the homeopathy of finance.
- melling 12y agoCan you provide any useful information other than a cool sound bite? Is there a better way to analyze equities? There is a lot of computer trading. Must be some analysis happening. I'm sure a lot of us here would like to be pointed in the right direction.
- smrtinsert 12y agoThey are better analyzed against each other. A starting point is modern portfolio theory.
- pmoriarty 12y agoOh, you mean the portfolio theory that "risk managed" so many financial institutions safely through the latest financial crisis without a scratch?
- riveralabs 12y agoThe only important indicator on a chart is price, and volume in some cases to confirm price. But all decisions need to be based on price action. Chart analysis is just a tool to read the emotions of other traders, that’s it. Think about it, you see a 3 day rally with wide range bars and on day 4 you get a narrow range bar where the open and close are the same (or very close). What does that tell you? Momentum has stopped and people are undecided. There’s nothing subjective about that. After this the stock can move either way, but you are getting an indicator that something’s going to happen and you have to monitor closely. You can tighten the stops or exit completely. The decision is up to you. But you are using the chart to make an educated decision. Another example, after a 3 day pullback on day 4 you see a narrow range bar with a very long tail. This is called a Hammer [http://en.wikipedia.org/wiki/Hammer_(candlestick_pattern) http://en.wikipedia.org/wiki/Hammer_(candlestick_pattern)]. This tells you that at some point during the day the sellers were in control but something happened and buyers took control and raised the price. This was a war and the buyers won. This usually changes momentum and leads to a rally. An explanation for this could be that at some point during the day many stop loss orders from long term investors were triggered and short-term buyers see it as an opportunity to buy and raise the price. I just gave you two examples where Technical Analysis can be effective. Does it work all the time? Of course not. But you have a better picture of what’s happening, therefore your odds are higher and you can use this information to lower your risk. Finally, you have to remember that for every buyer there’s also a seller and vice versa. When you buy a stock (long) you have to ask yourself. Is the person selling me the stock profiting or taking a loss? Is the other person a beginner, professional trader or institution? You have to find scenarios where you buy the stock from the beginners taking a loss (even if it sounds cruel). Given enough time and hard work you can develop experience necessary to spot where all these people buy and sell and use this information to your advantage. Does it work all the time? NO Will you have losses? YES Can you still make money? YES