5 ms·

Do you think technical analysis works? Look at the mountains, try drawing resistance lines, my god, you are able to predict when the mountain ridges are going t

Do you think technical analysis works? Look at the mountains, try drawing resistance lines, my god, you are able to predict when the mountain ridges are going to break through right past 9000! Are you Jesus?

quink 12y ago
Don't forget the magical term 'support'. Or 'Fibonacci levels'. Or 'resistance zones'. If I see another blog post by the brokerage firm I'm with about freaking 'supports' I'm going to hurl. Technical analysis puts everything from astrology through religion on to homeopathy to shame in its bullshittery. The most entertaining part is when they go on about the support levels between the currencies. "NOK-NZD is about to break the 5.30 support level and this chart indicates that NOK-NZD is going to go up." It just leaves me thinking WTF, how do you go from here to there? I think, more honestly, the actual example I saw was CHF to JPY. 'Butterfly patterns'? You sure you're not reading tea leaves? That said, I'm sure technical analysis works. Something like 0.5+ε of the time. And, if you find the right sort of TA, if it's just RSI or some MACD crossover with specific sets of parameters x or y for that stock you might beat buy and hold or whatever. 50% of the time, if you're lucky, before commissions. But I'm not even convinced, nor should anyone with half a brain be, that 365 days is somehow a magical interval over which we should compare in the long term or anything. Just buy and hold and index fund, people. Or something very managed with a very low level of turnover and low fees, keeping in mind an appropriate diversification period. When to buy? Today, or gradually over the next few months with dollar cost averaging. Holding period? Ideally forever. Simple.
- joshu 12y ago
  When I saw the post I was worried that HN would eat this crap up. But this is the appropriate level of revulsion. Whew.
  - kragen 12y ago
    I'm glad you're here to back up the other revolted skeptics.
    - quink 12y ago
      I've just had a revelation. MACD has three days as parameters, 12, 26 and 9 being commonly used for completely arbitrary reasons. Biorhythms use 23, 28 and 33 for similarly arbitrary reasons. Maybe if we found the right magic numbers we can establish a link between these two highly reputable sciences.
- robryan 12y ago
  I figured that stuff was determined by looking at orders to buy at a certain price? If there is a large number of orders to buy currency at 5.30 from your example you would say that it is at least likely to stay or bounce until all the orders are run through? Correct me if I am wrong, don't trade myself.
  - quink 12y ago
    Nope, technical analysis of the usual sort doesn't look at the book at all. It just looks at the past prices and, if you're really lucky, past volumes. Going past what's traditionally technical analysis, in that example at 5.30 it's possible that there's a wall of people. However, the trading in any intermediate currently pair between those, NOK-USD-JPY, for example, will negate that wall in no time at all for sheer volume alone and any artificially imposed walls based on this kind of numerology would be chopped down by HFTs looking for arbitrage opportunities in milliseconds. If you're looking at a big pair like EUR-USD with a hypothetical wall at 1.25, for example, it's possible it might last for a little longer. But again, arbitrage across currency pairs - EUR-JPY-USD or EUR-GBP-USD or whatever - will wipe out any numerical niceties in marginally longer than no time at all. That said the more TA traders are out there the more the actual investors (and with SPY having an annual volume 8.5 times its number of shares there seem to be too few of those) can get themselves a long-term good average of "Be fearful when others are greedy and greedy when others are fearful." just through regularly putting money aside and investing through dollar cost averaging in index ETFs/mutual funds.
- encoderer 12y ago
  But people ARE emotional? So if a stock was trading at a level, then dropped significantly, it makes sense that it sees "resistence" as it climbs back to that level. There are real people there who are happy to be back at $0 or back where they started so they sell. I believe stock prices are random, but it doesn't mean that market phenomena doesn't exist.
jqm 12y ago
If you don't think about technical analysis as charts and lines, but rather patterns or cycles of market (and human) behavior (which is of course what the charts and lines represent) you might see how technical analysis could have some validity. Are there patterns in markets? Are there patterns in crowd behavior? I think so. Others may disagree. Another point... if enough people believe and act on technical analysis signals, the prophecy becomes self fulfilling to an extent. This is not to say a consistent simple mathematical formula involving Bolinger Bands or the like can be developed with any certainty. I think prediction based on patterns is art as much as science and involves a lot of probabilities rather than exacts.
- joshu 12y ago
  You're kidding, right?
  - quink 12y ago
    But Josh, don't you understand that 120 days in a past market is just the same as 120 days in the future market? As we all know the stock market is innately tied to certain magic specific numbers of days that are ever unchanging. Like 14, 30 and 70 will always be relevant when you're RSIing. Incidentally, your biorhythm cycle may be at a low point atm, so take care. Especially as you were born under the astrological sign of head and shoulders. Meanwhile, however, I've heard about this guy who tells me that at least on the Australian ASX you can't even rely on the number of shorts having been placed to predict whether a stock will go down. But to that I say poppycock, there's no way, after all, that the stock prices reflect the currently public knowledge and thus have already assigned a reasonable price taking into account all that is reasonably known about the future. Never forget - the average market participant is always smarter than the market and therefore TA works for them /s
    - joshu 12y ago
      Good point. (Ps: joshua not josh)
- crimsonalucard 12y ago

quink 12y ago

Don't forget the magical term 'support'. Or 'Fibonacci levels'. Or 'resistance zones'. If I see another blog post by the brokerage firm I'm with about freaking 'supports' I'm going to hurl. Technical analysis puts everything from astrology through religion on to homeopathy to shame in its bullshittery. The most entertaining part is when they go on about the support levels between the currencies. "NOK-NZD is about to break the 5.30 support level and this chart indicates that NOK-NZD is going to go up." It just leaves me thinking WTF, how do you go from here to there? I think, more honestly, the actual example I saw was CHF to JPY. 'Butterfly patterns'? You sure you're not reading tea leaves? That said, I'm sure technical analysis works. Something like 0.5+ε of the time. And, if you find the right sort of TA, if it's just RSI or some MACD crossover with specific sets of parameters x or y for that stock you might beat buy and hold or whatever. 50% of the time, if you're lucky, before commissions. But I'm not even convinced, nor should anyone with half a brain be, that 365 days is somehow a magical interval over which we should compare in the long term or anything. Just buy and hold and index fund, people. Or something very managed with a very low level of turnover and low fees, keeping in mind an appropriate diversification period. When to buy? Today, or gradually over the next few months with dollar cost averaging. Holding period? Ideally forever. Simple.

joshu 12y ago
When I saw the post I was worried that HN would eat this crap up. But this is the appropriate level of revulsion. Whew.
- kragen 12y ago
  I'm glad you're here to back up the other revolted skeptics.
  - quink 12y ago
    I've just had a revelation. MACD has three days as parameters, 12, 26 and 9 being commonly used for completely arbitrary reasons. Biorhythms use 23, 28 and 33 for similarly arbitrary reasons. Maybe if we found the right magic numbers we can establish a link between these two highly reputable sciences.
robryan 12y ago
I figured that stuff was determined by looking at orders to buy at a certain price? If there is a large number of orders to buy currency at 5.30 from your example you would say that it is at least likely to stay or bounce until all the orders are run through? Correct me if I am wrong, don't trade myself.
- quink 12y ago
  Nope, technical analysis of the usual sort doesn't look at the book at all. It just looks at the past prices and, if you're really lucky, past volumes. Going past what's traditionally technical analysis, in that example at 5.30 it's possible that there's a wall of people. However, the trading in any intermediate currently pair between those, NOK-USD-JPY, for example, will negate that wall in no time at all for sheer volume alone and any artificially imposed walls based on this kind of numerology would be chopped down by HFTs looking for arbitrage opportunities in milliseconds. If you're looking at a big pair like EUR-USD with a hypothetical wall at 1.25, for example, it's possible it might last for a little longer. But again, arbitrage across currency pairs - EUR-JPY-USD or EUR-GBP-USD or whatever - will wipe out any numerical niceties in marginally longer than no time at all. That said the more TA traders are out there the more the actual investors (and with SPY having an annual volume 8.5 times its number of shares there seem to be too few of those) can get themselves a long-term good average of "Be fearful when others are greedy and greedy when others are fearful." just through regularly putting money aside and investing through dollar cost averaging in index ETFs/mutual funds.
encoderer 12y ago
But people ARE emotional? So if a stock was trading at a level, then dropped significantly, it makes sense that it sees "resistence" as it climbs back to that level. There are real people there who are happy to be back at $0 or back where they started so they sell. I believe stock prices are random, but it doesn't mean that market phenomena doesn't exist.

jqm 12y ago

If you don't think about technical analysis as charts and lines, but rather patterns or cycles of market (and human) behavior (which is of course what the charts and lines represent) you might see how technical analysis could have some validity. Are there patterns in markets? Are there patterns in crowd behavior? I think so. Others may disagree. Another point... if enough people believe and act on technical analysis signals, the prophecy becomes self fulfilling to an extent. This is not to say a consistent simple mathematical formula involving Bolinger Bands or the like can be developed with any certainty. I think prediction based on patterns is art as much as science and involves a lot of probabilities rather than exacts.

joshu 12y ago
You're kidding, right?
- quink 12y ago
  But Josh, don't you understand that 120 days in a past market is just the same as 120 days in the future market? As we all know the stock market is innately tied to certain magic specific numbers of days that are ever unchanging. Like 14, 30 and 70 will always be relevant when you're RSIing. Incidentally, your biorhythm cycle may be at a low point atm, so take care. Especially as you were born under the astrological sign of head and shoulders. Meanwhile, however, I've heard about this guy who tells me that at least on the Australian ASX you can't even rely on the number of shorts having been placed to predict whether a stock will go down. But to that I say poppycock, there's no way, after all, that the stock prices reflect the currently public knowledge and thus have already assigned a reasonable price taking into account all that is reasonably known about the future. Never forget - the average market participant is always smarter than the market and therefore TA works for them /s
  - joshu 12y ago
    Good point. (Ps: joshua not josh)
crimsonalucard 12y ago