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Does Technical Analysis help with trading? By technical analysis, I mean moving averages, MACD, Stochastics, RSI, candlesticks, etc.

Academicians say it doesn't work because of the efficient market hypothesis. However, I know some finance professionals who use it.

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Comments (13)

  • matt's picture

    Yes it helps with trading. Not all traders choose to use it, but some do and trade exclusively off it.

    In fact, this is how Nassim Taleb picks equities to price his call options. He's all about finding the "black swan" and that's a bit easier to do using technical analysis. Of course, Taleb would also disagree with those academics that teach efficient markets; so just be aware what school of thought he's coming from.

  • TNA's picture

    I think it is useful, but I wouldn't 100% rely on it. Academics hate it, but real world is a lot different then what is taught in school. With the advent of black box trading I think technical analysis really helps find resistant levels, trends, etc.

  • EarTotheStreet's picture

    Academics hate it yet it is lightly covered in the CFA L1.

  • UncleKevin's picture

    Yea, they really hate it. Would totally violate EMH, and weak form too. Conclusion is that the market is not weak form efficient, but only algo trades capitalize on the info and make the markets efficient.

  • Joshua.D's picture

    Candlesticks, Stochastics, moving averages, w%r, macd, and obv are the main (pretty much only) tools I use when I scalp.

    The professors that say technical analysis doesn't work have no idea what they are talking about. If you read the Market Wizards series you will see plenty of brilliant investors that use solely technicals, solely fundamentals, or a blend of both.

    edit: can someone tell me how to daytrade without techincals?

  • gundamz's picture

    Interesting. I currently use candlesticks, support/resistance, stochastics, MACD, moving averages, and RSI. Are there any other indicators, etc. that I should add to my arsenal?

  • IlliniProgrammer's picture

    Maybe Elliott Waves/fibbonacci?

  • In reply to gundamz
    edtkh's picture

    gundamz:
    Interesting. I currently use candlesticks, support/resistance, stochastics, MACD, moving averages, and RSI. Are there any other indicators, etc. that I should add to my arsenal?

    Ichimoku could be rather handy at times...

  • Bodhis's picture

    I think TA is great, especially if you have a good gut, but I wouldn't rely on it 100%. Also depends on your time horizon for the trade (the chart you're looking at).

    Would you ever feel good about buying a chart like this: http://stockcharts.com/h-sc/ui?s=ARST&p=D&b=5&g=0&...

    Or this: http://stockcharts.com/h-sc/ui?s=NTY&p=D&b=5&g=0&i...

    I don't think anyone (top er analyst, stock picker or whatever) could pound the table hard enough to convince me to buy some dog-shit chart like these.

    Don't listen to the academic, or any professor who's contra TA... there's a reason why they're teaching and aren't trading. You should of heard the roar of laughter in my cfa class when the instructor, who's also a professor, said, "I used to do this sort of thing when I worked at a hedge fund...." And now your here, buddy?

  • gundamz's picture

    Wow. 8o)

    That NTY chart is just a death (bearish) crossover waiting to happen.
    The ARST already got a death crossover.

    Man...

  • Bodhis's picture

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  • In reply to Bodhis
    blastoise's picture