• Sharebar

Hi,

So what are your views on technical analysis? Correct me if I'm wrong but the basic premise is thus:
The market collectively reflects all currently knowable information - and therefore it is a waste of time to look any further than price and volume charts (and to some extent open interest).

Is it complete nonsense? Can you think of any purely technical traders who have accumulated piles of cash to back it up? Richard Dennis maybe?

If you type 'Technical analysis' in Google, chances are you will be presented with endless offerings of trading systems and regular technical reports "All for $100/month" etc. I don't know about you but if I were reaping the rewards of technical analysis I wouldn't waste my time putting together some tripe website on the off-chance one or two desperado's sign up to my services for a few bucks.

One of the reasons TA is currently on my mind is I've just finished flicking through a couple of Jack Schwager Market Wizard books. Some traders condemn the practice, some claimed TA could be useful for timing, others dismissed fundamental analysis entirely.

Thoughts?

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Comments (20)

  • JSinNOLA's picture

    The basic thing to keep in mind is that there are many different ways to make money trading. However, buying trading signals is probably the worst thing anyone can do.

    Instead, it is much better to formulate a trading strategy that works for you. Some TA guys do TA very well but can't algo trade. Some people it is just the opposite. Even Soros claims he physically feels it when something is brewing in the markets and he acts accordingly. So honestly who is going to say that he is wrong?

    But again, stay away from the snake oil salesmen!

  • Gekko21's picture

    Considering Market Wizards was about traders who made hundreds (and billions in some cases) of dollars trading various styles answers you own question. There is no shortage of ways to make a fortune trading. Some only use technical analysis while some are only fundamentalists. The main point (and one that was covered a lot in both books) is that you match your personality and find the style that is right for you.

    "Greed, in all of its forms; greed for life, for money, for love, for knowledge has marked the upward surge of mankind. And greed, you mark my words, will not only save Teldar Paper, but that other malfunctioning corporation called the USA."

  • zer0zero's picture

    If you think about it from a psychological point of view, some of it makes sense. Just for example, resistance levels. They exist because people have a point where they feel that they have made their money and are willing to exit the market. 10k for the DOW was one. It's a nice big round number.

    By no means am I saying that you should go out and start trading on every signal you read, but you also shouldn't just dismiss it completely

  • Revsly's picture

    In my opinion, it is at least to some extent a self-fulfilling prophecy. I know lots of people who agree with that idea, including those who trade at least partially using TA.

    Jack: They're all former investment bankers who were laid off from that economic crisis that Nancy Pelosi caused. They have zero real world skills, but God they work hard.
    -30 Rock

  • Hugo Bentley's picture

    http://i43.tinypic.com/2cy4rb6.jpg

    Guess there's only one way to settle this...
    I've signed up for a spread betting account and will toy around with support/resistance lines (starting with gold vs usd as above). If this time next year I'm a millionaire we'll assume technical analysis has value.

  • yesman's picture

    Everyone has a preference on what info to look at, but I don't know any good traders who ignore technicals altogether.

    People adverse to technicals need to consider that every 'fundamental' model is built on a set of assumptions (revenue growth, margins, etc.).

    There is an arbitrary factor no matter what approach you take - if there isn't, then you've found pure arb.

  • trade4size's picture

    http://i41.tinypic.com/2e496qh.jpg

    Different people see different things....

    "Oh the ladies ever tell you that you look like a fucking optical illusion" - Frank Slaughtery 25th Hour.

  • jhoratio's picture

    Technical analysis is bullshit. Period. Full stop.

    People sell (and buy!) "systems" for picking lottery numbers too. Complete and total bullshit from start to finish. And just because a lot of people engage in bullshit, doesn't mean you have to pay any attention. The idiots who sit in their underwear and "do some analytics," as the annoying, hipster-voiced E-Trade baby says, are not a large enough collective force to move the markets.

  • In reply to jhoratio
    JSinNOLA's picture

    jhoratio:
    Technical analysis is bullshit. Period. Full stop.

    People sell (and buy!) "systems" for picking lottery numbers too. Complete and total bullshit from start to finish. And just because a lot of people engage in bullshit, doesn't mean you have to pay any attention. The idiots who sit in their underwear and "do some analytics," as the annoying, hipster-voiced E-Trade baby says, are not a large enough collective force to move the markets.


    Ignoring basic support/resistance levels is nauseatingly ignorant. Full stop.

    You are making a terribly poor blanket statement by trying to equate Ebay snake oil technical system peddlers and a phenomena commonly used, with real consequences, in the market. I heard one of the biggest energy traders in the game talk privately about trying to muscle the market around those specific points just to benefit his positions. Not a mickey-mouse game.

  • Hugo Bentley's picture

    I've closed my spread betting account already. I believe any attempt to consistently 'win' by placing bets based purely on support/resistance breakouts is plainly a fools errand. But I also agree with JSin that to ignore such 'chart developments', for lack of a better name, is a mistake.

  • zer0zero's picture

    A Random Walk Down Wallstreet is about investing, not trading. If you're looking to buy and hold for long periods of time, then right, technical analysis is useless. But day trading is a completely different game, and it definitely helps. The big prop firms use technical analysis as one of their tools, and that's enough to convince me

  • In reply to Hugo Bentley
    JSinNOLA's picture

    Hugo Bentley:
    I've closed my spread betting account already. I believe any attempt to consistently 'win' by placing bets based purely on support/resistance breakouts is plainly a fools errand. But I also agree with JSin that to ignore such 'chart developments', for lack of a better name, is a mistake.

    Hugo

    You are absoultely right and I agree that trading simply off of support/resistance levels is typically a foolhardy approach. So I think we are saying the same thing. Basically that it can be useful when used in concert with the rest of your trading strategy and not as the sole basis of a trading strategy.

    Sorry I didn't clarify that idea more in my first response!

  • ReadLine's picture

    time frames are important- surprised nobody mentioned products too.
    I think....Even if one doesn't use it directly TA is something you should consider with SHORT-term trading in highly-liquid, robust markets. The most common example is FX.

  • In reply to ReadLine
    JSinNOLA's picture

    ReadLine:
    time frames are important- surprised nobody mentioned products too.
    I think....Even if one doesn't use it directly TA is something you should consider with SHORT-term trading in highly-liquid, robust markets. The most common example is FX.

    +1

    The more liquid the better as I doubt trading Feb 2014 WTI Crude would have any meaningful technival moves!

  • Revsly's picture

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    Jack: They're all former investment bankers who were laid off from that economic crisis that Nancy Pelosi caused. They have zero real world skills, but God they work hard.
    -30 Rock

  • In reply to versatile
    Alex-Kessler's picture