Am I wasting my time?

lol, technical analysis.

Statistically, technical analysis has been proven to be as effective as a coin flip (if not less...?).

Also, you're SAing, so get ready to multi-task hardcore, have your mental math in shape, network hard so you land a FT offer, and just be likable/alpha.

I wouldn't say it's a waste of time, but technical analysis is not enough. Read and understand fundamental analysis ratios and techniques. Learn some valuation. Learn how to use Excel functions and macros. Try to be well rounded rather than understand a lot on one thing (like TA).

Thanks for the advice, so I take it traders at BBs don't use technical analysis lol?

But are there any books I could read that would help me understand what's going on when I look over a trader's shoulder? I dont know what desk I'll be on yet.

^I'm gonna have to go with the TRADER on this one.

Read the FT every day

Technical analysis = hocus pocus. At best, you end up with a strategy that will be roughly similar and much shittier than more objective mean reversion or pure momentum strategies actually based on real econometric work. Most likely, you just go sideways/downslope while paying fees.

I don't use the technical analysis in my job. So, no. Chase tail and have some good stories to tell when there are slow days. Swapping stories => bonding => networking => leg up.

However, don't be an asshole that thinks he knows everything. You don't.

Technical analysis isn't just about charts and esoteric indicators/oscillators.It's also about studying historical price spreads, correlations among various asset classes, relative strength of one company compared to his peers/industry, etc.

Essentially any convergence, market neutral (stat arb), or related strategy incorporates a lot of technical analysis and combines it with some fundamentals (compare companies, evaluate company's hedges, etc.). TA has it's merits.

Now if you believe in buying a stock because it's 9-day moving average crossed over its 20-day moving average and the RSI indicator is at +9, then you're probably an idiot, lost in the seas of randomness.

^ Technical analysis in it's purest is using any historical price data to help predict the future.

Doesn't matter if it's Benoit Mandlebrot, Victor Niederhoffer, or some penny stock pumper. If they're using any form of historical data to predict the future then it is TA.

^ Running a cointegration based on two securites' prices alone is purely TA. I don't know how to use R or Matlab so I play around with correlations in Excel (not as robust as cointegration but identifies relationships nevertheless). I'll input say the end of day spot prices for WTI Crude and Brent Crude (ignore lag)... then I'll get the natural log percentage changes for each... then I'll calculate Correl or RSQ to study the relationship. I can create a time series of the pair, and say if the historical spread is ~$25 then I arb the pairs. This is an example of pure technical analysis... I used to work for a statistical arbitrage fund so I know a little about this stuff.

When you try to arb companies, however, then you have to evaluate their fundamentals as well. So a pair of say spot gold futures vs. NEM, if you're betting on convergence then you have to see how Nemont is hedged because maybe the spot price fluctuations will have x affect on Nemont's stock (based on its hedges).

Garch and VAR are examples of technical analysis. You're only looking at historical price changes, measuring volatility... those are all technicals.

Econometrics is not TA because it incorporates fundamentals. If you're doing a regression, say a simple linear simple study (unrealistic) with the independent variable, interest rate, vs dependent variable, US 30-Yr Treasury yields, then it's no longer TA because of the fundamental aspect.

I think there is a stereotype that TA is only bullsh1t chart patterns (bull flags, double-tops, head-and-shoulders... all of those academically discounted theories). TA can be valid, however. Charts and patterns help to identify strength and weakness. There is also academic evidence for momentum, especially for small cap, high betas and commodities. Some assets (e.g currencies & commodities) tend to trend, others (big caps) tend to revert to historical means. TA helps to describe this type of market phenomenon.

Look there's overlap between TA and econometrics. As I wrote earlier, TA relies on historic price data to predict the future. This seems to be becoming an issue of semantics.

Garch & VAR are bad examples because they're not used as predictors. I suppose a delta VAR calculation could qualify if you use historical data to trade volatility products. A Monte Carlo VAR would obviously not as it does not solely depend on historical data.

Now think about a TA system such as market profile. It is all about statistics and trades are taken when prices reach certain standard deviations of a range. The parameters are no different for pivot points, fib lines, or various econometric models. I'm not a quant so I don't want to go into cointegration. I can log onto a Bloomberg and look up spreads for any securities... and guess what, the algos use historical price data, so I'm basing my decision off that how is that not TA?

Now I'm not necessarily trying to validate TA. I do believe that the markets are extremely random so extracting alpha is very difficult or the result luck. I will say that in the stock market fundamental analysis is equally as worthless as TA. Fundamentals are better for evaluating securities in credit markets though. In stocks, they are just laggard indicators. In general a lot of fundamentals are priced in so it is essential to look charts.

I would say that when predicting asset prices managers usually use a combination of technicals and fundamentals. The top hedge fund guys (Cohen, Tudor-Jones, etc.) admit to using charts, especially to identify strength/weakness, entry points, etc..

We must be reading different academic articles. You're not mentioning the EMH ones (for technicals or fundamentals). I've come across ones giving merit to various trend or momentum strategies. Of course maybe we're just fooled by randomness. Plot a random number generator chart in Excel and we'll see patterns too.

I'm sorry, but I don't feel there is much point in continuing this. Your ideas about what defines stat arb and objective quant analysis alone differ so much from mine and from what most people I've talked to and worked with in the field as to make it pointless for either of us continue. You are correct that there are a lot of people at all levels that 'read charts'; however, the veracity of it is questionable to put it lightly.

I will say that if you plot random numbers in Excel, you will not get statistically relevant results even though TA would give you all sorts of indicators of where things are going. That is essentially the difference between TA and valid stat arb. One can easily detect the random mess and filter noise, while the other has no clue.