Technical Analysis =< Emotional Analysis?

I'll start with acknowledging my ignorance and profess I'm quite new to trading and (sophisticated) investment in general. I am considering learning python and quant trading. Crypto is intriguing to me in this context.

My question has a few parts.

First, my understanding (based on what I have read) is that Technical Analysis, at the mean, doesn't work. I accept the fundamental idea here: that forecasting based off random patterns is fallacious. Intuitively, to me at least, this makes sense... But so does buy low, sell high.

Furthermore, markets are infused with human emotion. On "China Black Monday" (last August), and more recently with "Brexit", huge selloffs provided capitalization opportunities for savvy traders/investors. I had a friend who shorted the VIX on "China Black Monday" and made a great return. It seems "objective" analysis of human emotion is a valid way to trade/invest... Am I missing something important here?

Technical Analysis applied to the graphs would have yielded the same result, no?

Is there a third kind of "Analysis" (i.e. Emotional Analysis)? If not, how does the analysis of aggregated human emotion fit into TA (or FA)?

Nassim Taleb's approach to trading is intriguing (I don't agree with everything he says). He lives for these big market movements, his "Black Swans". As I understand it, he continuously shorts the market and waits for big drops (because the big drops are always much bigger than the big jumps). This method, it seems, surmounts the problem of randomness (I'm very curious about his algorithms).


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Comments (5)

Jul 26, 2016 - 8:43am

Yeah, it doesn't really make sense, I totally agree. That's kind of why I put it in quotes. I guess my point was to take a step back and separate yourself from the emotional inertia of the masses and be as rational as possible... I guess I'm trying to eliminate conflation or at least codify the human "gut feel" in some way. Specifically, with macro-swings how can FA or TA really tell you anything? Isn't there always a large "subjective" element to how you play the market at large? Conversely, with individual companies I can understand how FA would work. It's complicated, but ultimately contained in scope.

How did he make so much money then? I read the Black Swan and enjoyed parts of it but definitely found the negative dogmatism towards economics and statistics annoying. He himself has spent many years studying both... how can he possibly denounce their study as completely useless?

Jul 26, 2016 - 9:20am

Well, as I may have mentioned previously, it's just a matter of coming up with a rational process of a reasonable quality. TA sorta looks like a rational process, but its quality leaves much to be desired. Other techniques have their own advantages and flaws and none are perfect, obviously. Finally, there's a subjective element which has to be applied to deal with a variety of intangibles and that's a matter of skill, experience, etc.

As to Taleb, I am not really sure he made all that much money while actually involved with trading. And yes, like I said, I find a lot of his attitudes extremely annoying. I am not a fan of his.

Jul 26, 2016 - 9:25am

Thanks for sharing!

Johan - Investor @
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