Technical Analysis is not real?

Hey guys,

So i'm in an investing discord mainly focused on crypto. A lot of these guys post calls with Technical Analysis & I have a hard time understanding how they read/determine the graphs to make informed decisions. They seem to be able to make proper investment decisions by ignoring any fundamental analysis and simply investing based on what the graph's/candles are SUPPOSED to do or are in theory going to end up doing.

I am a sophomore in undergrad trying to learn as much as possible so bare with my lack of knowledge at this point haha. Over my freshman summer, I did an internship at Bloomberg doing market research with a little trading involved. I was told by my superior that technical analysis is "not real" and to only focus on a fundamental analysis; checking things like P/E Ratio, Supply Chain, etc.

Anyone in S&T or with expertise in day-trading care to chime in? Should I invest a lot of my time to be able to do a proper technical analysis on my own? And where can I get the proper resources to learn the right way? I have no idea where to start when it comes to these YT videos.

My endgame goal is to land a FT job in ECM @ IB or Equity Research.

Thanks ahead of time, as always! +SB to all whom can chime in.

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Comments (38)

Jan 17, 2018

Hi champagnepaki, yes, I'm a bot, but I'm also good looking. Hopefully, these threads help you:

  • Is Technical Analysis For Real? a company to trade its stock. (Investing would require a combination of technical and fundamental analysis ... analysis......until now when suddenly, technical analysis is cropping up again. If everyone believes the economy is ... go against the grain! So how valid is technical analysis? Can it stand alone or
  • Technical Analysis = < Emotional Analysis? is that Technical Analysis, at the mean, doesn't work. I accept the fundamental idea here: that ... 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 ..
  • What is Better, CFA, MBA, or CAIA? NPV Analysis... professional skills. The CFA is very targeted towards finance and investment management careers, and is now ... is also not as much as a door opener, as it is a career accelerator once one is already in a buy side ... investments field, and has yet to be tested for its impact on the job front. WHAT IS THE CFA DESIGNATION? The ...
  • Good PE books (not novels, but more technical details) past deals on why some turn out to be profitable and some are not, also some technical aspect as well. ... I have searched the forum already, but most books are novals, which is not what i am looking for. Thanks ... Can someone recommend some good PE books that focus more on how to get a deal done, analysis of ...
  • Notes for Technical Interview Questions is often an art and not an exact science. There are many different ways to approach the numbers, ... industries, there is not a depth of comparable and recent transactions o Furthermore, the financials for many ... miracle drug, but that new miracle drug may not be on the shelves yet, the transaction is probably going ...
  • What is an equity analysis? How do you write one? knowledge is not a big disadvantage. They are looking for someone with subject matter expertise. equity ... Hello, I somehow passed the phone interview (largely technical/industry-related questions) and now ... for the next step, I am tasked with submitting an equity analysis on certain companies. The companies ...
  • Technical Analysis- Good book? What is a good book that you guys would recommend to learn more about technical analysis? I am ... recommend a good read that would be great. technical analysis ...
  • Is fundamental analysis better than technical? investors/traders are fundamental analysis type people? which one has been proven over time to generate more money, ...
  • More suggestions...

If we're lucky, maybe these professional users will respond: @spstack0507 @Throw360 @Lernard12

Fingers crossed that one of those helps you.

Jan 19, 2018

I was taught the same way you were in regards to investment analysis. Fundamental Analysis provides you with a better understanding of the "why" behind the stocks growth/decline. Technical Analysis relies on looking at charts and judging by peaks and valleys (this is a very simple description) to determine when to buy, sell or hold.

In my opinion, I'm not sure how you could perform even a technical analysis on cryptocurrency as they seem to just explode (up or down) for no valid reason, with the exception of bad news in regards to regulation. I think your friends on this call are trying very hard to sound like investors because they have bought in hook, line and sinker into this crypto fad.

    • 2
Jan 19, 2018

I also share the same sentiment and have been watching instead of getting in on it myself. The thing is; these guys are always spot on somehow with their TA and have been making literally XXX% returns on a daily basis.

Here's some pictures of what they're constantly posting: honestly I'm just trying to make sense of it, like am I really just not educated enough or are these guys crazy and applying blind theory? First pic is BTC & second is an alt-coin.

"It is not our circumstance that controls us, but our thoughts that control our circumstance." -James Allen

Jan 19, 2018

"looking to break final resistance"

"short dip here to previous support"

This is the equivalent of a consultant saying synergistic. These are all buzz phrases that have no substance. Like LReed said below, there are books that rip on technical analysis but these guys are still employed by banks. That may just come down to the bank wanting to make sure they cover every aspect of trading possible. The simple truth with bitcoin is if you bought it low and held it, you have some pretty sweet gains. No technical analysis could have told you it's value would explode and neither could any fundamental analysis. You essentially won the lottery.

    • 3
Jan 23, 2018

How can you do fundament analysis on cryptos? There are no fundamentals. Even the oldest one bitcoin has no fundamental usage. They couldn't even accept bitcoin for their own conference.

So technical and reading crowd behavior is about the only thing.

Array
Jan 19, 2018

There was a chapter in "A Random Walk Down Wall Street" on technical analysis that tore it apart pretty good, but major banks still employ technical analysts so whether it's actually an effective way to gauge a stocks movement is tbd.

Personally, I think it's all bullshit. If you bought bitcoin low and simply held it for a few years, your returns would be great. There's no need to constantly be selling it and buying it back to try and capitalize on short term movements. Just find an investment that has good fundamentals or a high dividend and hold on to it.

    • 4
Jan 19, 2018

Agreed, and that's what a lot of these guys are doing. Day-trading crypto based on TA

"It is not our circumstance that controls us, but our thoughts that control our circumstance." -James Allen

Jan 19, 2018

Yeee, the other thing you gotta keep in mind about traders is even if they lose on 99 out of 100 trades, you're only ever going to hear about that 1 saucy gain they NAILED because they CALLED IT PERFECTLY

    • 1
Jan 23, 2018
LReed:

There was a chapter in "A Random Walk Down Wall Street" on technical analysis that tore it apart pretty good, but major banks still employ technical analysts so whether it's actually an effective way to gauge a stocks movement is tbd.

Personally, I think it's all bullshit. If you bought bitcoin low and simply held it for a few years, your returns would be great. There's no need to constantly be selling it and buying it back to try and capitalize on short term movements. Just find an investment that has good fundamentals or a high dividend and hold on to it.

It always amazes me how people still take Black and Scholes seriously despite the fact that they got wiped out entirely by markets, twice but their arguments somehow disprove technical analysis, which btw still makes money to plenty of people.

I don't even use it, but when I read things like ''efficient markets'' then those are people I want to bet against.

Fundamentals are widely used on Wall Streets, party because people want to base their judgment on something concrete, partly because it makes them feel smarter than they actually are; that helps deceiving clients into buying crap.

Making good fundamental analysis doesn't make you a great trader either. It helps deciding what to pick and that's part of the game, but when, how, for how long and when to get out, money management and all that.

Under that aspect, how you pick is only a portion of the job and whether you use fundamentals, technicals, trend following, fair value or just probability does not matter that much.

And anyone that claims to use fundamentals for BTC is likely a fraud.

Best Response
Jan 22, 2018

TLDR:
S&T guy, don't believe in TA, but still use it because I want to keep my job. Free stuff is free for a reason.

I'm in S&T and we employ people who sit at their desk drawing trend lines, moving averages, RSI and that shit. Do I believe in it? No. Do I use it? Yes, more than I want to.

I think the main reason people look at technical analysis is because it's easy to understand - ie. easy to sell. If I had to explain the fundamentals to all my clients I would be on the phone all day explaining why stock XYZ is a good buy. Most of my calls are shorter than 90 seconds so my pitch will look like this: present XYZ, looks oversold (insert political case of why investors are selling now), tell them that fundamentals are looking stronger than ever and how these fundamentals have materialized in the form of a "strong underlying trend". This is way easier than walking them through statistics when most can't even explain basic terminology.

Another reason why it's being used, atleast in my shop, is because all the MDs are in their late 40s and 50s. They come from a time when markets weren't as efficient as they are today and when it might have been possible to make a profit using TA-strategies. Two of our MDs used to earn millions using TA and now everyone under them uses some of their practices because that's what we're told to do. In the end of the day, MDs call the shots and I have no plan walking into a corner office to tell them their life's work is worthless.

As a general comment - any analysis you can do on your mum's iPad for free, using fucking Yahoo Finance, can't be of much value...

    • 9
Jan 22, 2018

Thanks for the awesome response.

Since you guys do use TA for client visuals and ease of readability, do you think TA will always be used in IB/S&T? Or could you see it slowly dissipating as these MD's get replaced?

"It is not our circumstance that controls us, but our thoughts that control our circumstance." -James Allen

Jan 23, 2018

Always is a very long time. I think it will play a smaller part in the future, but TA has been debunked for decades without dying and clients still ask for it. As long as there is a demand for it we will be there to supply. If the clients want to pick their stocks based on Tarot-cards or TA, that's their problem. It's not my job to tell them what to do with their money.

You'll be disappointed when you realise how naive and unintelligent some professional money managers are.

    • 1
Jan 23, 2018

taro-cards reference is amazing. I suppose you are one of those sales guys PMs crack jokes with.

    • 1
Jan 23, 2018

Do you think that TA might be a self-fulfilling prophecy?

Jan 24, 2018

Hard to say. I work on the equity derivative desk so I can only speak for the eq market.

For FX it seems like most people would use TA to some extent and it seems to me that it works to a certain degree. Might be a self-fulfilling prophecy or it might be because analyzing fundamentals is just too complex. I have no idea how you could quantify a country's monetary policy or weigh how much a central banker's word is worth in bips. But then again, that's probably why I'm in sales at a bank and not at Renessaince Technologies or AQR.

    • 1
Jan 22, 2018

I've been trading for quite a few years and I use a combination of both technical and fundamental analysis, but the TA is almost strictly utilized to determine good entry/exit points. That's on a personal investing level. As I believe was mentioned in the thread somewhere, TA, with the use of the Bollinger bands, RSI, candlestick formations which gives one the ability to see head-and-shoulder, cup-and-handle, or other formations that signal bullish/bearish reversals are much easier to see graphically, when presenting to clients.

One slide commonly used in presenting to clients in my field of work is to use dispersion modeling across a bell curve, showing Standard Deviation and associated beta with various portfolios using Monte Carlo simulations with varying degrees of beta across different asset classes (or individual equities, depending on clientele). I supplement the dispersion modeling with the results of the graphing that the TA provides.

HNW and UHNW individuals aren't concerned with entry or exit points, TA vs FA, asset classes or anything else, usually. The majority just want to know that you are making their money work as hard for them as they work for their money.

Jan 24, 2018

I think TA is a load of fucking horseshit, but I'm bumping this nonetheless because I am genuinely curious whether any successful traders actually use this. Barton Biggs in "Hedge Hogging" describes one of his acquaintances as a fanatical (and successful) technician, so he doesn't seem to discount it entirely although he makes it clear that almost everyone relies on value investing.

Jan 24, 2018

i heared both friend friend from ib and professors that TA is bs, but it seems to make me some good returns in the past 3 yrs

Jan 24, 2018

I think that if technical analysis would actually work, we'd be living in the boom of forex trading. I remember like 15 years ago; there where a lot of brokerage firms in Mexico, some of them backed up by Chinese, other by Spanish and so on.. they asked for no particular academic and professional background, all you needed was that somebody (a friend, a relative or anyone) gave you 20,000 $USD so you can invest it and trade forex based on technical analysis using their platform. Nowadays I have not seen a single one office left, just a proliferating number of online trading companies that surely benefit the market makers and HFT players besides themselves, which make real hard money charging by transaction. One question is left though.. Do Mercuria, Vitol, Gunver, Bunge, etc, use technical analysis for their paper (future contracts) trading?
Best Regards..

Jan 24, 2018

BBs do have technicians but usually it's a very small group of individuals. There is a designation similar to the CFA, CPA, etc. known as the CMT (Charted Market Technician). I think the biggest weakness is how you cannot scale a purely technical strategy. Also, you might get more feedback if you post this in the trading forum.

Jan 22, 2018

Thanks for breaking it down! I'll definitely focus on being able to perform a proper TA while preparing for recruiting season.

"It is not our circumstance that controls us, but our thoughts that control our circumstance." -James Allen

Jan 23, 2018

That is not where I would put my focus if you're going into recruiting season. Learn how to do proper funda instead.

    • 2
Jan 24, 2018

No matter what your stance on TA is, I would strongly advise against bringing it up unless you're confident that your interviewer uses TA excessively judging by a CMT designation or something similar. There is a clear disconnect in the industry on such matters, and while it may seem that proportions are skewed towards those that have a revulsion towards TA, it is very much desk dependant. I would expect discretionary prop firms to focus on technicals, the likes of FNYS, Trillium, Chimera and SMB.

I have a slightly different view on TA, which I would broadly categorize into two forms, verifiable TA and non-verifiable TA. Non-verifiable TA include methods that can't be subject to testing (ex: double tops), while verifiable methods can be tested for predictive power (ex: a 50 and 150 SMA cross). Interestingly enough, ALL conventional verifiable TA methods produce results that are consistent with randomness. However, if the right tools are applied to the right markets (eg: momentum indicators on highly kurtotic markets), it can yield some interesting results. So it would be idiotic to completely dismiss or accept TA by simply eye-balling charts.

Jan 23, 2018

IMO all old school technical analysis is close to dead now.

But technical analysis still exists. Some of the old technical analysis was based on the fact that news would disperse slowly thru the market but every one knows everything now.

I do think you could put together a new TA today that incorporates the behavior of different investors to make decisions - hft, multi-strat etc. if you start to build a system based off of other guys risks management systems you can make money.

Array
Jan 24, 2018

Good question, and one I often pondered over when I first started trading.

Red lines indicate the aggregate estrogen levels among market participants trading any particular asset at a given time.

Black lines indicate aggregate testosterone levels among market participants.

Such data is freely made available by the CFTC, who also publish the weekly COT report, for futures and FX. The SEC publishes such data for US equities.

Conventionally, momentum traders buy an asset when the black line crosses above the red line. Mean reversion traders take the other side of the trade.

Jan 24, 2018

thanks for the prompt reply! Could you explain what do you mean by aggregate estrogen levels and aggregate testosterone levels a littble bit? If you could use some simple numerical exmple, that will be great!

Jan 24, 2018

You should probably not be in trading if you don't get what estrogen and testosterone are.

Jan 24, 2018

could you explain it a bit? appreciate it!

Jan 24, 2018

Seriously?

Testosterone in this context refers to confidence, while estrogen is a lack thereof.

Jan 24, 2018

okok thanks!

Jan 24, 2018

wtf is wrong with you people.

black line tracks the behavior of complete retards like yourself.

Jan 23, 2018

"Technical analysis is to Trading what Astrology is to Science"

Jan 23, 2018

They aren't making proper investment decisions because crypto is not an investment. It does not produce cash flow, nor does it have any fundamental value. It's 100% speculation.

Secondly, technical analysts are actually saying that they can predict future emotions based on previous emotions (they do not care about the actual value of an asset).
Not of one person but of the entire market! .... Based on A CHART. Again, not investing, but speculation. Perhaps it can work with solid risk management but so can gambling.

Lastly, price movements do not happen on a day. Unless event-related, price movements on a daily basis are just noise.

Jan 23, 2018
Jan 23, 2018