Technical Analysis = Astrology?

[onemind]

I know people on this forum have a strong aversion to the academic side of trading so if you would, "Rather make money than talk about it", then please see other threads.

Anyway, according to random walk theory and the efficient market hypothesis day to day price movements are random. Therefore making all technical indicators useless as past prices have zero effect over the probablilities of future price movements. Then tech/a people counter that by saying the markets cant be random because they trend and yes, the trend is your friend. Then that gets countered by a demonstration of a random data model with stochastic distrubution, fat tails and other statistical jargon showing clear trends in the random data.

Then in comes mandelbroit with his fractal theories ect but they are in such beginning stages to be un usable for day to day practical purposes.

Now, i figured that the best way to settle this would be to back test each indicator over years and years worth of historical data across many different markets to see if the indicators do have any predictability elements. I then found this book:

http://www.amazon.com/gp/product/cu...omer-reviews.sort_by=-SubmissionDate&n=283155

Which did all the statistical work for me and it is shown that 6400 technical indicators turned out to be useless.

So how do people make money with tech/a? The answer is that millions of people use tech/a with proper money management. Out of that many people doing it there are bound to be a small percentage of winners from luck and a large amount of losers which would make sense of the often quoted statistic that 90% of traders lose money.

So is it fair to conclude that successful chartists are just luckier than their fellow losing chartists?

I meant no offence by this thread and am not interested in hearing people defend their egos because they cant accept the possibility that what they have been doing all these years was a total waste of time.

All opinions and counter arguments are greatly welcomed, lets just try not get personal.

Kind regards,

onemind

 

[wayneL]

Agree indicators are useless.

t/a => There are many different schools and it is a broad church... and the role of "luck" should never be underestimated. I can demonstrate that quite easily. But money management, though imperitive, is not the half of it. It comes back to, as so often discussed, to expectancy (as a mathematical formula). There are methods where only the "unlucky" would lose. Tech/a's or Stevo's systems prove that because they have positive expectancy.

Good money management will still not save you if expectancy is negative, proving that it is not the only factor.

On the other hand, speaking of astrology, did you know that the origins if the bible are based on astrology? LOL

 

[motorway]

Which did all the statistical work for me and it is shown that 6400 technical indicators turned out to be useless.

Not surprised.

Out of that many people doing it there are bound to be a small percentage of winners from luck and a large amount of losers which would make sense of the often quoted statistic that 90% of traders lose money.

90% of a certain universe of traders lose money.


motorway

 

[onemind]

That is the whole point, there can be no reliable way to determine the expectancy of any future system based on tech/a.

Some excerps from the book:

------------------

Our brains are so strongly inclined to find patterns in nature, perhaps as evolutionary compensation for limited processing power, that we often see patterns where none really exist. This tendency toward spurious correlations, evident in subjective chart analysis, is maladapted to modern financial markets.
Erroneous knowledge (superstition) is resilient due to biases in our thinking processes such as:
Overconfidence;
Optimism;
Confirmation (discounting contradictory data);
Self-attribution (smart when right and unlucky when wrong); and,
Hindsight (overstating past successes and understating past failures).
Good stories well told can make people misweight or ignore facts.
People are not naturally rigorous logicians and statisticians. A need to simplify complexity and cope with uncertainty makes us prone to seeing and accepting unsound correlations. We tend to overweight vivid examples, recent data and inferences from small samples.
In summary, the scientific method is a reliable path to validity, mitigating the misleading effects of our cognitive biases.

Subjective TA practitioners protect themselves from falsification with vague, ambivalent and conditional predictions. "Because they are not testable, subjective methods [of TA] are shielded from empirical challenge. This makes them worse than wrong. They are meaningless propositions devoid of information."
Similarly, proponents of the Efficient Markets Hypothesis (EMH) have repeatedly (after the fact) circumvented falsification by defining new risk factors when confronted with unexpected abnormal returns, thereby weakening the credibility of EMH.
The scientific method requires skepticism, objectification and relentless testing as counterbalance to active speculation about new TA possibilities.
In summary, those who state that TA is more art than science deserve the status of astrologers, alchemists and folk healers.


Support from a sound theory makes luck less likely as the explanation of success for an outperforming TA rule. Purely empirical TA rules sacrifice this advantage.
EMH, which precludes or impedes successful TA, is reasonably vulnerable to both logical and empirical challenge. Behavioral finance exploits the logical challenges, limits of human rationality and limits of arbitrage, to offer alternative (but less sweeping) hypotheses that support successful TA.
Cognitive biases (see Chapter 2 key points above) are important building blocks for the hypotheses of behavioral finance.
Competing hypotheses of behavioral finance include:
Biased processing by investors of public information;
Biased processing by investors of their private information; and,
Interaction of news (fundamentals) traders and momentum (trend-following) traders.
Even efficient markets in which participants have different sensitivities to risk, leading to risk transfer opportunities (risk premiums), offer support to TA methods.
In summary, theoretical support is available to help squeeze randomness out of TA.

 

[onemind]

The only way to profit from financial markets is to be an inside trader, market maker, book/system/knowledge seller, exploit market inefficiencies via technological advantage over your broker which will promptly get you banned, become a broker, or several other illegal practices..


Going by fundamental economic common sense has its place but the future is unpredicatable so even they suffer from the same problems as the tech/a guys..

 

[professor_frink]

Hi onemind,

what did you think of the book? I was contemplating buying it when it first came out, but then I read this on their website-

http://www.evidencebasedta.com/index.html

EBTA rejects all subjective, interpretive methods of Technical Analysis as worse than wrong, because they are untestable. Thus classical chart patterns, Fibonacci based analysis, Elliott Waves and a host of other ill defined methods are rejected by EBTA. Yet there are numerous practitioners who believe strongly that these methods are not only real but effective. How can this be? Here, EBTA relies on the findings of cognitive psychology to explain how erroneous beliefs arise and thrive despite the lack of valid evidence or even in the face of contrary evidence. Cognitive psychologists have identified various illusions and biases, such as the confirmation bias, illusory correlations, hindsight bias, etc. that explain these erroneous beliefs

they come out and say that something is worse than wrong because THEY can't test it.

Evidence based indeed

 

[onemind]

they come out and say that something is worse than wrong because THEY can't test it.

Exactly, it is worse than wrong because it is based on zero information therefore making it "magic" just like alot of human thinking before science. If you cant test it it means it is based on superstition, making it no different to god, religion, and black magic. I dont know about you but i need more than blind faith before betting my life savings making tech/as little more than gamblers at vegas.

I thought the book was excellent. Just the primer on poppers philosophy of science and clarity of thought is worth it but you really dont need to read a whole book to find out that t/a is nonsense do you?

 

[wayneL]

Ho hum!

Another academic sprouting ill-informed nonsense. Of course the author is correct regarding a certain brand (and the most commonly taught form) of t/a, and that is on the reliance on indicators and/or in "prediction". But he conveniently ignores mathematically provable methods.

A good way to profit from financial markets is to be an inside trader, market maker, book/system/knowledge seller, exploit market inefficiencies via technological advantage over your broker. But to say it is the only way is utter nonsense.

Go find Curtis Faith and and propose this hypothesis.

 

[motorway]

The only way to profit from financial markets is to be an inside trader,

or by recognising what the intention of inside traders (those that Know, are better informed, Or whose pockets can make the markets) IS.

And following along

that we often see patterns where none really exist. This tendency toward spurious correlations, evident in subjective chart analysis, is maladapted to modern financial markets.

Yes... How else does that smart money manipulate the dumb money?

motorway

 

[wayneL]

Hang on>

What you are saying onemind, seems to be at odds with what is apparently being proposed in this book.

 

[onemind]

How do you figure?

Ignore the EMH stuff, that is just my uni brainwashing coming out..

 

[onemind]

or by recognising what the intention of inside traders (those that Know, are better informed, Or whose pockets can make the markets) IS.

Same thing, a crook is a crook..

 

[motorway]

In summary, theoretical support is available to help squeeze randomness out of TA.

Sounds right

make things objective

minimize the randomness

And make $$$$

motorway

 

[motorway]

Same thing, a crook is a crook

Do you think the seller you buy from
or the buyer you sell to

Is doing you a favor out of the kindness of his/her heart ?

Crooks ?

Not applicable

there is risk there is return

EVERYONE is trying to sell one and buy the other
and Everyone is coming from a different starting place

motorway

 

[onemind]

Crooks ?

Not applicable

As far as i know, trading on insider information that is not publicly availabe is illegal making such practicioners crooks..

 

[professor_frink]

Exactly, it is worse than wrong because it is based on zero information therefore making it "magic" just like alot of human thinking before science. If you cant test it it means it is based on superstition, making it no different to god, religion, and black magic. I dont know about you but i need more than blind faith before betting my life savings making tech/as little more than gamblers at vegas.

I thought the book was excellent. Just the primer on poppers philosophy of science and clarity of thought is worth it but you really dont need to read a whole book to find out that t/a is nonsense do you?

I'm glad you enjoyed the book onemind. By the way you've replied, I'm quite glad I didn't buy it.

Enjoy your evening

 

[onemind]

Yes, the PhD mathematician couldnt test it but professor fink could

such arrogance..

 

[professor_frink]

Yes, the PhD mathematician couldnt test it but professor fink could

such arrogance..

I never said I could test it. I objected to them stating that it is useless and worse than wrong because THEY couldn't test it.

I'd appreciate it if you didn't get personal about it.

Cheers

 

[motorway]

such arrogance..

hmmm.

Whats the point
and whats your purpose.

And haven't We been there and done that
already ?

Markets are great things
They = opportunity

If We are up to making that most of that opportunity


cheers
motorway

 

[onemind]

So if you cant test it what is it? A hunch? Intuition? Devine guidance?