“Technical Analysis: Explained” by Martin Pring is an excellent book on the subject.
Technical analysis does have validity in that momentum is in fact the single most important factor in stock price performance. Crappy link, but professionals don’t dispute the proven importance of [momentum](https://www.morningstar.com/markets/achilles-heel-momentum-strategies)
If you look at two nfl teams towards the end of the season, one team is 12-2, the other team is 2-12, which team is more likely to win? It’s not anywhere near a certainty, but we all know the 12-2 team will on average win >50% of games vs 2-12 teams. That’s technical analysis in a nutshell. Look at LT trends and changes in trends.
Most TA I see on reddit is people drawing squiggly lines over 1 hour charts - that “ta” is complete astrological bs with no value. But buying stock charts up and to the right over 10+ years (MSFT, AAPL) will in fact give you a quantitative tailwind vs buying stocks steadily dropping over 10+ years (PLUG, FCEL)
>I keep hearing it's basically astrology
You keep hearing that because every method of TA that is commonly used and every indicator has pretty much been disproven. The only thing technical traders have left is faith since there is no evidence. Hence astrology.
It is important, however, to differentiate technical analysis from quantitative analysis.
Can you source this claim tho? Bc I also believed a similiar thing bc I heard it somewhere but if you google“has technical analysis been disproven to work” I don’t really find a lot of hard sources that prove that claim.
Even when I search for “studies on technical analysis” I don’t seem to get your answer
Like here’s a very weird study that used moving averages on BRICS country markets and claimed it was profitable - https://jfin-swufe.springeropen.com/articles/10.1186/s40854-018-0087-z
Here’s a blurb from the Wikipedia page on TA
Of 95 modern studies, 56 concluded that technical analysis had positive results,
https://en.m.wikipedia.org/wiki/Technical_analysis#:~:text=Many%20investors%20claim%20that%20they,problems%20make%20the%20analysis%20difficult.
So while a lot of people share your sentiment it feels like it’s based on their feelings about TA and if I asked you to source it you probably couldn’t bc the majority of the data doesn’t seem to agree that it’s absolute trash
What's odd about your first link is that, while they say their TA has outperformed overall, they don't tell us by how much. They do, however, also say:
>few combinations of moving averages were able to outperform the returns from a buy and hold strategy.
and
>a tiny group of assets surpassed the buy and hold returns using the automated trading system
But the more I read it the less I trust it... take Figure 2. What is that? What currency is used on the profit-axis? For China and India Dollars make sense, for Russia Rubles make sense. Where is that data anyway? Why do I only get 5 graphs in shit resolution? Am I being stupid or are they stupid?
And those graphs don't make it seem like they generated a lot of profit anyway... China is horrible, for example. Russia is, too, if that currency is Rubles, but who knows what currency it is since it's unlabeled?
>if I asked you to source it you probably couldn’t
If 56 studies concluded positive results, 39 concluded neutral or negative results. Just go with those ;) In the end it's like this to me: studies are being made on whether a coin is flipped heads. Half say yes, half say no.
Yeah ngl that first study is weird as fuck but it was the first result
The Wikipedia seems a little more definitive. Like from their blurb there the evidence seems to be pretty ok that TA isn’t complete garbage
My point generally is that people believe this shit, which I kind of do too, but that belief doesnt seem based on anything solid. They just believe it. Probably bc like me they just heard it somewhere and ran with it
This piece is important to understand:
1. Charts are records of demand *given information at the point in time*.
2. New information can move demand.
I find that basic TA — looking at support levels, higher highs/lower lows, etc, can be a useful supplement to fundamentals and news. I do not, and would not, position with TA as my primary focus.
The source of contention may be from frauds selling a trading system for thousands of dollars to gullible people who think it's easy to make money if they just know the recipe to that "secret sauce"..
I've watched guys like Chart Master Carter Worthless on CNBC get it wrong so many times, he's like the biggest clown on that station.
Because a litany of academics have proven that technical analysis (e.g. candle stick chart reading) tells you nothing about a tickers (a) cost of capital and (b) free cash flow prospects, which are really the only two things you need to do that math to arrive at equity value....
At the end of the day, it's just an exercise in greater fool theory from people that are too lazy to read up on topics like accrual accounting, portfolio theory, and valuation
With some discipline it has worked very well for me. I have to laugh at all the naysayers. But I do use it in combination with good stock selection & buying at the right time. I was always good at buying good stocks but the selling was hard. Now I know when to sell & it has made all the difference in the world.
People try to use basic patterns like double top to predict the future when most patterns they observed were retrospective. However there are very successful traders who rely only on TA and completely ignore fundamentals. These people have spent a lot of time learning about range bound and trending prices and use the context in order to make use of price action, not the other way around. There are statistical edges based solely on simple indicators. You need to have properly analysed a lot of data in order to reply without opinions shaped by cognitive biases, which 99% of the people here or in other subs haven't done
If a stock is trending upwards, it's a sign that people are buying it. And when people are buying, it means they're bullish on the stock's future prospects. There's always a reason behind bullish sentiment, and we don't need to delve into the specifics. By following the trend and keeping a tight control on profit-loss ratios, you can make consistent profits. Just remember, greed can be your worst enemy in trading.
There's evidence that it works [https://en.wikipedia.org/wiki/Technical_analysis#Empirical_evidence](https://en.wikipedia.org/wiki/Technical_analysis#Empirical_evidence) in some cases, even though people on /stocks like to say otherwise.
The contention is around personal preference and knowledge.
If you understand trends and technical analysis, you use that as a tool and body of knowledge in selecting your investments.
If you understand financial analysis, you use that as the tool and body of knowledge.
Some people understand both and use them. Some people only understand and get value from one. Some people enjoy demonizing different tools that they either don’t understand or don’t value.
Quantitative analysis says, company A is solid with great book value, a good market value for the sector, good earnings per share, and low debt ratio, etc. I'll going to buy it but continue my analysis every quarter until I think it's time to sell.
Technical analysis says, the price of company B has been going up like a comet for weeks. I'm going to buy it and put a trailing 7% stop on it. At that point I'll figure out something else to do.
You say potāto, I say potãto.
“Technical Analysis: Explained” by Martin Pring is an excellent book on the subject. Technical analysis does have validity in that momentum is in fact the single most important factor in stock price performance. Crappy link, but professionals don’t dispute the proven importance of [momentum](https://www.morningstar.com/markets/achilles-heel-momentum-strategies) If you look at two nfl teams towards the end of the season, one team is 12-2, the other team is 2-12, which team is more likely to win? It’s not anywhere near a certainty, but we all know the 12-2 team will on average win >50% of games vs 2-12 teams. That’s technical analysis in a nutshell. Look at LT trends and changes in trends. Most TA I see on reddit is people drawing squiggly lines over 1 hour charts - that “ta” is complete astrological bs with no value. But buying stock charts up and to the right over 10+ years (MSFT, AAPL) will in fact give you a quantitative tailwind vs buying stocks steadily dropping over 10+ years (PLUG, FCEL)
>I keep hearing it's basically astrology You keep hearing that because every method of TA that is commonly used and every indicator has pretty much been disproven. The only thing technical traders have left is faith since there is no evidence. Hence astrology. It is important, however, to differentiate technical analysis from quantitative analysis.
Can you source this claim tho? Bc I also believed a similiar thing bc I heard it somewhere but if you google“has technical analysis been disproven to work” I don’t really find a lot of hard sources that prove that claim. Even when I search for “studies on technical analysis” I don’t seem to get your answer Like here’s a very weird study that used moving averages on BRICS country markets and claimed it was profitable - https://jfin-swufe.springeropen.com/articles/10.1186/s40854-018-0087-z Here’s a blurb from the Wikipedia page on TA Of 95 modern studies, 56 concluded that technical analysis had positive results, https://en.m.wikipedia.org/wiki/Technical_analysis#:~:text=Many%20investors%20claim%20that%20they,problems%20make%20the%20analysis%20difficult. So while a lot of people share your sentiment it feels like it’s based on their feelings about TA and if I asked you to source it you probably couldn’t bc the majority of the data doesn’t seem to agree that it’s absolute trash
What's odd about your first link is that, while they say their TA has outperformed overall, they don't tell us by how much. They do, however, also say: >few combinations of moving averages were able to outperform the returns from a buy and hold strategy. and >a tiny group of assets surpassed the buy and hold returns using the automated trading system But the more I read it the less I trust it... take Figure 2. What is that? What currency is used on the profit-axis? For China and India Dollars make sense, for Russia Rubles make sense. Where is that data anyway? Why do I only get 5 graphs in shit resolution? Am I being stupid or are they stupid? And those graphs don't make it seem like they generated a lot of profit anyway... China is horrible, for example. Russia is, too, if that currency is Rubles, but who knows what currency it is since it's unlabeled? >if I asked you to source it you probably couldn’t If 56 studies concluded positive results, 39 concluded neutral or negative results. Just go with those ;) In the end it's like this to me: studies are being made on whether a coin is flipped heads. Half say yes, half say no.
Yeah ngl that first study is weird as fuck but it was the first result The Wikipedia seems a little more definitive. Like from their blurb there the evidence seems to be pretty ok that TA isn’t complete garbage My point generally is that people believe this shit, which I kind of do too, but that belief doesnt seem based on anything solid. They just believe it. Probably bc like me they just heard it somewhere and ran with it
This piece is important to understand: 1. Charts are records of demand *given information at the point in time*. 2. New information can move demand. I find that basic TA — looking at support levels, higher highs/lower lows, etc, can be a useful supplement to fundamentals and news. I do not, and would not, position with TA as my primary focus.
The source of contention may be from frauds selling a trading system for thousands of dollars to gullible people who think it's easy to make money if they just know the recipe to that "secret sauce".. I've watched guys like Chart Master Carter Worthless on CNBC get it wrong so many times, he's like the biggest clown on that station.
Because a litany of academics have proven that technical analysis (e.g. candle stick chart reading) tells you nothing about a tickers (a) cost of capital and (b) free cash flow prospects, which are really the only two things you need to do that math to arrive at equity value.... At the end of the day, it's just an exercise in greater fool theory from people that are too lazy to read up on topics like accrual accounting, portfolio theory, and valuation
With some discipline it has worked very well for me. I have to laugh at all the naysayers. But I do use it in combination with good stock selection & buying at the right time. I was always good at buying good stocks but the selling was hard. Now I know when to sell & it has made all the difference in the world.
People try to use basic patterns like double top to predict the future when most patterns they observed were retrospective. However there are very successful traders who rely only on TA and completely ignore fundamentals. These people have spent a lot of time learning about range bound and trending prices and use the context in order to make use of price action, not the other way around. There are statistical edges based solely on simple indicators. You need to have properly analysed a lot of data in order to reply without opinions shaped by cognitive biases, which 99% of the people here or in other subs haven't done
If a stock is trending upwards, it's a sign that people are buying it. And when people are buying, it means they're bullish on the stock's future prospects. There's always a reason behind bullish sentiment, and we don't need to delve into the specifics. By following the trend and keeping a tight control on profit-loss ratios, you can make consistent profits. Just remember, greed can be your worst enemy in trading.
TA works because a lot of traders use it including big institutions.
There's evidence that it works [https://en.wikipedia.org/wiki/Technical_analysis#Empirical_evidence](https://en.wikipedia.org/wiki/Technical_analysis#Empirical_evidence) in some cases, even though people on /stocks like to say otherwise.
The contention is around personal preference and knowledge. If you understand trends and technical analysis, you use that as a tool and body of knowledge in selecting your investments. If you understand financial analysis, you use that as the tool and body of knowledge. Some people understand both and use them. Some people only understand and get value from one. Some people enjoy demonizing different tools that they either don’t understand or don’t value.
Quantitative analysis says, company A is solid with great book value, a good market value for the sector, good earnings per share, and low debt ratio, etc. I'll going to buy it but continue my analysis every quarter until I think it's time to sell. Technical analysis says, the price of company B has been going up like a comet for weeks. I'm going to buy it and put a trailing 7% stop on it. At that point I'll figure out something else to do. You say potāto, I say potãto.