What is the logic behind "Technical Analysis is like reading tea leaves"?

[pianodoctor]

Re: What is the logic behind "Technical Analysis is like reading tea leaves"?

So this Martin Pring book I have states that T.A. is a valid 'tends to be correct' "art" for identifying trend reversals. So far as I have read, he doesn't restrict that to any time frame. You can use it for short, intermediate, long.

Setting aside day trading time frames for a moment, is he just wrong? There are not valid techniques that are right more often than wrong for identifying trend reversals?

[karim0028]

Re: What is the logic behind "Technical Analysis is like reading tea leaves"?

In my view, T.A., including Elliott Wave analysis, is useful in the way that understanding the Pantheon of Greek Gods would be useful if one wants to understand what some ancient Greeks are saying. It provides terms and concepts to describe things both past and anticipated. T.A. terminology is flawed for lack of a perfectly valid conceptual basis, but it is still useful for forming and conveying thoughts on financial markets. Technical Analysis doesn't predict, but some good (and bad and lucky) predictors can Technically Analyze.

Your right TA doesnt predict, it only tells you what can be "highly" probable... In the end, all of it is trying to analyze herd behavior, nothing is 100% correct when it comes to human/herd behavior.... BUT, you can draw out scenarios of what to do based on clues, like "if i smell a fire before everyone else, i better get the hell out of the way before i get trampled"....

If you actually watch price move you can begin to get an idea of where its more inclined to go in the very short term... But, its definitely not a science.

Long term though, i think its all about fundamentals.

[Chris]

Re: What is the logic behind "Technical Analysis is like reading tea leaves"?

So this Martin Pring book I have states that T.A. is a valid 'tends to be correct' "art" for identifying trend reversals. So far as I have read, he doesn't restrict that to any time frame. You can use it for short, intermediate, long.

Setting aside day trading time frames for a moment, is he just wrong? There are not valid techniques that are right more often than wrong for identifying trend reversals?

He may or may not be.

Quantify a trend-reversal pattern and back test on historical data. If it works historically, forward test it for a few months (if the trade setup time frame is short enough). If it's still successful then Pring is correct!

The first part is the difficult bit.