Is Technical Analysis bunk?

[FRED]

iTulip members settle the matter once and for all through a series of competitions. See Testing the Merits of Technical Analysis for details.

[Mega]

Re: Is Technical Analysis bunk?

Fred it has its uses, but not if the game suddenly changes. An example would be China buying up........well everything, Coal, Oil,Gas .......I mean the Bloomberg Boneheads keep saying "Recession will cut oil demand".............BULSH*T.

It NEVER has & that was before China & India were on the case. India itself is trying to get Ango-a in Aficia to give it 1ST shout on its oil by offering to build sea & airports for it.

Mega

[Nicolasd]

Re: Is Technical Analysis bunk?

Yes TA is bunk, It is about as precise as charting the human nature in 3 graphs.You may get it right from time to time but that does not make it a science.

[qwerty]

Special form of Cold Reading

Practised on oneself.

The "Rainbow Ruse" seems particulary similar to the wave count readings you get out of Elliot Wave Theory. You know: "On a 1-5 count, this means we will get a 5 down wave, whereas if this is an A-B-C count it will be a C move up." The market goes down: "Ah, yes, you see? It was a 5 wave!"

[metalman]

Re: Special form of Cold Reading

Practised on oneself.

The "Rainbow Ruse" seems particulary similar to the wave count readings you get out of Elliot Wave Theory. You know: "On a 1-5 count, this means we will get a 5 down wave, whereas if this is an A-B-C count it will be a C move up." The market goes down: "Ah, yes, you see? It was a 5 wave!"

arright i missed this one. where's the next? how about the stock market in a week? i'll ask my dog. what does 38 barks mean?

[metalman]

Re: Special form of Cold Reading

arright i missed this one. where's the next? how about the stock market in a week? i'll ask my dog. what does 38 barks mean?

if i may... assist with this... perchance end the doubts. ta is not tits & ass!

exhibit numero uno! the dow cow over the past 6 mo.



as you can see from this chart the poking up thingy shows that something big, big, big! is cooking in the markets. but you gotta zooooom out 2 yrs to get the picture...



obviously the keepa uppa pattern was busted in may 07 with the cdo fuckup and the outa gassa pattern took over.... soon replaced by the dreaded bush's daughter's pattern. we are so fucked!

zooom out to 5yrs for the gory details...



yep, the teetering spank wedgie gave way to the spleeding pufty mooger! ej's perfecto call was foretold by the descent into Crammo! we coulda told ya! but the proof is in the pudding...

yeeessssss! there it is, all in the charts going back 70+ yrs. after yuppies rule... BANG! it's the geezer's revenge. and i do mean alan greenspan.



that's it, folks. proof that ta works.

[zoog]

Re: Is Technical Analysis bunk?

iTulip members settle the matter once and for all through a series of competitions. See Testing the Merits of Technical Analysis for details.

Spoken like a man who's already made up his mind.

Did your competition have an option for "use technical analysis and other method(s)" ?

Because Gold Update: The small trade within the big trade told me:

Within the current rapid speculative trade, we are watching for short term price volatility much as occurred at the end of the previous similar period C (H1 2006): a 20% correction from $720 to $580. A similar correction today would take gold prices down $200.

And considering iTulip's postion on technical analysis and short-term trading, I can be pretty confident in saying the above prediction used 0% technical analysis.

But technical charts have also been suggesting to me that there will be a correction.

If two methods are pointing the same direction, I figure there's a better than 50% chance they're right.

Just the same, neither of these gave me a precise day when it would start or when it would end. The big drop a couple weeks ago could have been the start of a significant correction, which might lead one to believe that the price will be lower in a week. Yet even if such a correction has started, the price next week might still be higher than today. I personally would not expect technical analysis (or any other method) to consistently, accurately make a one-week price prediction. I guess many people who use TA expect this kind of crystal ball result.

To me, technical indicators are not like the green highway signs that say: "Seattle 125 miles". They are more like the yellow highway signs that say "Watch for falling rocks".

[Guest]

Re: Is Technical Analysis bunk?

Spoken like a man who's already made up his mind. "

Zoog says it exactly for me to. The posting of a 24 hour chart as a reference for "technical analysis" was an immediate flag that the topic is being posted with an a-priori opinion.

I don't get all gaga about technical analysis, but everybody and their uncle knows that a 24 hour chart is meaningless. You put up a straw man argument if you display a 24 hour chart and ask "what does this mean"?

Try putting up one of the Aden Sisters famous two decades long charts showing "trend buster" channel breaks on bond rates, and you'll notice they use such tools to very soberly and astutely (they are very often early) call the major, 20 year turns in the market with superb insight.

They don't fuss with three month volume indicators, aetherial channels, or those silly short term stochastic indicators. What they do use to startlingly sound effect is some quite elementary technical analysis techniques, but focused on the really long term trends to find the relevant, actionable trend changes. This humble exercise earns them "five stars" from Richard Russell, who is probably not a complete slouch, even today. The point being, this too is technical analysis, with a very high degree of serious analysis within it.

Technical analysis is a valuable tool in the hands of sober minded analysts looking for the large trends. It gets silly in the hands of a lot of "technicians" who don't understand it's a mere adjunct to understanding economic cycles.

E.J. does economic cycles really, really well. IMHO that does not mean he needs to throw away a perfectly good tool like technical analysis. Long term charts tell a powerful story. Why should we diss them out of a mere reflexive dislike for "technicians"? OK, Elliotticians are enough to put most of us off, most of the time, but there's a heck of a lot more there than this thread does justice to with 24 hour chart images.

[ P.S. And yes Metalman's charts are highly edifying. He's definitely been cramming on Elliott Wave tutorials. P.P.S. This last comment is called "a friendly joke", but there is always a risk some readers may not regard it as such, in which case, not wishing to be pedantic, I will resist the impulse to put E.Z. cue cards underneath the comment to "elucidate" that it is intended as harmlessly bland humor. ]

[Jim Nickerson]

Re: Is Technical Analysis bunk?

Spoken like a man who's already made up his mind.

Did your competition have an option for "use technical analysis and other method(s)" ?

Because Gold Update: The small trade within the big trade told me:

And considering iTulip's postion on technical analysis and short-term trading, I can be pretty confident in saying the above prediction used 0% technical analysis.

But technical charts have also been suggesting to me that there will be a correction.

If two methods are pointing the same direction, I figure there's a better than 50% chance they're right.

Just the same, neither of these gave me a precise day when it would start or when it would end. The big drop a couple weeks ago could have been the start of a significant correction, which might lead one to believe that the price will be lower in a week. Yet even if such a correction has started, the price next week might still be higher than today. I personally would not expect technical analysis (or any other method) to consistently, accurately make a one-week price prediction. I guess many people who use TA expect this kind of crystal ball result.

To me, technical indicators are not like the green highway signs that say: "Seattle 125 miles". They are more like the yellow highway signs that say "Watch for falling rocks".

Zoog, WTF do you mean by putting up a serious comment here?

iTulip members settle the matter once and for all through a series of competitions. See Testing the Merits of Technical Analysis for details.

FRED, I've probably written more dumb things on iTulip than anyone, but in full respect of your unknown expertise with anything to do with technical analysis (or were you writing for EJ?) I think any notion of settling any question of the value of technical analysis on iTulip by a series of competitions is at least as naive and lame as anything I've ever put up, actually perhaps ever moreso.

I surmise that some of the comments so far are from individuals who may know nothing at all about technical analysis, but surmise is not fact.

Carl Swenlin who I think owns and runs decisionpoint.com which on its homepage states "complete market research at a glance" provides access by subscription to a lot of market data, and I believe application of various technical analytical tools--I looked at it for a few days once during an open period of access, and my small brain was overwhelmed by all the things that existed there--you know like information overload. All the comments I have read by Swenlin, i.e. those that are put as freebies, end with the following caveat:

Technical analysis is a windsock, not a crystal ball. Be prepared to adjust your tactics and strategy if conditions change.

I guess if you are a cynical SOB, you could surmise he writes that just to cover his ass for some reason, but on the other hand for those with any hint of objectivilty, his statement might be put forth as a truth.

John Murphy who used to be the technical analyst that often made comments on old FNN, and who to my knowledge which is incomplete, is the prime mover behind stockcharts.com, in his book "Technical Analysis of the Futures Markets: a comprehensive guide to trading methods and applications" in 1986 wrote:

Technical analysis is more that just a tight little body of specialized material. It is a combination of several different approaches and areas of specialization that combine to form the whole body of technical theory. To adequately cover the subject would require touching on a least a dozen different approaches in such a way that would fit together into one coherent theory.

JN emphasis.

Personally I have no idea how much has changed with technical analysis on 21 years, maybe nothing, maybe everything. Murphy's book is ~550 pages, and I'm sure I never read the entire book, and probably have forgotten a lot of it that I did read. But with it as reference, I believe I can comfortably assert that no one here has the time or compulsion that would be necessary to definitively disprove anything anyone finds useful in application of analysis of markets movements using various technical indicators with regard to trading to make more money.

If for EJ A Random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing, Ninth Edition suffices to put the value of application of any aspect of technical analysis in the dumpster, then good for him. I can accept his right to his opinion on anything, but personally I found his choice of words in putting it forth to be nothing less than snotty, see below.

The topic of this thread is that Dec. 2007 marked not the start of any kind of bear market that any of us have personal experience with, unless you happen to be over 90 years old, but the start of a Debt Deflation Bear Market

I advise the few of our readers whose belief system includes notions of "primary bear markets" and "support levels" and "signals" and other terms and concepts of statistically meaningless technical "analysis" squasi-science, no better than astrology even for forecasting market moves under normal circumstances, and throw it in the dumpster where it belongs. It clouds your judgment. Read A Random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing, Ninth Edition if you need proof that these methods are junk.

With regard to EJ's opinion, I think he is wrong, not correct, in error to put forth such a condemnation. I also surmise that he more that a bit pissed off a few people who have contributed a lot here, and I am not one of them, with his unwavering criticism. It is possible he's correct, but personally I think he isn't.

bart has put forth there is no "holy grail" as far as methodolgies to make money in the markets. I agree with that 100%, and as such whatever methods EJ uses for prognosticating are subject to the same caveat: There is no holy grail. Sorry not linking to bart's comment, but he also suggested that anyone using technical analytical methods in trading should do so with "professionalism" (sorry, bart, if I misconstrued or misrecollected your thoughts). "Professionalism" struck me as a peculiar choice for a word, but after thinking about it a while, if "professionalism" means: you better know what the fuck you are doing if you are going to apply technical analysis to the deployment of real capital to attempt to make money, then it was a fine choice for a word.

Using the few techical indicators with which I am familiar and have looked at a long time, I think $GOLD and $SILVER are headed further down. How far? No ******* idea. Time to buy? Not for me yet. Could I be wrong? You betcha I could, just as anyone can and will be at times when it comes to predicting what lies in the future.

http://stockcharts.com/h-sc/ui?s=$GO...05&a=129594324

http://stockcharts.com/h-sc/ui?s=$SI...d=p67944335905

[nathanhulick]

Re: Is Technical Analysis bunk?

TA = Economic Astrology

[Guest]

Re: Is Technical Analysis bunk?

I don't understand TA. But when I read columns by those who do, they never make much sense. The idea that something WILL OCCUR because something else DID OCCUR previously probably works well a lot of the time, during predictable markets, and during routine times.

But what if things are changing? Does the fact that in the past gold "corrected" at a certain point on a graph mean it will in the future? Maybe. Maybe not.

I'm still waiting for someone to tell me why the dollar is going to get stronger. And if continues falling, exactly what else besides commodities and perhaps foreign stocks will the money flow to? Do you reall want to own Starbucks during a depression? Or Amazon.com? Or just about any stock? Do you really want to own a treasury that is paying a you negative real rate of return? How about a CD at a bank that goes bust? Feel confident waiting for the US govn't to reimburse you for the $100K you lost there? Where, besides printing it, will they get that $100K? How much will $100K buy by that point? What WILL people flee to to protect wealth? THAT is a reason to buy an asset.

Compared to that, the knowledge gained from studying squiggly lines on a graph aren't that valuable to me. Maybe someone who is a trader could benefit. But my hunch is it's marginally useful and they're really relying on fundamentals and their superior knowlege of markets in general to make their profits. The graphs are just used to rationalize and confirm their intuitive decisions.

[bart]

Re: Is Technical Analysis bunk?

bart gives up, admits TA is hoodoo

Invests remaining funds in SYT cultivation, based in new location from a semi-hermitage on Mt. Shasta with an OC-48 connection to Gosbank USA and The Manor...






In other news:
Treasury Department to Backstop Markets

APRIL 1,2008 (NEWS SERVICE) Treasury Secretary Henry Paulson announced today that the Working Group on Financial Markets has determined that Treasury will step in whenever the S&P Index drops below 1320.

“We can’t have Wall Street bankers shoulder all the responsibility for the keeping their bonuses intact,” he said. “The great American system in a position to guarantee profits and the federal government will absorb all losses incurred by the top one per cent of the population by income,” he concluded.

[bart]

Re: Is Technical Analysis bunk?

...
bart has put forth there is no "holy grail" as far as methodolgies to make money in the markets. I agree with that 100%, and as such whatever methods EJ uses for prognosticating are subject to the same caveat: There is no holy grail. Sorry not linking to bart's comment, but he also suggested that anyone using technical analytical methods in trading should do so with "professionalism" (sorry, bart, if I misconstrued or misrecollected your thoughts). "Professionalism" struck me as a peculiar choice for a word, but after thinking about it a while, if "professionalism" means: you better know what the fuck you are doing if you are going to apply technical analysis to the deployment of real capital to attempt to make money, then it was a fine choice for a word.
...

You got it perfectly Jim... and not only that, but the ones who think TA is worthless are not only correct but also demonstrate the truth of a self fulfilling prophecy. To be even clearer, if someone believes that something isn't workable then it won't be.



There are also plenty of poor books and vested interest dweebs hawking TA as the be-all and end-all of trading who can't tell their posterior from a hole in the ground... and also a few who get it and can use it successfully. Jim Sinclair is one and there are many others.

The real bottom line on TA for me is best summed up in this quote:
“All through time, people have basically acted and re-acted the same way in the market as a result of: greed, fear, ignorance, and hope – that is why the numerical formations and patterns recur on a constant basis”
-- Jesse Livermore, "How to Trade in Stocks"

Human emotion and reaction *can* be reliably read with a mix of TA tools... and anyone who uses TA in isolation from fundamentals and manipulation factors is unwise at best in my book.

Just like EJ's track record and calls and skills not having been learned over a weekend, learning to successfully use TA is not a quick process.
Jim Sinclair honed his skills in the real world as a trader in the '70s... and did actually exit his gold longs one day before the actual top in January 1980... and anyone who thinks that its a guarantee that he'll do it again in this secular bull is foolish, to say the least... but I sure as hell won't bet against him.

And finally... TA in my opinion is not about stating some specific time and price target. Its a set of tools that, when applied with professionalism (including the use of stops and having an actual plan), greatly increase the probabilities of a successful trade or investment.

[ASH]

Re: Is Technical Analysis bunk?

It seems to me that if enough investors BELIEVE that technical analysis works, and apply the same methods, then they will tend to all trade in the same patterns. That might well make a component of the market movements correlate with predictions from technical analysis... a self-fulfilling prophesy that has nothing to do with actual economics.

It has occurred to me that technical analysis amounts to describing and classifying shapes in charts... shapes that the human eye and brain might also pick out without technical aid, if with less quantitative precision. I bet those shapes have a psychological impact -- I bet that at least subconsciously, people look at a chart and automatically make some sort of intuitive extrapolation into the future. Such an intuitive extrapolation may have nothing to do with economics, but rather with the human brain's in-born ability to extrapolate the path of thrown objects or notice simple patterns, etc. Suppose that a lot of investors make a habit of glancing at charts when they make trading decisions. Suppose further that some of these investors don't trade based upon fundamentals like earnings and book value, etc., but rather how they "feel" about a stock. Maybe a co-worker mentioned the company to them over lunch, or they read about it in some financial columnist's article? They pull up a stock quote and glance at the chart, and then... Knowing how haphazard the financial decisions of many people are, I find it easy to believe that a lot of unsophisticated investors make decisions to buy and sell based upon that glance at the chart, in combination with whatever piece of "advice" they have absorbed from the financial press or their friends. Maybe technical analysis is a set of rules to more precisely identify patterns which the human brain is likely to notice intuitively? Then it could have no merit from an economic standpoint, yet still have some predictive value for human market decisions. There are times when the markets are driven by news and fundamentals -- and I tend to believe that the fundamentals are all you can count on in the long run -- but there is always going to be a component of irrational human decision-making. I suppose technical analysis might play some role in this component of the market.

For my part, I have always thought technical analysis is bunk -- it is anathema to me because it pushes all of my rationalist buttons. It smacks of astrology because it seeks to make predictions based not on cause-and-effect, but what amounts to ritual. It appears to borrow the intellectual prestige of mathematics to overawe the unsophisticated, yet it employs mathematical tools in what seems to me a fool's errand. I keep coming across its close cousin -- various "wave" theories which propose to account for all of financial history -- which are clearly wrong-headed, and that sets my teeth on edge.

Yet, being a scientist, I have to admit that just because technical analysis doesn't have any relationship to economic cause-and-effect, doesn't mean that it has no relationship to the market. I guess what I'm saying here is that maybe technical analysis doesn't "analyze" what it purports to, but rather an aspect of human behavior which can affect the market.

[Guest]

Re: Is Technical Analysis bunk?

Here is a great example of why technical analysis "debunkers" are all wet - look at the DOLLAR INDEX. The "80" handle remained unbroken on that index for what, 25 - 30 years? Without TA, how would you ever have spotted that it broke down through that 80 level in the past year, or had any inkling of the massive implications of that?

Dump the opinionated partisan viewpoints about an entire large area of study of the markets as being being pure bunk - you are merely being dogmatic, and being dogmatic with regard to discovering tools for money management is not the best strategy. A better strategy is to be completely "agnostic" of the truth or validity of any technique or method of study. That way you leave yourself open to capture the benefits from all of them.

If I were in a life threatening situation and looking for a "guru" to follow, I would quickly disqualify any candidate who summarily rejected some area of possibilities as opposed to another area, purely on what they termed "principle". What it means is they are summarily excluding the careful examination of some possibilities for my deliverance, and I don't take that lightly because it narrows my range of oportunities.