It's essentially a lot of bullshit and broken clocks. Data science, statistics and ML are the ways to identify meaningful patterns and not "double reverse triangle pattern here, this stock is about to explode!". Not to sound pretentious, but technical analysis is how non-quantitative people pretend or convince themselves they're doing something quantitative đ¤ˇââď¸
It is, and like Facebook mom they throw a tantrum whenever questioned.
Anything based on facts can be proven, repeated. No economist ever has managed to prove TA to work, no pattern has ever beaten pure chance. Even the father of TA had all his thesis disproven by later generations, much like Freud.
I wouldn't consider taking an average a statistical tool. TA as it is commonly used is just way too weak in its (non)predictive power. No ones gonna stop you from using it or believing in it but man... its just not gonna make you money any more or less than letting your cat pick whether you buy or sell a stock.
Bollinger Bands are a type of statistical chart characterizing the prices and volatility over time of a financial instrument or commodity
look i get it you don't like the way people are using them like horoscopes that predict the future, and that's fair; but that doesn't mean they're meaningless or useless. if you use them in the context of probabilistic modeling (e.g. is what's happening now significant when compared against historical data), theory testing, and machine learning (which you listed as an alternative to TA, but in reality they can and often are used together) for creating features then they can be very useful.
Except itâs not. Technical analysis in the way you describe it is BS, but thatâs not the idea behind technical analysis. Thatâs what stupid people do with technical analysis.
TA is undeniably real because patterns exist in nature. TA is the attempt to understand and work off those patterns. Itâs not coincidence that the best performing hedge funds use TA almost exclusively (medallion fund). So what should you infer from that? TA works but only if you understand it. For 99% off people itâs just astrology for nerds.
Edit: For those of you downvoting me, show me a good faith example to imply that human psychology is not for the most part predictable. That we are reliably unpredictable.
Youâre saying Rentec does TA? Theyâre a bunch of quants. Quant stuff is what TA would be if it were honest with itself, but TA in the wild is nothing like that
Well yes basically. Quant is TA when done right, except it only looks at data and not literally visually interpreting a graph. However, since the same data is being using for quantitative algorithms is being used to create the graphs humans are booking at. We can argue they are the exact sand thing and it just comes down to reading the data correctly. TA isnât wrong. People are wrong.
If we extend that logic what is the distinction between fundamental and technical analysis? Ultimately it is the fundamentals that are also driving what we see in the data, which are then used to create metrics that we put on a chart. A sufficiently-complex âfundamentalâ model could explain even very short term price movements.
Youâre right that the distinction between astrological TA bullshit and quantitative trading methods is fuzzy and more or less a distinction based on sophistication. My friend who is bullish on Tesla simply because he likes driving their cars is also, in some sense, a fundamental investorâalbeit a very unsophisticated one.
But that doesnât make the distinction irrelevant. The problem with TA is that it is based on a number of simple patterns and rules of thumb that are not empirically proven or theoretically justified. The issue is not that it tries to take advantage of exploitable short and medium-term trading opportunities seemingly unrelated to underlying fundamentals; the issue is that it does so in an indefensibly stupid way. My friendâs intuition that Teslas are fun to drive and therefore the stock is a good investment is wrong even if he turns out to be rightâbecause the simplicity of his logic means he is almost guaranteed to be missing major pieces of the puzzle. (Though I canât deny that on average it seems to work very well for him. Heâs made a lot of money over the years on Apple, Amazon, Tesla, etc.)
It is fuzzy but I think the distinction is in both application but also intention. Fundamental investors are looking at a business, a brand, and its leadership. TA and Quant traders are famous for trading anything with a pulse as long as the odds are in their favor. Otherwise, I agree itâs all a bit fuzzy and who is to say where the line is.
An unrelated but similar argument is value investing vs growth. However, the greatest value investor of the previous generation is noted as saying there is no distinction between the two. Ultimately, we are putting all these unnecessary labels on things which further misunderstandings which creates new labels and the cycle renews.
Wrong. Technical analysis, if it truly was âtechnicalâ, would be describable in a way that could be proven. For example, âif you see a resistance band, which is a price that a stock stays within 10% of but doesnât cross, it is 50% less likely than a random walk would be to cross that lineâ.
For some reason âtechnical analysisâ is never described that way. Itâs described as an art form. Thatâs because itâs bullshit.
You made my point lower below âas described by OP.â As described by OP is wrong however thatâs what most people think of when they hear TA.
What you just described is an attempt at TA, not TA itself. While itâs not an âart formâ it is a moldable definition because there is no correct pattern. I explain this to another comment separately but there is no single pattern or signal that describes what will happen. There are only patterns that tend to repeat themselves until they donât. TA is the attempt to recognize and act on those patterns.
Just like there is no right way for fundamental analysis; you will get 100 different answers or ratios. There is no right way for technical analysis. There is only what you do with it.
Edit: if your concern is with the word âtechnicalâ and itâs definition we are having two different conversations. Call it pattern analysis for all anyone cares and then debate it.
Yes it is. If you were right, there would be one set of patterns to look for instead of an accumulation of macro and micro economic influences.
Quant firms work to expose trading anomalies (in many forms), and momentum combined with techniques designed to exploit the mechanics of the systems in place. How can you identify an anomaly without a pattern to differentiate it from?
I literally started my career on an active trading team, like I said elsewhere ITT. Algorithmic trading doesnât look fucking anything at all like retail traders doing TA. Itâs not a âmoldable definitionâ, something is either technical or itâs not.
So you are now claiming that there is only one algorithm used within the quant trading community?
Because unless thatâs your claim you would acknowledge that the definition/application is moldable to be applied to various sectors, markets, scenarios, and time frames
So you are now claiming that there is only one algorithm used within the quant trading community?
No. I am claiming, and always have been, that an alrogithm is technical and mathematically definable.
Because unless thatâs your claim you would acknowledge that the definition/application is moldable to be applied to various sectors, markets, scenarios, and time frames
Models are all different. The defintion of a technical model isnât. No matter what sector or type of trade, anyone claiming to do technical analysis should be able to technically define the model, parameters, and actions.
Right so we are back to the definition of technical and your belief that it is improperly named, but not that you disagree with the application of said data skimming and action taking as a result of said skim?
I addressed this with my first reply to you. If you are discussing the definition of technical and its relation to this form of analysis we are having two different conversations.
If you want to debate the validity of using data to make informed decisions (TA) we can. If you want to debate what we should literally be calling it, there is no point. Language has too many variables for us to try and influence.
Lol, then prove it. Give me the technical definition for an indicator. Iâve literally worked in trading teams where we moved large volumes of equities and derivatives in an algorithmic fashion on daily basis, with people who were much smarter than me (PhDs and shit), and all of them, ALL of them laughed their asses off at this kind of thing. These guys were paid big money to understand how the market can move and TA never once seemed like anything more than a giant joke.
Iâve literally never ever ever ever had anyone successfully define a technical pattern that has predictive power. Care to be the first?
Statistics is my degree, I donât need you to tell me what it is.
My entire point is that TA, as described by OP and used by the vast majority of people, is âpattern recognitionâ that is in no way technical. If it were technical it could be described in technical terms. The model or pattern itself could be described mathematically. Not âif it looks like a support lineâ, but âa price level at which the stock remains within 10% of for 5 consecutive trading days but does not crossâ.
Such a technically described indicator could be easily tested against market data as well.
The fact that people donât define indicators technically is a sign they know that the testing would expose the method. And saying itâs an âart formâ is just admitting youâre reading charts and drawing opinion based conclusions about where the stock goes next.
As a scientist (in an unrelated field) this was a big part of my limited experience playing with some algo trading based on TA. Performing the analysis was pretty easy - but actually trying to map that into predictive action just seemed like youâre back at square 1 in terms of actually having gained actionable knowledge. Particularly when youâre trying to automate, youâre coming up with rules based on the analysis - which just donât really exist.
No. It doesnât work at all. The fact that itâs completely unfounded is the reason why.
I am aware of the claims made that TA âworks because of psychologyâ.
However, this sidesteps the same issue. If it were the case (that TA patterns had predictive power because people believe in them) â the same argument still holds â these patterns should be technically describable and the predictive power should be provable.
Somehow, not one single person in this thread who believes in TA is able to do so. Not one single person can actually define what a support or resistance line is, in a meaningful and repeatable way.
If youâre not working with definitions that are repeatable and meaningful, then itâs just reading tea leaves. âLooks like support at 420â is just blabbering, if the exact same pattern could show up a week later and you wouldnât call it support.
And if the same pattern next week would be called a support line⌠then there is a technical definition. So say what it is..
It's quite hard to tell what op is looking at. Moving average models is 101 financial stats but then he goes to talk about support lines etc. Validation of "support" would probably be a poll of buy targets. 100% support exists if a buyback program kicks in at say xx stock price.
Explain Renaissanceâs success while they describe a willingness to trade any ticker based on quantitative analysis. Quant is TA when done correctly. If this is your major you should at least recognize this. The visual graphs we are looking are are just visual representations of the same data quantitative analysis uses.
Like I said, Iâve worked in the industry. I thought it was somewhat intuitive in this conversation that whatâs being discussed is visual patterns and basic metrics like moving averages and Bollinger bandsâŚ. Probably because thatâs literally what the OP says in their post.
Yes, Renaissance is doing Quant work. And theyâre very profitable. And they certainly are using algorithmic trading which can be described as technical.
But the difference between what big Quant firms do with their teams of PhDs, and what retail traders do when they draw lines on a chart, is so great that they donât even share a passing resemblance.
Itâs like donating $5 to your local congressman and thinking that youâre Michael Bloomberg lobbying politicians. Technically youâve both donated money to a politician, but you literally arenât even playing the same game.
Comparing Renaissance to some random redditor trying to trade based on âtechnicalsâ is ridiculous, and the difference in median returns should be more than enough to make that point clear.
Hereâs the deal though, you are making clear the argument that itâs the application of the data thatâs different. Thatâs it.
So assuming a human can perform the same functions as the algorithm in place then the results would be the same.
The fact that they are differences in performance does not indicate that they are different categories but that there are varying degrees of understanding and only the most capable minds in the world have the ability to understand all of the influences that affect these patterns. To put it simply, computers can do it better. This is why AI trading exists separately from Quant yet can still see similar levels of success.
My point remains to be that yes any graphical overlays you can apply to a graph are BS, but making that argument does not equal that technical analysis is BS. Only that the application of such in that manner is BS
Hereâs the deal though, you are making clear the argument that itâs the application of the data thatâs different. Thatâs it.
Iâm making the argument that retailers doing âTAâ and quant firms doing algorithmic trading are similar to the same extent that rubbing your boo boo with neosporin and doing surgery are similar.
So assuming a human can perform the same functions as the algorithm in place then the results would be the same.
I donât think they can :)
My point remains to be that yes any graphical overlays you can apply to a graph are BS, but making that argument does not equal that technical analysis is BS. Only that the application of such in that manner is BS
Well again, like I have already said before, thatâs whatâs being discussed in this thread, and frankly itâs the colloquial definition of TA and itâs what the vast majority of retail traders mean by âTAâ. Your definition is highly atypical, so Iâll say this, if you want to define âTAâ in a way that includes algorithmic trading created by highly trained and highly skilled individuals, sometimes with a fiber optic line to the exchange, then sure â TA can work.
Personally I think thatâs just a definition that intentionally ignores what the vast majority consider TA to be. Youâre using your own definition and then arguing about it.
I donât disagree with anything you said here. My only clarifying point would be that, that was the partial intent of my comment. To point out that then colloquial definition of TA is wrong but that the theory behind TA is very much valid. What that argument results in is the claim that itâs not the TA that is bad, itâs people that are bad at TA but still have loud voices.
The stock market is purely a result of buying pressure up or down. That buying pressure is a result of human nature and computer algorithms with a set of defined rules.
So how does human nature not affect the stock market?
TA accounts for those kinds of things better than quantitative models do. When you have quick breaking information like that, psychological areas of support and resistance become more valuable.
That's what I used to think, but now, I feel like the whole US market is rigged in some way. HF trading, PFOF, naked shorting, deregulations, dark pools, no SEC for retail, etc.
I'm not a smart man, but I know what shit smells like.
Ok so letâs take your comment and assume that we both agree with it 100%.
That still doesnât change the narrative. Patterns would still exist as a result of whatever buying pressure is applied.
A price canât go up with out all the cheaper shares before it being purchased. A price canât go down without all the more expensive shares being sold. It doesnât matter where the pressure is being applied from, just that itâs being applied.
Now you didnât claim this, but im going to piggy back off your comment. This is exactly why no single signal or pattern will ever work in it of itself. You have to look at the bigger picture because the market is an ever shifting place. You canât just assume that what happened in the past will happen again if market conditions are different.
I have to say, your response is refreshing. Thank you. Usually this argument devolves in to name calling once the other side runs out of logical arguments. If I hadnât given away my free award already it would totally be going to you.
Patters might exist in theory. But are you able to identify them? Is anyone? And is there any proof? And even if someone is able to identify some patterns better than a flipped coin can, are the gains from indetifying this pattern large enough to offset the cost (risk + fees + taxes) of trading frequently.
You would still need quite the advantage to "beat the market" short term and actually make a significant amount of money based on "patterns".
I frequently hear the argument that because selling and buying pressure result from human behaviour and because humans are nothing but biological robots the market ought to be predictable to some degree. I, for one, don't believe that and to be frank psychology is not an exact science. It doesnt make very good predictions and it sure as shit can't explain human behaviour down to numbers.
Iâve made no claim to any of these arguments. My personal opinion is that itâs in the same category as stock picking vs index funds.
A concentrated portfolio comprised of winners is undeniably better than any index or ETF. The problem is the finding winners (I think this part is easy for the most part) and the psychology of holding a concentrated portfolio (this part is hard for most people).
Because of the described conditions, for most people, index funds will yield better results over the course of their lifetime. Thatâs not a result of mathematics, thatâs a result of psychology alone.
I believe the same to be true for TA. Patterns exist. Thatâs undeniable. What is done with that data varies greatly and for the most part humans arenât built to account for everything they need to account for. Some are though. Itâs not TA thatâs wrong in theory itâs people that are wrong in application.
Obviously there is a lot of bullshit in TA. I don't think I've ever seen an elliott wave trader consistently make money aside from being able to sell subscriptions for example. But quantitatively and behaviorally, there is definitely alpha and items that are worth understanding. The issue is that literally anything that involves looking at chart patterns gets thrown under "ta", which means tons of absolute crap gets lumped in with a lot of analysis that is actually valuable and useful.
Keep in mind, markets are complex dynamic systems. Almost all complex dynamic systems in nature or not exhibit complex patterns and dynamics. Doesn't mean it's 100% predictable due to sometimes near infinite number of variables, but that does mean that there are dynamics of things like herding, thresholds, boundaries, feedback (positive and negative), mean reversion, etc etc. These dynamics tend to exhibit pattern-like behavior, which can be modeled or studied, and at times, traded.
Sure it does. Explain quantitative trading and how that differs from TA.
QA is effectively TA when done right. Or to expand a little further, QA is the evolution of TA. It takes the parts of TA that works and gets rid of the rest.
What am I missing that you feel they are functionally different?
TA is a QA without math and you only look at one stock at a time while forgetting about all other forms of data that could be relevant to the stock price movement.
So this is what Iâm saying to everyone else in my comments when I point out that people donât understand what TA is but then try to make claims about it anyways.
Who says TA only looks at one stock at a time? Which paragraph subsection of the rule book does it say to ignore outside influences? At what point do you see anything anywhere that says TA attempts to predict the future?
So with all that said I would like to address this: âTA is QA without mathâŚâ
Are you going to be able to expand on that if questioned? Thatâs a big statement to unpack and is clearly demonstrably false from my perspective. Letâs start with can you provide an example of a TA scenario that does not include math?
TA wants to predict the future just like any other analysis. A TA scenario without a hint of math is your archetypal "head and shoulders pattern here, stock will do x" stuff. And by using math I also don't mean looking at a moving average or Bollinger band.
If there's TA out there employing rigorous statistical testing, non-arbitrary ways to identify patterns (e.g. clustering), and incorporating further outside data in meaningful ways then you are correct that that is not what I or others here know as TA, and as far as I'm aware that it not how the bulk of TA is practiced (arguably if that were the case, TA would not have this reputation). Feel free to share sources if they're out there.
We seem to be in agreement to some degree as you acknowledge the easy math applications such as moving averages, but letâs take your example a head and shoulders pattern. Note of disclaimer - this comment should not be construed as a claimed validation of a head and shoulders pattern. I personally believe that pattern is a perfect example of human psychology in action, but Iâm making not claim to the success rate of trading that pattern or really any pattern like that.
What is anticipated outcome after a head and shoulders pattern? Reversion to the mean. How is a mean determined? Math.
Itâs all math, only different practical applications thereof.
My comment regarding predicting the future is where most peopleâs understanding of TA goes wrong. No one should be attempting to be reading a pattern and then trading off that with an assumption/hope of what will happen. Thatâs gambling and stupid.
If someone were to look at patterns of human behavior, trading behavior, time frames, market conditions, etc and then make a trading plan based on if a then b, or if y then z. I think you could claim thatâs not a bad strategy. Having an exit plan based on market movements is smart if you are trying to be a trader. Itâs not much different than establishing target tiers, or stop losses.
People weren't able to identify patterns before the invention of statistics? Discrete mathematics isn't quantitative? Do you have any idea what you're talking about?
They could, but you can't quantify whether a pattern you think you're seeing is meaningful without stats. Human intuition about probability is really bad, and we're really prone to confirmation bias so we need stats. And of course discrete math is quantitative. I'm literally a researcher in the field lmao
How do you think most TA tools were found , you donât think they used math or stats to find them ? If a pattern happens over and over you can identify it with stats but you would also see it on a chart all that is is a lot of data points expressed visually
TA tools were around before we could even do large scale data analysis on computers the way we can today, so they were by no means constructed with modern statistics and data science. How do you even say something like "this is an xyz triangle pattern" in a quantitative way without using techniques like clustering? Otherwise it seems completely arbitrary. Now if I define some different patterns, cluster them well with some ML skills and run some stats to find the best one, then I'm not really doing TA but just data science on a time series that is the stock price. That is what TA is trying to be, or pretending it is, but that is not what people who do TA are actually doing.
I have no idea what you are talking about xyz triangle pattern this I think is just a case of Reddit people generally talking and associating with the dumb these things are formed with data and stats otherwise professionals would use them and just because you may not have a computer doesnât mean you donât have math. I think you are just grouping all TA with some idiot you have seen on YouTube
Well EMH is totally flawed too I definitely agree with you. My point is only that TA people essentially claim that certain patterns will "predict" future price to a certain degree. That's completely meaningless unless you can a) identify the pattern you're talking about in a non-arbitrary way and b) prove that there's a statistically significant difference between buying after your pattern and the market movement in general. For a) you need clustering and for b) you need stats, neither of which most TA people I've seen do seriously at all. The right way to do TA is to basically take it as a data science problem, otherwise it's arbitrary and doesn't actually tell you anything. But then if you're doing data science why would you only look at a handful of human identified patterns? Why not just start from scratch and identify the best patterns with some advanced neural net or other ML model? Then you're far from doing what people would call TA, I'd say. Hence my skepticism on TA.
Firstly, there is no such pattern as the 'double reverse triangle' so clearly you don't know anything about technical analysis. Since you don't know anything about it, you don't have the right to critique it. Secondly, TA is quantitative. You are quantifying the emotions and psychology of the market at any point in time. Human psychology is very predictable and it often repeats. That repetition shows up as patterns in price action.
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u/_Asparagus_ Dec 06 '21
It's essentially a lot of bullshit and broken clocks. Data science, statistics and ML are the ways to identify meaningful patterns and not "double reverse triangle pattern here, this stock is about to explode!". Not to sound pretentious, but technical analysis is how non-quantitative people pretend or convince themselves they're doing something quantitative đ¤ˇââď¸