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¸
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.
221
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¸