TA is pseudoscience

[pera]

I can't understand why so many people here believes in technical analysis, it's ridiculous... you first put names to some "common patterns" that can be "misread" (lol), like double top/bottom, support levels, triangles, etc. Then using a vector graphics editor you put different lines all over the chart to show a "tendency". And if you are a pro you also have to include some similar historical "pattern" or even apply some calculus 101 in your analysis to support your affirmations.
If you think you are doing well with TA (ie you are earning money) I must tell you that is not because your kabbalistic draws: maybe putting names on some segments of a chart makes you more confident about what your own intuition is already telling you, but this is just a placebo effect.

Stop believing in your intricate fancy drawings. Believe in the power of your own brain and how it can discover complex patterns that can't be represented on a simple draw.

The only reason for look at all those TA articles and threads on the net is simply due to some eventual self-fulfilling prophecy (but then good luck trying to figure out when most traders in the market are using TA   )

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[Kazu]

I can't understand why so many people here believes in technical analysis, it's ridiculous... you first put names to some "common patterns" that can be "misread" (lol), like double top/bottom, support levels, triangles, etc. Then using a vector graphics editor you put different lines all over the chart to show a "tendency". And if you are a pro you also have to include some similar historical "pattern" or even apply some calculus 101 in your analysis to support your affirmations.
If you think you are doing well with TA (ie you are earning money) I must tell you that is not because your kabbalistic draws: maybe putting names on some segments of a chart makes you more confident about what your own intuition is already telling you, but this is just a placebo effect.

Stop believing in your intricate fancy drawings. Believe in the power of your own brain and how it can discover complex patterns that can't be represented on a simple draw.

The only reason for look at all those TA articles and threads on the net is simply due to some eventual self-fulfilling prophecy (but then good luck trying to figure out when most traders in the market is using TA  )

... -.-

You need to understand that just because something can't be always right doesn't mean it is "pseudoscience." If it was, it wouldn't, you know, work.

Think of it this way, if TE is only right 51% of the time, it still is worth using.

[RodeoX]

Maybe more of a weak science. When people hear "science" they tend to think someone knows the answer. In reality the very best Wall St. analysts rarely do better than odds. That leads me to believe that I could also guess with the best of them.

[pera]

 So let's create a deterministic algorithm using TA so we can all be millionaires! (forget the efficient market hypothesis   )

[RodeoX]

So let's create a deterministic algorithm using TA so we can all be millionaires! (forget the efficient market hypothesis   )

If only it were that easy. lol
The best evidence for the weakness of TA is it's existence. If the analyst actually knew where the price was going then why would he/she share it with you? Wouldn't it be more logical for them to keep the secret and invest for themselves?

[wonkytonky]

I can't understand why so many people here believes in technical analysis, it's ridiculous... you first put names to some "common patterns" that can be "misread" (lol), like double top/bottom, support levels, triangles, etc. Then using a vector graphics editor you put different lines all over the chart to show a "tendency". And if you are a pro you also have to include some similar historical "pattern" or even apply some calculus 101 in your analysis to support your affirmations.
If you think you are doing well with TA (ie you are earning money) I must tell you that is not because your kabbalistic draws: maybe putting names on some segments of a chart makes you more confident about what your own intuition is already telling you, but this is just a placebo effect.

Stop believing in your intricate fancy drawings. Believe in the power of your own brain and how it can discover complex patterns that can't be represented on a simple draw.

The only reason for look at all those TA articles and threads on the net is simply due to some eventual self-fulfilling prophecy (but then good luck trying to figure out when most traders in the market is using TA  )

... -.-

You need to understand that just because something can't be always right doesn't mean it is "pseudoscience." If it was, it wouldn't, you know, work.

Think of it this way, if TE is only right 51% of the time, it still is worth using.

this!
&
TA is good to know.. for 1 reason .. other people use it too.. most of us dont have sierra tool and use bitcoincharts .. so basicaly you can use this to outsmart people.  so in this case TA works

[Piper67]

For an excellent analysis on why TA is, actually, a pseudo-science, I recommend The Drunkard's Walk, by Leonard Mlodinow (http://books.google.ca/books/about/The_Drunkard_s_Walk.html?id=UJxRLCq9l3IC).

Mlodinow, a brilliant physicist, actually devotes an entire chapter to "market analysts". It's just snake-oil, and it's pretty well established that they have about the same success rate as a chimp throwing darts at a board.

The problem is that most people do not understand statistics. So one or two market players will point to the fact that their success rate is higher than 90% of all others... which is exactly what you would expect by random distribution. They compare their success rate to others, when in reality they should be comparing the success rate to the whole versus what one would expect from chance, and they're about the same.

As with so many other things, though, TA is almost a religion, so no amount of scientific evidence will ever convince the adherents. Even though the simplest argument against it is that if we all used TA, and applied its principles correctly, we'd all beat the average, which of course would be impossible.

[Chalkbot]

I find the TA threads entertaining at least. I like how for any given price movement pattern, there is a name for it, and depending on if the price goes up or down immediately afterward, it is a different pattern.

"So the price just dipped 40% of the last upswing, it looks like we are seeing either a Bareknuckle Ballsack (BB) pattern forming or a Circlejerk Rainbow (CR)"

Translation: The price made a series of movements we've seen before, this certainly means the price will either go up or down from here.

(Bareknuckle Ballsack forms)

"See? TA is useful, many of us called for a Bareknuckle ballsack, and that's exactly what happened!"

 

[phatsphere]

Believe in the power of your own brain and how it can discover complex patterns that can't be represented on a simple draw.

That's a contradiction. Humans (and animals in general) are machines based on a lot of cutting edge nanotechnology. The brain is a biological computer, that combines advanced analog signal processing and a very good distributed computational engine for correlation, abstraction and predictive analysis. Surely, this might lead you to this quote above, but it doesn't change the fact that it is a computer. Programming one with those abilities has the benefit, that it works 24/7 without getting tired …

[SlipperySlope]

The only reason for look at all those TA articles and threads on the net is simply due to some eventual self-fulfilling prophecy (but then good luck trying to figure out when most traders in the market are using TA   )

Does your argument withstand the fact that computer algorithms that perform the majority of trades on major financial exchanges, and the majority of them operate on technical indicators, i.e. the state history of the market.

The explanation of why technical indicators, and chart patterns using them, work is that they attempt to model human behavior and the market dynamics. If one simply watches the two best known bitcoin realtime charting apps, the chart patterns unfold before your eyes. One of my favorites to follow is the triangle - a big trade in one direction followed by a oscillating return to a new stable value. By watching the bids and asks fill in after the first shock trade, I could easily arrive at a physical damped spring model having similar characteristics.

[arepo]

So let's create a deterministic algorithm using TA so we can all be millionaires! (forget the efficient market hypothesis   )

ooh another one of these threads! i'm excited.

i'm glad you brought up the efficient market hypothesis. it's important to understand exactly what it entails. it can basically be presented as follows:

markets are 'informationally efficient' if and only if:

a) all publicly available information is 'contained' or 'represented' by price

and

b) all market participants make full use of this information

so let me give you a counter hypothesis -- let's call it the TA-Hypothesis -- if there exist time-dependent autocorrelations in price data (read: patterns) which can only be resolved using analytic techniques, then those performing TA will have an information advantage.

of course because of the anti-inductive nature of markets, any known regularities will be corrected for as individuals profit off of them, but that does not mean that they cannot hold for significant periods of time. and while the predictive powers of TA fall far short of 100% accuracy, i can demonstrate empirically the existence of triangle consolidation patterns and self-similarity in the price function. i also can extrapolate on the theory behind why these phenomena occur.

further, if you really believe in the EMH, why are you here? if it is true, no trading strategy can give returns in excess of a coin flip in the long run. why not play satoshidice?

[prof7bit]

forget the efficient market hypothesis

Yes, forget it.
Forget it because the market simply IS NOT efficient.

[dg2010]

Does your argument withstand the fact that computer algorithms that perform the majority of trades on major financial exchanges, and the majority of them operate on technical indicators, i.e. the state history of the market.

The explanation of why technical indicators, and chart patterns using them, work is that they attempt to model human behavior and the market dynamics.

So computer algorithms perform the majority of the trades, yet they all attempt to do so by modelling human behaviours and market dynamics? Sorry but you can't have both. If you've got algorithms running the markets they can't be following human behaviours.

Anyway what you have just said is a load of bullshit. Actual trading algorithms don't attempt to model human behaviours.

[Brushan]

I've heard that TA is known by TA users to work best in deep markets. Which is why it works better with currencies than with stocks for example. If it's true then it is absolutely stupid to use with bitcoins since a 5000 BTC buy or sell can change the markets direction.

Another thing i've found hilarious within these forums is that there are some people that are self proclaimed experts and are very arrogant against other speculators. Most often they have a bearish attitude and they like to make fun of other speculators that don't agree with them. I have noticed that they have been wrong in more than 50% of the cases and yet they don't stop acting like everyone is stupid that doesn't agree with them. Anybody else noticed this?

[arepo]

By watching the bids and asks fill in after the first shock trade, I could easily arrive at a physical damped spring model having similar characteristics.

this is by far one of my favorites. coming from a physics background, i tend to try to model price using similar equations. from my own work, i can affirm that a triangle formation is well-modeled as a sine wave with decreasing amplitude (damped oscillator function).

from my notes:

[SlipperySlope]

Does your argument withstand the fact that computer algorithms that perform the majority of trades on major financial exchanges, and the majority of them operate on technical indicators, i.e. the state history of the market.

The explanation of why technical indicators, and chart patterns using them, work is that they attempt to model human behavior and the market dynamics.

So computer algorithms perform the majority of the trades, yet they all attempt to do so by modelling human behaviours and market dynamics? Sorry but you can't have both. If you've got algorithms running the markets they can't be following human behaviours.

Anyway what you have just said is a load of bullshit. Actual trading algorithms don't attempt to model human behaviours.

OK, to make my point more clearly - drop the human behavior modelling. If TA does not work then why do TA-driven computers outperform human traders?

[arepo]

Does your argument withstand the fact that computer algorithms that perform the majority of trades on major financial exchanges, and the majority of them operate on technical indicators, i.e. the state history of the market.

The explanation of why technical indicators, and chart patterns using them, work is that they attempt to model human behavior and the market dynamics.

So computer algorithms perform the majority of the trades, yet they all attempt to do so by modelling human behaviours and market dynamics? Sorry but you can't have both. If you've got algorithms running the markets they can't be following human behaviours.

Anyway what you have just said is a load of bullshit. Actual trading algorithms don't attempt to model human behaviours.

OK, to make my point more clearly - drop the human behavior modelling. If TA does not work then why do TA-driven computers outperform human traders?

i'll answer that for him:

[because] there exist time-dependent autocorrelations in price data (read: patterns) which can only be resolved using analytic techniques

[SlipperySlope]

[because] there exist time-dependent autocorrelations in price data (read: patterns) which can only be resolved using analytic techniques

Let me understand. Do you define analytic techniques as TA? Moreover, are you supporting my point or refuting it?

[LeTanque]

I find the TA threads entertaining at least. I like how for any given price movement pattern, there is a name for it, and depending on if the price goes up or down immediately afterward, it is a different pattern.

"So the price just dipped 40% of the last upswing, it looks like we are seeing either a Bareknuckle Ballsack (BB) pattern forming or a Circlejerk Rainbow (CR)"

Translation: The price made a series of movements we've seen before, this certainly means the price will either go up or down from here.

(Bareknuckle Ballsack forms)

"See? TA is useful, many of us called for a Bareknuckle ballsack, and that's exactly what happened!"

 

LOLOLOL!!!

No one is laughing at this!?  Hilarious!  That's exactly how TA works too, lol!

[2_Thumbs_Up]

There is a very big problem with TA. Even if you assume that a TA-pattern that offers profitable predictability exists. As soon as people realizes this pattern it would stop existing.

Markets are anti-inductive