Is technical analysis bullshit?

[Wandererfromthenorth]

Its bullshit to people who dont use it correctly.

Its hard to predict the future.  But you can spot the same patterns often.

Pretty much.


There's TA and then there's TA.
If used well the BTC markets are pretty easy to trade.

[SebastianJu]

I think TA is not the same as throwing a dice. Its not random. The same way its not random if you play poker or blackjack. If you know a bit more than the others and are better then you have an advantage. The only thing you then have to overcome is the orderbook spread, fees on exchanges and of course the price has to move more often the way you predict it so you can make a profit.

Why isnt it random? Two points... there are humans behind those prices. First, the price goes down and a couple of people is selling fearing a crash. The same goes in the other direction. So if you can find out how the mass of people work you have an advantage. And there can indicators come into play. Showing if a stock is overbought and so on. Its simply an advantage against others.

Second thing is the other traders. They believe in indicators and so on. Simply see the resistance and support lines. They are in the chart. Check it. And if you see them then other traders see them too. And yes, its a self fulfilling prophecy. Traders make these indicators work. Thats it.

If you are a normal person you dont have a clue about this all. Then its random, yes. If you learned a bit about it you will find that there is an effect. Its not 100% but the small advantage you can get is the difference.

[yvv]

I think TA is not the same as throwing a dice. Its not random.

TA is a function of random variable, thus it is random variable.

Market has a deterministic AND random components. If it was purely deterministic, we would be able to predict it thousands years ahead.

[mrhelpful]

It should only be used as a reference of an idea of where its heading, but not a 100% sure thing.

Yeah, you can mention about trend line support, and the break outs all that crap. The reality where someone can predict the future, you let me know and ask them when i`ll die to be exact.

No one knows, it should be used as a measure of this "could" be the general direction.

The same also applies in day trading, "intra day traders", who do this im sure many traders try to predict the next move.

[BTCtrader71]

I think of TA as being like playing poker. Meaning:
- Some people can in fact make money more or less consistently by playing.
- But it is a zero-sum game.
- A lot of it is psychology.
- In poker if you discover a "tell," then it ceases to work if the person who commits the tell learns about it; likewise in TA if a pattern becomes widely known and accepted, it ceases to be followed because everyone would front-run it.

[BillyBobZorton]

Some of the people here have been pretty spot on on the bitcoin price. Check the thread that predicted 270 ish by mid april, and either a big rally after mid april or a loss of support. Very interested to see what happens.

[twiifm]

You dont use TA to predict the future.  You use it to confirm your thesis.

It gives you context on market behavior.  My thesis is bearish.  How do I know?  Lower highs.  Pull up a daily chart and draw a trendline through the highs.  Gets rejected everytime.

If you want to trade long draw a trendline through the lows.  Bounces everytime.

Looks like a falling wedge.  Its bullish WHEN that pattern breaks and not before

[BTCtrader71]

If someone were to pick a random price chart from a random market at some random point in time in the past over some defined time interval (say, one week), and then flip it so that the chart runs backwards in time -- would someone trained in TA be able to recognize that it had been flipped? If so, how?

[twiifm]

If someone were to pick a random price chart from a random market at some random point in time in the past over some defined time interval (say, one week), and then flip it so that the chart runs backwards in time -- would someone trained in TA be able to recognize that it had been flipped? If so, how?

All TA is, is a "technical" analysis.  Instead of looking at the assets fundamentals, analysts looks at price action.

The patterns tell the analyst something about the market.  Some patterns arent common in reverse.  For example a pennant.  You see pennants A LOT before breakouts.  But you will rarely see the reverse.  I dont even know if there is a reverse where you have a breakout then suddenly squeezed and gradually unsqueeze then breakout

[manselr]

Technical analysis is based on one assumption:  that there exists time-correlations in market prices.

If someone manages to formally prove the existence of these correlations, that would settle it for me.

I've seen very complex attempts at extracting these correlations, through artificial intelligence algorithms such as high-dimensional support vector methods. These algorithms can find extremely complex correlations in the data that would be very hard for us humans to grasp, or completely unintuitive. If these methods fail at detecting correlations, I have a hard time with the credibility of "toy functions" used in classical TA.

[forlackofabettername]

I havn't done any research on this subject, but it seems that it has to be?

If it did work (by work I mean, allow you to predict future short term price movements from past data with more than 50% accuracy) then everyone would do it, and the profit would be eliminated, so it would no longer work. Any method of predicting future (short term) price movements cannot consistently work by this logic, without insider information.

Am I missing something?

yes, you're missing something

[twiifm]

Technical analysis is based on one assumption:  that there exists time-correlations in market prices.

If someone manages to formally prove the existence of these correlations, that would settle it for me.

I've seen very complex attempts at extracting these correlations, through artificial intelligence algorithms such as high-dimensional support vector methods. These algorithms can find extremely complex correlations in the data that would be very hard for us humans to grasp, or completely unintuitive. If these methods fail at detecting correlations, I have a hard time with the credibility of "toy functions" used in classical TA.

TA is an art not a science.  TA makes no assumptions about time price correlation.  Where did you get this idea?

Quantitative guys dont even need to look at candlestick charts.  They just look at options prices and greeks.

Fundamental guys just look at financial statements and DD

Market profile guys look at volume profile & TPO

TA is just a method do analysis.  Just like you can do quantitative analysis based in statistics or fundamental analysis based on financial statements and DD.  They all have there own place

[oda.krell]

Technical analysis is based on one assumption:  that there exists time-correlations in market prices.

If someone manages to formally prove the existence of these correlations, that would settle it for me.

I've seen very complex attempts at extracting these correlations, through artificial intelligence algorithms such as high-dimensional support vector methods. These algorithms can find extremely complex correlations in the data that would be very hard for us humans to grasp, or completely unintuitive. If these methods fail at detecting correlations, I have a hard time with the credibility of "toy functions" used in classical TA.

Wrong on two counts, I'd say:

(a) there are a number of statistically well established predictive factors (not many, but some), so I'm not sure where you're getting the idea from that nobody ever managed to find any correlations that enable market decisions/risk control better than 'guessing'.

(b) your claim that "if formal algorithm X can't do it, the human brain most certainly can't do it" is pretty off, imo. As Lo et al. put it:

These linguistic barriers underscore an important difference between technical analysis and quantitative finance: technical analysis is primarily visual, while quantitative finance is primarily algebraic and numerical.

Therefore, technical analysis employs the tools of geometry and pattern recognition, while quantitative finance employs the tools of mathematical analysis and probability and statistics. In the wake of recent breakthroughs in financial engineering, computer technology, and numerical algorithms, it is no wonder that quantitative finance has overtaken technical analysis in popularity—the principles of portfolio optimization are far easier to program into a computer than the basic tenets of technical analysis.

Nevertheless, technical analysis has survived through the years, perhaps because its visual mode of analysis is more conducive to human cognition, and because pattern recognition is one of the few repetitive activities for which computers do not have an absolute advantage (yet)

(source)