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I’m pretty much in Maurice’s corner on the Technical Analysis (TA) issue.
My answer to the question "What Does Technical Analysis Mean to You?" is just slightly more nuanced. Technical Analysis is not a primary factor in my investment decision making, it is not even a secondary consideration, but perhaps it is a tertiary contributor in my decision making process. In a loose sense it offers some confirmatory comfort.
There seems to be ten thousand books and websites that deploy a plethora of TA tools. Tools like price momentum oscillators, like Fibonacci ratios, like seasonal options, like presidential election cycles, like Elliot wave theory, and even longer period cycles like Kondratieff waves.
All these various techniques share some common characteristics: They are mostly price and sometimes volume change measures and they are momentum based. They use historical data of arbitrary time length to project future trends. They assume that all relevant market information is correctly represented in the market pricing mechanism; this assumption automatically embeds the Efficient Market Hypothesis within it. The TA model does not admit future exogenous events (either real or anticipated) to impact the pricing expectations. In essence, TA is rooted in the past record of the marketplace, of world events, and of investor’s dynamic emotional behavior.
TA’s appeal is that it is a pattern based system and we humans are pattern seeking individuals. Luck and randomness are essential components within the marketplace. These factors generate uncertainty. We attempt to control that uncertainty by deploying TA methods that are touted as scientifically and/or empirically formulated tools that address these uncertainties. They fail to do so.
Nassim Nicholas Taleb documented the overstated claims of the TA protagonists in his book titled “Fooled by Randomness”. The authors of the endless array of TA tools and toolkits make far more money from selling their dubious techniques then they do from actually using these techniques.
On an anecdotal basis, I tried TA methods in the 1950s and early 1960s without success. I own and used a copy of Edwards and Magee’s “Technical Analysis of Stock Trends”. It didn’t work for me; I doubt that it worked for either Edwards or Magee.
At a low deployment level, I still examine long term market Moving Averages (like the S&P 500 Index) to moderately inform my general asset allocation distribution. It is not a major factor in my decisions, and occasionally prompts me to make minor modifications in my holdings. I do not know if this diversion added or subtracted from my wealth accumulation. I’m a very slow learner.
If you want to learn more about TA methods, or perhaps to consider using them, I recommend that you visit Tom Bulkowski’s website. With each technical signal that he discusses, he suggests a likelihood (probability) of success or failure. It is a fine TA website. Here is the address to it:
Enjoy it or not, it is always your option. Prudence demands that you remain skeptical of any device that guarantees a market edge. The only real guarantee is that if it ever really existed at all, the market would have quickly eliminated it by persistent arbitrage.
Comments
I’m pretty much in Maurice’s corner on the Technical Analysis (TA) issue.
My answer to the question "What Does Technical Analysis Mean to You?" is just slightly more nuanced. Technical Analysis is not a primary factor in my investment decision making, it is not even a secondary consideration, but perhaps it is a tertiary contributor in my decision making process. In a loose sense it offers some confirmatory comfort.
There seems to be ten thousand books and websites that deploy a plethora of TA tools. Tools like price momentum oscillators, like Fibonacci ratios, like seasonal options, like presidential election cycles, like Elliot wave theory, and even longer period cycles like Kondratieff waves.
All these various techniques share some common characteristics: They are mostly price and sometimes volume change measures and they are momentum based. They use historical data of arbitrary time length to project future trends. They assume that all relevant market information is correctly represented in the market pricing mechanism; this assumption automatically embeds the Efficient Market Hypothesis within it. The TA model does not admit future exogenous events (either real or anticipated) to impact the pricing expectations. In essence, TA is rooted in the past record of the marketplace, of world events, and of investor’s dynamic emotional behavior.
TA’s appeal is that it is a pattern based system and we humans are pattern seeking individuals. Luck and randomness are essential components within the marketplace. These factors generate uncertainty. We attempt to control that uncertainty by deploying TA methods that are touted as scientifically and/or empirically formulated tools that address these uncertainties. They fail to do so.
Nassim Nicholas Taleb documented the overstated claims of the TA protagonists in his book titled “Fooled by Randomness”. The authors of the endless array of TA tools and toolkits make far more money from selling their dubious techniques then they do from actually using these techniques.
On an anecdotal basis, I tried TA methods in the 1950s and early 1960s without success. I own and used a copy of Edwards and Magee’s “Technical Analysis of Stock Trends”. It didn’t work for me; I doubt that it worked for either Edwards or Magee.
At a low deployment level, I still examine long term market Moving Averages (like the S&P 500 Index) to moderately inform my general asset allocation distribution. It is not a major factor in my decisions, and occasionally prompts me to make minor modifications in my holdings. I do not know if this diversion added or subtracted from my wealth accumulation. I’m a very slow learner.
If you want to learn more about TA methods, or perhaps to consider using them, I recommend that you visit Tom Bulkowski’s website. With each technical signal that he discusses, he suggests a likelihood (probability) of success or failure. It is a fine TA website. Here is the address to it:
http://thepatternsite.com/index.html
Enjoy it or not, it is always your option. Prudence demands that you remain skeptical of any device that guarantees a market edge. The only real guarantee is that if it ever really existed at all, the market would have quickly eliminated it by persistent arbitrage.
Best Regards.