Is technical analysis all smoke and mirrors?

[fanmail]

My take is that technical analysis does a good job looking backwards and can explain in great deal what happened. The problem is projecting that into the future, smart alecks would say this is similar to academic research. I remember Louis Rukeyser and Wall $treet Week, he had a panel of technical analysts called the elves that would make bullish or bearish calls on the market. Problem was the elves were almost a perfect contrary indicator. They were bullish when they should have been bearish and bearish when they should have been bullish. The elves were so consistently wrong that Rukeyser fired them all.

In the run-up before the 2000-2002 crash and bear market, Gail Dudack was the only elf who was correctly bearish. Rukeyser fired her first and after the bear market hit, fired the rest.

seems like a poor decision by him no?

[BernardShakey]

Seems like it to me, but what do I know?

When used to convince others to invest, it's a scam. In all other cases, I'd call it a frivolous pastime.

[secondopinion]

I think people muddle two different things:

– Technical signals can be interpreted, and can tell you where, e.g., a large investor has a Buy Limit Order, or where traders have Stop Losses, or algorithms are triggered to de-risk, and you can gauge market sentiment over specific events, etc.

– But trading's still a zero-sum game, so you still have to work out a way to beat the other guy. The behaviour of markets also changes in response to things. I was using trend a lot up until about 2021. Now, markets are reacting much more to macro, so I think it makes more sense to hold an All Weather allocation and rebalance when opportunities arise.

It is zero-sum with respect to the underlying. If my goal is to buy a stock that is now deemed riskier by the market, I can do so at a lower price. It is not about "beat[ing] the other guy"; I am merely electing to take risk that has been priced accordingly (which may be more than what others should be taking of risk). I am choosing to concentrate my risk for hopefully a concentrated return; the classical speculation.

[Marseille07]

Technical analysis is voodoo nonsense. It's stunning that anyone can think it's real.

It entirely depends on which ones you're talking about.

For example, going to safety below S&P500 200-day moving average isn't all that crazy. It's not my cup of tea but I can't condemn those who follow something like this.

[secondopinion]

Technical analysis is voodoo nonsense. It's stunning that anyone can think it's real.

It depends on what portions. There is some science with the deep auction mechanics of the market that some of technical analysis addresses; claiming that one will be rich off of doing it is fiction. I use technical analysis to help my rebalancing and tax loss harvesting (with moderate success), but I am not claiming it made me any serious money.

[unwitting_gulag]

I see rebalancing as re-establishing the balance of one's AA. If one chose an AA of 60/40 but, due to market action, one's portfolio has drifted to 65/35, it is no longer at the chosen AA. Looking at the drift of one's AA could be thought of as Technical Analysis but it's an analysis (technical or otherwise) of one's portfolio, not of the market. The analysis only applies to your portfolio, not to the market itself. Nobody else could use that analysis to make buy/sell decisions.

Mindful of avoiding my hijacking the thread into a different topic (on whether we should or shouldn’t rebalance), I just wanted to offer this thought:

If we watch an asset rise and rise and rise, eventually getting disproportionately large relative to other components in our portfolio, then we rebalance, because we grow uncomfortable with lopsided tilt. This might be the thing to do, if we rebalance say once a decade. But what if we rebalance annually? Then likely we are capturing noise. We are saying that stocks rose and bonds fell… so OK, we’ll sell stocks to buy bonds. This is a response to price signals. If we rebalance quarterly, then we’re doing even more price-signal-responding.

In other words, it seems to me, that the more frequently we rebalance, the more we’re doing technical trading based on price signals (and by implication, market-timing), and the less we’re doing conservative stewardship of our holdings.

[bertilak]

I see rebalancing as re-establishing the balance of one's AA. If one chose an AA of 60/40 but, due to market action, one's portfolio has drifted to 65/35, it is no longer at the chosen AA. Looking at the drift of one's AA could be thought of as Technical Analysis but it's an analysis (technical or otherwise) of one's portfolio, not of the market. The analysis only applies to your portfolio, not to the market itself. Nobody else could use that analysis to make buy/sell decisions.

Mindful of avoiding my hijacking the thread into a different topic (on whether we should or shouldn’t rebalance), I just wanted to offer this thought:

If we watch an asset rise and rise and rise, eventually getting disproportionately large relative to other components in our portfolio, then we rebalance, because we grow uncomfortable with lopsided tilt. This might be the thing to do, if we rebalance say once a decade. But what if we rebalance annually? Then likely we are capturing noise. We are saying that stocks rose and bonds fell… so OK, we’ll sell stocks to buy bonds. This is a response to price signals. If we rebalance quarterly, then we’re doing even more price-signal-responding.

In other words, it seems to me, that the more frequently we rebalance, the more we’re doing technical trading based on price signals (and by implication, market-timing), and the less we’re doing conservative stewardship of our holdings.

In my view, technical analysis should provide buy and sell signals valid for everyone, not just the one person whose AA has happened to drift some arbitrary amount. If your portfolio drifts from 65/35 to 60/40 that is not a signal for everyone to buy stocks. It says nothing about the general desirability of stocks. I only speaks to your plans for your portfolio. So I would not call rebalancing technical analysis.

[nedsaid]

My take is that technical analysis does a good job looking backwards and can explain in great deal what happened. The problem is projecting that into the future, smart alecks would say this is similar to academic research. I remember Louis Rukeyser and Wall $treet Week, he had a panel of technical analysts called the elves that would make bullish or bearish calls on the market. Problem was the elves were almost a perfect contrary indicator. They were bullish when they should have been bearish and bearish when they should have been bullish. The elves were so consistently wrong that Rukeyser fired them all.

In the run-up before the 2000-2002 crash and bear market, Gail Dudack was the only elf who was correctly bearish. Rukeyser fired her first and after the bear market hit, fired the rest.

seems like a poor decision by him no?

Wow. Another old post from five years ago comes back to haunt me.

In retrospect, old Lou should have kept Gail Dudack and fired the rest. Anyhow, that was over 20 years ago, it seems like ancient history now. I still remember when Rukeyser needled famed Elf Robert Nurock, and I remembered Nurock's
irritation. Seems like Rukeyser was more a believer in fundamental analysis and skeptical of technical analysis, I remember him pointing out to Nurock that charting just didn't predict the future very well. Don't think it was long afterwards when he gave the Elves the heave-ho. It wasn't long after firing the Elves that Rukeyser himself was fired.

[deikel]

I don't understand why we would call it smoke and mirrors, that seems to imply some fraudulent activity ?

A lot of things happening around investing is simply entertainment (if not the majority) and as such, technical analysis is fun to watch....is it an actionable investment strategy for the masses ? No.

The problem lies with people that watch entertainment and mistake it for reality (that applies very very broadly). It only becomes fraudulent if the entertainer sells it for something different.

[halfnine]

...In my view, technical analysis should provide buy and sell signals valid for everyone...

But that is inherently the problem. It doesn't provide buy and sell signals for everyone. An American charting a stock in USD sees head and shoulders. Meanwhile, an Australian charting the same stock in AUD might see nothing but butt crack.

[bertilak]

I don't understand why we would call it smoke and mirrors, that seems to imply some fraudulent activity ?

A lot of things happening around investing is simply entertainment (if not the majority) and as such, technical analysis is fun to watch....is it an actionable investment strategy for the masses ? No.

The problem lies with people that watch entertainment and mistake it for reality (that applies very very broadly). It only becomes fraudulent if the entertainer sells it for something different.

True, but it is sold quite vigorously as an investment strategy. Or at least as a tactic.

[bertilak]

...In my view, technical analysis should provide buy and sell signals valid for everyone...

But that is inherently the problem. It doesn't provide buy and sell signals for everyone. An American charting a stock in USD sees head and shoulders. Meanwhile, an Australian charting the same stock in AUD might see nothing but butt crack.

Only if the exchange rate fluctuated quite wildly. I say the problem with TA goes much deeper, beyond just the labeled scales (USD, AUD) on the charts. One could relabel the charts and the same patterns would be there.

I don't think it is inherently wrong, just that it is too much in the eyes of the beholders. The truly skilled COULD see something meaningful. The trouble is, I've seen very little evidence of that.

[Laurizas]

Although widespread in the field of finance, “technical analysis” is every bit as pseudoscientific as astrology. Does anyone really believe that low-tech analysis of “trends,” “waves,” “breakout patterns,” “triangle patterns,” “shoulders” and “Fibonacci ratios” (none of which withstand rigorous statistical scrutiny) can possibly compete with the mathematically and statistically sophisticated, big-data-crunching computer programs, operated by successful hedge funds and other large organizations, that troll financial markets for every conceivable trading opportunity? Think again. The bottom line is that technical analysis does not work in the market.

https://mathinvestor.org/2021/11/the-br ... tatistics/

[secondopinion]

Although widespread in the field of finance, “technical analysis” is every bit as pseudoscientific as astrology. Does anyone really believe that low-tech analysis of “trends,” “waves,” “breakout patterns,” “triangle patterns,” “shoulders” and “Fibonacci ratios” (none of which withstand rigorous statistical scrutiny) can possibly compete with the mathematically and statistically sophisticated, big-data-crunching computer programs, operated by successful hedge funds and other large organizations, that troll financial markets for every conceivable trading opportunity? Think again. The bottom line is that technical analysis does not work in the market.

https://mathinvestor.org/2021/11/the-br ... tatistics/

Interesting, but please quotes in quotes.

[Logan Roy]

I think people muddle two different things:

– Technical signals can be interpreted, and can tell you where, e.g., a large investor has a Buy Limit Order, or where traders have Stop Losses, or algorithms are triggered to de-risk, and you can gauge market sentiment over specific events, etc.

– But trading's still a zero-sum game, so you still have to work out a way to beat the other guy. The behaviour of markets also changes in response to things. I was using trend a lot up until about 2021. Now, markets are reacting much more to macro, so I think it makes more sense to hold an All Weather allocation and rebalance when opportunities arise.

It is zero-sum with respect to the underlying. If my goal is to buy a stock that is now deemed riskier by the market, I can do so at a lower price. It is not about "beat[ing] the other guy"; I am merely electing to take risk that has been priced accordingly (which may be more than what others should be taking of risk). I am choosing to concentrate my risk for hopefully a concentrated return; the classical speculation.

This is where I'm less certain there's an 'edge'. I basically believe in a flat risk distribution – same as in gambling. So I'm not convinced by the academic idea that the market applies a net risk premium. I think any premium likely only compensates the risk you're taking – until I can be convinced otherwise.

The idea kind of works with stocks vs bonds vs cash. But doesn't really work within them. So Junk bonds have returned about the same as Treasuries. Value sort of sounds like a risk premium, but then quality doesn't. I don't think it's a robust idea. LTCM's mistake was using volatility vs return as a rule of thumb.

So for me, benefiting from buying a dip, with a higher compensation, is still beating the market. Because the market was giving the wrong odds. I think if the market really compensated higher risk with a higher return, you could go long risk, short defensive, and generate a market neutral return, and I don't think that works, played out over long enough.

[cbox]

Is technical analysis all smoke and mirrors?

That's a polite way of putting it, yes.

Fun exercise, if you have any doubt: Watch some technical "analyst" talk about what's going to happen, and then see if it happens.

All prognosticators rely on the fact that most people never check to see whether their predictions came true.

[secondopinion]

I think people muddle two different things:

– Technical signals can be interpreted, and can tell you where, e.g., a large investor has a Buy Limit Order, or where traders have Stop Losses, or algorithms are triggered to de-risk, and you can gauge market sentiment over specific events, etc.

– But trading's still a zero-sum game, so you still have to work out a way to beat the other guy. The behaviour of markets also changes in response to things. I was using trend a lot up until about 2021. Now, markets are reacting much more to macro, so I think it makes more sense to hold an All Weather allocation and rebalance when opportunities arise.

It is zero-sum with respect to the underlying. If my goal is to buy a stock that is now deemed riskier by the market, I can do so at a lower price. It is not about "beat[ing] the other guy"; I am merely electing to take risk that has been priced accordingly (which may be more than what others should be taking of risk). I am choosing to concentrate my risk for hopefully a concentrated return; the classical speculation.

This is where I'm less certain there's an 'edge'. I basically believe in a flat risk distribution – same as in gambling. So I'm not convinced by the academic idea that the market applies a net risk premium. I think any premium likely only compensates the risk you're taking – until I can be convinced otherwise.

The idea kind of works with stocks vs bonds vs cash. But doesn't really work within them. So Junk bonds have returned about the same as Treasuries. Value sort of sounds like a risk premium, but then quality doesn't. I don't think it's a robust idea. LTCM's mistake was using volatility vs return as a rule of thumb.

So for me, benefiting from buying a dip, with a higher compensation, is still beating the market. Because the market was giving the wrong odds. I think if the market really compensated higher risk with a higher return, you could go long risk, short defensive, and generate a market neutral return, and I don't think that works, played out over long enough.

Risk is not symmetric, nor do I think that risk (if taken to any extreme) will likely be profitable by the odds because the skew shifts positively (because of the pseudo-leverage of risk taken); with this, high risk investments underperform often. Hence, CCC grade bonds tend to underperform BB grade bonds or even Treasuries; they could have equal expected returns, but the skew (with a good amount of that risk not able to be hedged by diversification) is certainly putting CCC grade bonds at a disadvantage. As a result, we can easily observe periods where highly junky bonds will underperform. This is why speculations are not usually compounded indefinitely. That is, luck can easily run out. Maybe the expected returns never changed or are even against them, but compounded this is composed of the unlikely case of super rich and the likely case of mostly broke.

[Logan Roy]

I think people muddle two different things:

– Technical signals can be interpreted, and can tell you where, e.g., a large investor has a Buy Limit Order, or where traders have Stop Losses, or algorithms are triggered to de-risk, and you can gauge market sentiment over specific events, etc.

– But trading's still a zero-sum game, so you still have to work out a way to beat the other guy. The behaviour of markets also changes in response to things. I was using trend a lot up until about 2021. Now, markets are reacting much more to macro, so I think it makes more sense to hold an All Weather allocation and rebalance when opportunities arise.

It is zero-sum with respect to the underlying. If my goal is to buy a stock that is now deemed riskier by the market, I can do so at a lower price. It is not about "beat[ing] the other guy"; I am merely electing to take risk that has been priced accordingly (which may be more than what others should be taking of risk). I am choosing to concentrate my risk for hopefully a concentrated return; the classical speculation.

This is where I'm less certain there's an 'edge'. I basically believe in a flat risk distribution – same as in gambling. So I'm not convinced by the academic idea that the market applies a net risk premium. I think any premium likely only compensates the risk you're taking – until I can be convinced otherwise.

The idea kind of works with stocks vs bonds vs cash. But doesn't really work within them. So Junk bonds have returned about the same as Treasuries. Value sort of sounds like a risk premium, but then quality doesn't. I don't think it's a robust idea. LTCM's mistake was using volatility vs return as a rule of thumb.

So for me, benefiting from buying a dip, with a higher compensation, is still beating the market. Because the market was giving the wrong odds. I think if the market really compensated higher risk with a higher return, you could go long risk, short defensive, and generate a market neutral return, and I don't think that works, played out over long enough.

Risk is not symmetric, nor do I think that risk (if taken to any extreme) will likely be profitable by the odds because the skew shifts positively (because of the pseudo-leverage of risk taken); with this, high risk investments underperform often. Hence, CCC grade bonds tend to underperform BB grade bonds or even Treasuries; they could have equal expected returns, but the skew (with a good amount of that risk not able to be hedged by diversification) is certainly putting CCC grade bonds at a disadvantage. As a result, we can easily observe periods where highly junky bonds will underperform. This is why speculations are not usually compounded indefinitely. That is, luck can easily run out. Maybe the expected returns never changed or are even against them, but compounded this is composed of the unlikely case of super rich and the likely case of mostly broke.

That's how I tend to find it with trading too. Higher risk trades give your portfolio higher variance. So if the market's job is to distribute capital broadly and intelligently, any net premium across the risk spectrum should be arbitraged away, so there's no higher return for picking just higher risk trades/assets, or vice versa.

Closed-end funds are where I think there are genuine opportunities to buy things at discounts once in a while.

[fanmail]

My take is that technical analysis does a good job looking backwards and can explain in great deal what happened. The problem is projecting that into the future, smart alecks would say this is similar to academic research. I remember Louis Rukeyser and Wall $treet Week, he had a panel of technical analysts called the elves that would make bullish or bearish calls on the market. Problem was the elves were almost a perfect contrary indicator. They were bullish when they should have been bearish and bearish when they should have been bullish. The elves were so consistently wrong that Rukeyser fired them all.

In the run-up before the 2000-2002 crash and bear market, Gail Dudack was the only elf who was correctly bearish. Rukeyser fired her first and after the bear market hit, fired the rest.

seems like a poor decision by him no?

Wow. Another old post from five years ago comes back to haunt me.

In retrospect, old Lou should have kept Gail Dudack and fired the rest. Anyhow, that was over 20 years ago, it seems like ancient history now. I still remember when Rukeyser needled famed Elf Robert Nurock, and I remembered Nurock's
irritation. Seems like Rukeyser was more a believer in fundamental analysis and skeptical of technical analysis, I remember him pointing out to Nurock that charting just didn't predict the future very well. Don't think it was long afterwards when he gave the Elves the heave-ho. It wasn't long after firing the Elves that Rukeyser himself was fired.

Oh I'm sorry. I had no idea this was a bumping of an old thread. Anyway, if they really were nearly perfectly wrong, he would have retained their services. I'm sure they were just bad at guessing and closer to a coinflip.

[bog007]

4200 spx lookin very technical. if enough believe in it, then it becomes self fulfilling

[Barsoom]

What about things like pattern matching that Fidelity or IBD do - - Elliot Waves and Cup With Handle?

Is that technical analysis? Does it have predictive value? Those who don't study history are doomed to repeat it?

-B

[bertilak]

What about things like pattern matching that Fidelity or IBD do - - Elliot Waves and Cup With Handle?

Is that technical analysis? Does it have predictive value? Those who don't study history are doomed to repeat it?

-B

Classic Technical Analysis. Practically the definition of it.

It's Kinda like tea leaves. Just as predictive. Reassuring to some. Lucrative to the purveyors.

A decade or so ago I was a subscriber to IBD. No matter what analysis they showed you, it was generally a come-on advertisement for a more expensive service (some of which I paid for). I soon realized there was no "there" there. It was like a treadmill that never reached a final destination. It was all about the journey, an evermore expensive journey to nowhere.

About that "cup with handle" and other chart patterns: Whenever a pattern's prediction failed to materialize, there were always reasons. The most common was that you were not astute enough to see that the pattern was faulty -- handle too short, cup too shallow, and many other failures to see the "true" vs. a flawed pattern. Another point: Patterns come in and out of view depending on how closely you look. The pattern is different, or flaws visible, depending on the granularity of the scale. Large scale, small scale and all between. Then the pattern may have shown on a low-volume day -- that's not good.

[Nowizard]

Personally, I feel most of it is. For example, one of the primary statements is past doesn't predict future while, perhaps, the primary comments from those encouraging purchases is past, cherry-picking of data supporting the marketing. However, the daily fluctuations are interesting as they are "explained" with whatever appears to be the particular "expert" who captures the vibe. Yesterday, for example, futures were down due to concern over the possible default, today they are up slightly due to optimism over possibly avoiding one even though the information for both days was that the sides are apart. Some experts predicting recession, others a bull market, both with resulting support for the same thing, purchasing investments, just different ones depending on your view. Conclusion: Market is up and down, and it is our responsibility to make decisions based on our own circumstances and willingness to accept the consequences of those decisions. If not willing, then we are obligated to accept the consequences of the decisions another person offers. Both will be correct sometimes, not others.

Tim

[nedsaid]

My take is that technical analysis does a good job looking backwards and can explain in great deal what happened. The problem is projecting that into the future, smart alecks would say this is similar to academic research. I remember Louis Rukeyser and Wall $treet Week, he had a panel of technical analysts called the elves that would make bullish or bearish calls on the market. Problem was the elves were almost a perfect contrary indicator. They were bullish when they should have been bearish and bearish when they should have been bullish. The elves were so consistently wrong that Rukeyser fired them all.

In the run-up before the 2000-2002 crash and bear market, Gail Dudack was the only elf who was correctly bearish. Rukeyser fired her first and after the bear market hit, fired the rest.

seems like a poor decision by him no?

Wow. Another old post from five years ago comes back to haunt me.

In retrospect, old Lou should have kept Gail Dudack and fired the rest. Anyhow, that was over 20 years ago, it seems like ancient history now. I still remember when Rukeyser needled famed Elf Robert Nurock, and I remembered Nurock's
irritation. Seems like Rukeyser was more a believer in fundamental analysis and skeptical of technical analysis, I remember him pointing out to Nurock that charting just didn't predict the future very well. Don't think it was long afterwards when he gave the Elves the heave-ho. It wasn't long after firing the Elves that Rukeyser himself was fired.

Oh I'm sorry. I had no idea this was a bumping of an old thread. Anyway, if they really were nearly perfectly wrong, he would have retained their services. I'm sure they were just bad at guessing and closer to a coinflip.

Nothing to be sorry about. I got a big kick out of responding to an old post. It was like a trip down memory lane.

[Barsoom]

What about things like pattern matching that Fidelity or IBD do - - Elliot Waves and Cup With Handle?

Is that technical analysis? Does it have predictive value? Those who don't study history are doomed to repeat it?

-B

Classic Technical Analysis. Practically the definition of it.

It's Kinda like tea leaves. Just as predictive. Reassuring to some. Lucrative to the purveyors.

A decade or so ago I was a subscriber to IBD. No matter what analysis they showed you, it was generally a come-on advertisement for a more expensive service (some of which I paid for). I soon realized there was no "there" there. It was like a treadmill that never reached a final destination. It was all about the journey, an evermore expensive journey to nowhere.

About that "cup with handle" and other chart patterns: Whenever a pattern's prediction failed to materialize, there were always reasons. The most common was that you were not astute enough to see that the pattern was faulty -- handle too short, cup too shallow, and many other failures to see the "true" vs. a flawed pattern. Another point: Patterns come in and out of view depending on how closely you look. The pattern is different, or flaws visible, depending on the granularity of the scale. Large scale, small scale and all between. Then the pattern may have shown on a low-volume day -- that's not good.

Thanks.

I know that Fidelity does pattern matching on their charts, too. I just don't know what to make of it.

-B

[AerialWombat]

I know that Fidelity does pattern matching on their charts, too. I just don't know what to make of it.

Nothing. You make nothing of it. Ignore it completely, because nonsense from even Fidelity is still nonsense.

[bertilak]

I know that Fidelity does pattern matching on their charts, too. I just don't know what to make of it.

Nothing. You make nothing of it. Ignore it completely, because nonsense from even Fidelity is still nonsense.

Does Fidelity "believe" in it or are they just trying to attract as wide a base of customers as they can? Kinda like newspapers putting in horoscopes?

[Logan Roy]

What about things like pattern matching that Fidelity or IBD do - - Elliot Waves and Cup With Handle?

Is that technical analysis? Does it have predictive value? Those who don't study history are doomed to repeat it?

-B

Classic Technical Analysis. Practically the definition of it.

It's Kinda like tea leaves. Just as predictive. Reassuring to some. Lucrative to the purveyors.

Not so much the tea leaves, but the thing I'd say about technical analysis is you can be perfectly fine ignoring it – and they were slamming TA back in the 1950s.. And yet, there have always been examples of investors who've found it effective for them (e.g. Stan Druckenmiller), and today, TA probably accounts for the vast majority of trades being made (high frequency trades).

The classic problem (imo) with everything from TA to fundamentals analysis (completely including 'factors') is that everything that gets published worked for someone a decade or more ago. No one publishes what's going to work over the next decade. Figuring that out is how you add information to the market (assuming there's any to add to it).

[Charles Joseph]

Yes. It is completely useless. A charlatan's game.

Avoid technical analysis at all costs. You'd have more luck using a divining rod to point you to the stocks you ought to buy.

[HeavyChevy]

Yes. It is completely useless. A charlatan's game.

Avoid technical analysis at all costs. You'd have more luck using a divining rod to point you to the stocks you ought to buy.

SShhh! Let's just keep that one to ourselves.

[smooth_rough]

Technical analysis or chart analysis was originally an attempt to move away from trading on market sentiment and momentum. But it quickly got distorted or corrupted, with the momentum traders using charts and graphs to explain to their clients why they made that trade, after the trade had been made. Technical analysis became corrupted as a form of window dressing for momentum traders to explain their trading activity. In any case its not obvious that technical analysis gets better results than throwing darts at board. Which brings investors back to index investing.

[Charles Joseph]

Yes. It is completely useless. A charlatan's game.

Avoid technical analysis at all costs. You'd have more luck using a divining rod to point you to the stocks you ought to buy.

SShhh! Let's just keep that one to ourselves.

I shall zip the lip.

[unwitting_gulag]

..Does anyone really believe that low-tech analysis of “trends,” “waves,” “breakout patterns,” “triangle patterns,” “shoulders” and “Fibonacci ratios” (none of which withstand rigorous statistical scrutiny) can possibly compete with the mathematically and statistically sophisticated, big-data-crunching computer programs, operated by successful hedge funds and other large organizations, that troll financial markets for every conceivable trading opportunity? ...

I would respectfully suggest that the "big-data-crunching computer programs" are also a form of technical analysis - just more math and more computers involved, than for the most simple-minded headline-grabbing methods. Any attempt at using past or present pricing information, is "technical analysis". So when we say (correctly - most of us agree, yes?) that technical analysis is bunk, what we're implying is that most of the work done at the hedge funds or brokerage houses etc. is also bunk.... a way to generate fees, and not really a way to meaningfully outperform the market.

[Marseille07]

But that is inherently the problem. It doesn't provide buy and sell signals for everyone. An American charting a stock in USD sees head and shoulders. Meanwhile, an Australian charting the same stock in AUD might see nothing but butt crack.

Something really simple, like 200-day moving average on a major index, could presumably work anywhere. It doesn't beat buy-and-hold but dodges a catastrophic crash.

[halfnine]

But that is inherently the problem. It doesn't provide buy and sell signals for everyone. An American charting a stock in USD sees head and shoulders. Meanwhile, an Australian charting the same stock in AUD might see nothing but butt crack.

Something really simple, like 200-day moving average on a major index, could presumably work anywhere. It doesn't beat buy-and-hold but dodges a catastrophic crash.

Ok, so let's say I own the S&P500 via a US brokerage (USD basis) and I own the S&P500 via a European brokerage (EUR basis). Both are essentially true btw. Using moving averages there will be times when I would sell the S&P500 in my US brokerage but continue to hold it in my EUR brokerage. And times when that would also be reversed. Continuing along that path, at any one point in time I could be holding the S&P500 in both brokerages, holding it in the US but not in Europe, holding it in Europe but not the US, or not holding the S&P500 at all in either. So at which points is an investor really buying/selling stocks or are the just really buying/selling currencies. Then consider this is a simplistic case because there are many more investors with all sorts of base currencies.

[Marseille07]

Ok, so let's say I own the S&P500 via a US brokerage (USD basis) and I own the S&P500 via a European brokerage (EUR basis). Both are essentially true btw. Using moving averages there will be times when I would sell the S&P500 in my US brokerage but continue to hold it in my EUR brokerage. And times when that would also be reversed. Continuing along that path, at any one point in time I could be holding the S&P500 in both brokerages, holding it in the US but not in Europe, holding it in Europe but not the US, or not holding the S&P500 at all in either. So at which points is an investor really buying/selling stocks or are the just really buying/selling currencies. Then consider this is a simplistic case because there are many more investors with all sorts of base currencies.

When I said 200-day moving average on major indices, I meant the indices themselves (think S&P500, FTSE, DAX40 etc etc). So EUR-denominated or not wouldn't matter as there's only one S&P500 index regardless of how the tracking instruments are denominated.

Now you could certainly use MA of the instruments themselves, but you'd find situations as you described. I don't think this is necessarily bashing the indicator itself, though. It still does what it is designed to do.

[halfnine]

Ok, so let's say I own the S&P500 via a US brokerage (USD basis) and I own the S&P500 via a European brokerage (EUR basis). Both are essentially true btw. Using moving averages there will be times when I would sell the S&P500 in my US brokerage but continue to hold it in my EUR brokerage. And times when that would also be reversed. Continuing along that path, at any one point in time I could be holding the S&P500 in both brokerages, holding it in the US but not in Europe, holding it in Europe but not the US, or not holding the S&P500 at all in either. So at which points is an investor really buying/selling stocks or are the just really buying/selling currencies. Then consider this is a simplistic case because there are many more investors with all sorts of base currencies.

When I said 200-day moving average on major indices, I meant the indices themselves (think S&P500, FTSE, DAX40 etc etc). So EUR-denominated or not wouldn't matter as there's only one S&P500 index regardless of how the tracking instruments are denominated.

Now you could certainly use MA of the instruments themselves, but you'd find situations as you described. I don't think this is necessarily bashing the indicator itself, though. It still does what it is designed to do.

The question isn't whether the indicator does what it is designed to do it's whether the indicator has any validity at all. I am willing to posit that an indicator that tells an American, British, and Australian investor to all buy/sell BHP (traded on all exchanges) at different times because of their nationality/base currency isn't that great of an indicator.

[Marseille07]

The question isn't whether the indicator does what it is designed to do it's whether the indicator has any validity at all. I am willing to posit that an indicator that tells an American, British, and Australian investor to all buy/sell BHP (traded on all exchanges) at different times because of their nationality/base currency isn't that great of an indicator.

What is your definition of valid, though.

It moves you to cash when the instrument breaches 200-day moving average. Maybe the exchange rate makes it earlier or later, but the end result is that you move to cash whenever it dips below 200-day MA. I don't see anything invalid about that.

[halfnine]

The question isn't whether the indicator does what it is designed to do it's whether the indicator has any validity at all. I am willing to posit that an indicator that tells an American, British, and Australian investor to all buy/sell BHP (traded on all exchanges) at different times because of their nationality/base currency isn't that great of an indicator.

What is your definition of valid, though.

It moves you to cash when the instrument breaches 200-day moving average. Maybe the exchange rate makes it earlier or later, but the end result is that you move to cash whenever it dips below 200-day MA. I don't see anything invalid about that.

Ok, so I trade my 100 shares of BHP on the NYSE when I hit the sell point. But, I keep my 100 shares of BHP on the ASX because I never hit the sell point. Then (one possiblity that might occur) at some point later I hit my buy point on the NYSE and repurchase 100 shares of BHP bringing me back to a total of 200 shares.