Technical analysis, is it real? (Now w/a live experiment!)

[SummerGladness]

Hi guys,

After reading up on some guys who trade crypto I've become intrigued about the validity of Technical Analysis for both cryptos and conventional stocks.

From a rudimentary viewpoint I don't see how the past can predict the future. Trying to recognize patterns is fair but there seems to be enough of a variety of terms and then some vagueness to fit almost any graph/scenario. There's also a ton of random variables that graphs can't communicate.

I also read this on Motley Fool's website -

The more you dig, the weighter the evidence against technical analysis gets. An October 2009 study by New Zealand's Massey University tested more than 5,000 technical analysis strategies in 49 different countries. The result? Not one strategy generated returns that aren't predicted by chance.

Let me repeat that. Not one.

I can't find the original study but it's a reputable source. Also cryptos have been heavily manipulated since their inception by guys with big money. So that makes the price history even more unreliable.

Can anyone demonstrate that TA has some validity as a method, and that it's not just a case of some guys getting lucky and riding the wave of variance?

 

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[gio_pio]

Wow! Great subject. I'm really looking forward to the answers you'll get here.

I can't provide the evidence on TA that you're specifically looking for. Frankly I've wondered the same myself for a while. But I can provide a prospective you may be interested in.

You are exactly right. TA, as we've known it for nearly a century, has been the analysis of patterns and movements in the past. But there is a new form of TA that so far I've only seen employed in the crypto markets, and it's based on the order books — which is to say the future of market movement. You see it visualized on most exchanges as a "depth chart." Obviously order books can be manipulated (and are to some extent) but the vast magority of most entries are at least intended to remain real. There is a technique of new short term TA that can be applied to depth charts, and when done correctly, provides accurate movement ranges within an accuracy of 75-80%. I've been using it since July and am totally convinced of its value.

I know this doesn't directly answer your question, but it may expand your search in a direction you may not have considered. I only know of one group teaching this method of TA, and you can see some of their publicly posted findings on their Twitter feed. I'll attach one here as an example. An analyzed depth chart tends to be valid for at least an hour. Sometimes several hours.



This ADA chart was posted about 2.5 hrs ago. Roughly 10:00am CDT. Now take a look at the chart for the time that followed. I've inserted the buy zone indicators as they were predicted.



That depth chart accurately predicted the "easy buy" and the "safe sell" zone for the next hour. And I see this kind of chart analysis accurately predict short term movement, on the hour.

I can't speak to traditional long term TA methods, but I can tell you that this method used for short term TA is utterly uncanny.

Best of luck!


It's well worth your time. Happy trading!

 

[ApparentHorizon]

TA as it's taught is garbage. Often times without risk management or probabilities. More importantly it's taught anecdotally. You can make up a "formation" before you even look at a chart and you'll be able to find examples.

Take a look at these 3 abnormally large moves up. You can predict that sometime in the next couple of candles, the price will return to the middle of the large move:







Whether this is a valid pattern is impossible to tell from a few screenshots. The better question is, what % of the time is this true. Theoretically, you only need it to be 51% to be profitable, however the best traders look for around 70%.

Furthermore, all TA is lagging. Meaning, you're already behind the big money in terms of possible action.

Technical Analysis should really be called Probabilistic Historical Analysis.

Are there reliable technical patterns, based on the assumption that you understand the percentages? Absolutely.

Will you find them on investopedia? Not likely.