Well said AB. "There's free scalable money using numerical algorithms, accessible to a person of moderate intelligence with retail tools and costs" is a ridiculous statement if you put at least a picosecond of thought into it.

"This strategy can in any way be learnt via books or videos or blogs" is an even more ridiculous statement.

Anyway, let's put a statement out there for some of the TA proponents to consider. As a kind of intelligence test:

"TA would exist and be widely used, including by professional investment companies, even if it provided no edge or advantage of any kind"

Agree or disagree?

Agree, but irrelevant unless someone is arguing that "people use x, therefore x must be +ev" which is incredibly ridiculous.

7 to 10 month SMA...

Relative momentum...

What I said it’s true and I will give you an example to understand better.

You say you can’t win playing breakouts with small RR but you can win with large RR.

An hypothetical share has $100 price. You want to buy 10 shares (you think you will win with 2:1 RR but you think you won’t win with 1:1 RR or lower).

We’ll assume the first 1:1 RR of your trade doesn’t have an edge (the shares moves with a random walk). We’ll assume you know the edge finishes at $120 and you know price can go down until $90 before your idea is invalidated (so you put your stop loss at $90). We’ll ignore spreads, commissions, etc.

If you enter at 100 and take profit at 110 you won’t win anything.

50% * $100 – 50% * $100 = 0

But you know there is an edge until $120. You have 2 choices: enter now at $100 (take profit at $120) or put a stop order and enter at $110 (take profit at $120).

Choice 1: let’s say you will win 40% of time $200 and lose 60% of time $100.

40% * $200 - 10% * 100 – 50% * 100 = $20

The 50 % you lost 100 in the 1:1 RR will still be loses, but from the 50% of your wins 10% are transformed into losers and 40% into double wins.

Choice 2: You won’t enter at 100 because there is no edge until $110 (the logical decision as you will see). You’ll enter at 110.

EV equation is: 40% * 100 -10% * 200 – 50% * 0

The 50% you lost 100 in the 1:1 RR will now be forfeited (you won’t enter at all in those trades), from the 50% of your wins 10% are transformed into double loses and 40% are 100 wins.

Your EV from choice 2 is $20.

When you enter at 110 you basically win 80% (40/50) of your trades $100 and lose 20% of your trades $200. The RR is only 0.5:1 but your EV is the same as in the other choice. Your variance is reduced so you should enter at 110. Between 100 and 110 there was no edge, so no point of entering without an edge even though RR was bigger.

I have given you an hypothetical example where you lose with 1:1 RR but win with 2:1 RR. If this is the case the logical decision would be to delay your entry and win only with 0.5 RR. This was a theoretical example but in practice I would highly doubt that you can’t win with 1:1 RR but you will win with higher RR. In practice if you really have an edge you’ll win with smaller RR but you possibly won’t be extracting maximal value (this depends on how long the edge is present).

In my book there is a difference between money management and trade management. I understand when you say money management things like Martingale, scaling out, scaling in, put arbitrarily small stop losses and big take profits in order to have big RR. Trade management is another thing and I also defined it in my first post: “you should enter a trade when an edge starts and exit when an edge ends”. This means take profit should be when you think the edge ends, and when you trail stop losses you should only trail them to the point there is no edge anymore. Moving to breakeven for example doesn’t make much sense unless this is also the point where the edge ends.

Technical analysis doesn't work in US shares. I backtested many US shares and I didn't find an edge.

Professors were right if they said TA doesn't work in US shares but I would be careful to believe everything professors who don't run profitable business tell. They usually have high IQ but low intuition and low emotional intelligence. Business man on the other hand have high intuition. This is also available I think for very good NL poker players. Professors are good to give you advice in clear cut things but they are not good at business or at controversial subjects.

I never said that. The breakout signal (which can't be moved???) can be calculated as to what happens once the breakout happens. A quick profit strategy can work but often with less ev (and less variance!) than a longer hold. A longer hold will most often show more ev and more variance.

I have no idea what you are arguing? Momentum breakouts work in many markets when coupled with proper stop management, money management and trade management or whatever you want to call it.

If you don't get max value from your wins you can still get away with in in trading (as long as you have an edge). See my above post. In poker you post blinds, in trading there aren't blinds so if you wish you can stick to playing AA and KK only (forfeit trades with small edges and only play the nuts for a lower risk of ruin but also with a lower profit).

It's OK then. I thought you wanted to say you can't win at all with small RR but you will win with large RR (this is what I was arguing).

I also win with momentum, strong momentum (I don't play breakouts though but many breakouts also have strong momentum so if I can win with strong momentum so can breakout traders, there are however many trades breakout traders make that I don't). Just not in US shares. I win in foreign shares, on forex, on some commodities. What instruments are you trading? I didn't find any edge in US shares so I think this is why so many people here say TA doesn't work. Because they only look at US shares.

I only trade commodities, mostly energy. But my approach works in grains, softs, metals etc.

Well that's what I'm saying, if you don't get max value from your wins you may or may not still have an edge. I mean it depends on how much you give up from your wins obviously but it COULD eat into your edge enough to turn you 0 EV or negative.

i want to mention a way to gain trading experience using technical analysis when you're starting out with a small bankroll.

either trade a simulator on thinkorswim with play money or trade bitcoin.

there's access to 10x and 20x leverage on futures at https://www.okcoin.com/?invid=2010420


you can also trade with lower leverage on the spot exchanges at bit.finex with up to 3.3x leverage.

there's a pretty solid trading community at tradingview.com. i'm part of a trading group called whaleclub. roughly between 100-200 traders are online at any given time connected via a large conference call. It's kind of like a trader's pit.

http://vaughnlive.tv/whaleclub this is the live-stream. if you want to join, you need to download the teamspeak app.

It's a pretty interesting experience trading bitcoin. It feels like trading in a hyperbolic time chamber from dragon ballz. 2013 was an extreme blowoff top bull market and from 2014 to present has been the longest bear market in history.

Seeing first hand the good and bad news events and how people reacted to it on forums was eye opening.

it's analogous to experiencing the roaring 20s and now the great depression of bitcoin within the span of 3 years.

If you don't have an egg salad sandwich for lunch, you may or may not still have a (trading) edge...

I think it's likely that TA could work and has worked historically but between scalability and fundamentalists it's been squeezed out. TA derives what fundamental researchers discovered. But as fundamental researches get better they control more and more money and squeeze more and more of the edge out of their research.

Dave says TA can't be a self fulfilling prophecy. I think this is too simple.

Imagine all nonfundamental investors are playing the "greater fools game." The object is to buy overpriced stocks and sell them higher. Many will lose, just like how fish don't believe anyone can beat poker "because of rake". There probably are still the premier "greater fools game" players who succeed at buying overpriced stocks early and getting out early.

What about TA for long term investing?

I'm interested in buying stocks that have languished for a while but have recently been acquired by larger investors (support) and selling after a few years when I see headlines about the company and everyone else jumps on board and jacks up the price

TA measures supply/demand at a given price and time. It's supposed to tell a story of what's happened in the past up to the present. You can see on charts where there's accumulation, distribution via price/volume and the rate of change of price/vol with respect to time. most indicators are derivatives of price/vol/ time.


those are objective measurements (price/vol/time).

in a bear market during a selloff, if the price goes down at a slowing rate and on lower volume as it approaches previous significant high vol support levels. it's logical to assume that the probabilities of a bounce in price will come soon. this is verified on lower time frames before it shows up in a higher time frame.

This conclusion from a TA perspective ignores whatever fundamentals are happening. They will buy because the sellers exhausted themselves and other buyers started to step in.


a good way to end the debate on whether TA works is to start a trading thread with charts.

Im surprised that so many people are saying TA is this rr TA is that when no one has defined TA (unless I have missed it on the quick scan of the thread I just made).

Buy this stock when the MACD does X and the Bolly bands do Y is not a strategy that will ever work in the long run because it is too mechanical and doesn't take into account the different market conditions as well as being a lagging indicator system.

If you class technical analysis as the analysis of supply and demand an where one 'may' overwhelm another leading to a move in one direction or another, then absolutely TA works. Horizontal lines at areas that previously had strong reactions to them (weather you call them Support/resistance, supply/demand points, swing points or whatever else) just help show where there was a previous imbalance of orders and therefore supply/demand and that there 'may' be a reaction when price gets there. You can then watch as price arrives at these areas for clues as to what it will do next.

Everyone had a different view of the markets and a different strategy and it is impossible to know what all of them are thinking. however what you can do is use TA to watch and observe for potential Supply/demand imbalances while assessing strength, weakness, hesitation, stressed traders, trapped traders, likely future directions etc and taking your position accordingly.

I highly recommend to check out yourtradingcoach.com. I have absolutely no affiliation with the guy, but he has helped me so much and gives away an absolute ton of free material as well as the two books he sells are a stupidly low price anyway. Just read his years worth of free blog and there will be no more 'does TA work' arguments..

I discussed this with Lance Beggs who is the guy who runs the above site and trades for a living purely using TA one minute and 15 second charts and he had the below comments (pasted from email):



"Thanks. I don't have time to work through 17 pages of forum posts, so I'll just jot down my quick thoughts on this topic for you. I assume someone somewhere in the forum will have expressed these ideas.

Does TA work? First we need to define what we mean by "work". Maybe I'm looking at the idea from a different perspective than what was meant by the original poster in the forum, but let's define the question as "Does the use of Technical Analysis provide a positive expectancy, or an edge, thereby allowing a trader to profit when applied over the long-term?"

The answer is NO. TA does not provide an edge, at least not the way the retail public are using it.

Let's look at a poker analogy, since that it the source of this forum question. Of course, with my poker knowledge being basically non-existent my analogy may be flawed. So please give me feedback if I'm misrepresented the game.

If I buy a book on the rules and basic strategy of poker, can I now join the World Series of Poker circuit confident that I have an edge in this game?

I assume not. Basic "rules of poker" knowledge do not provide an edge.

Can a World Series of Poker expert sit down at a local pub tournament confident that, over a series of games, they'll likely have an edge?

I'd assume so.

The rules of poker are essential knowledge. But they're not the real game. Basic strategy is essential knowledge, but again it's not the real game. The real game, the metagame, exists beyond the rules where we play against other opponents, where our decisions and actions rely not only on the rules, but also on our ability to read and assess the likely decisions and actions of our opponents.

We play against other people. Not just against the cards.

The edge comes not from the rules of poker, but from the skill of the player in assessing risk and opportunity and in exploiting those opportunities which might be worth pursuing.

In the trading world, TA knowledge is essential. But it's not sufficient. Again, the real game is in the metagame. Price movement comes from an orderflow imbalance. An orderflow imbalance comes from the sentiment of market participants and their willingness to act in the market. Our edge as traders comes from our ability to read the sentiment of the market participants, and from our ability to assess risk and opportunity and exploit those opportunities which might be worth pursuing. This is a skill based requirement, not a knowledge based requirement. We need to read the market to identify places of fear, places where traders are trapped and will be forced to act to relieve themselves of the pain.

Trading, like poker, is a skill based activity. Not a "I learnt the basic rules and strategy so I'm now a world-class expert" type activity.

I think it was Jason Alan Jankovsky in one of his books who said something along these lines, "The real edge in TA comes from the knowing that 100% of the losers are using it!". This is a guy who gets it. We're trading against other traders.

The edge comes from trading against these losers.

TA is useful. It is necessary. But it's not sufficient by itself.

Just my 2 cents worth!"

A majority of what you see online is people drawing lines and trying to apply vague TA concepts to intraday emini and oil trading. What I was arguing is that you can pull money out of the markets using a purely quantitative system, that takes in no fundamental or qualitative inputs, that has higher profit margins that HFT market making.

For the past 18 months I've done just that as a side project outside my regular trading. I've ran a few automated, mostly technical strategies with > 3 minute average hold time, and have averaged 5 cents per share.