Recently a very long post was put up boldly stating that "Technical Analysis is bullsh*t".....it had >1100 up votes before the mods here (wisely) whacked it. (If it bleeds, it clearly leads!)
That the post was heavily plagiarized is telling, but matters not. The OP is welcome to its opinions, but unfortunately the data does not support the effusive thesis/rant/opinion. Inconvenient truth that.
I could post another 100,000 words and cite 27 sources to support this, but look folks, Occam's Razor is instructive-and I will respect that here: google "DOW Theory"*
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If you are interested in non Clif Notes discussion, just read on.......
First, all such discussions are best begun with consensual definitions of the operative term. Here is Investopedia's, with which I concur:
"Technical analysis is a trading discipline employed to evaluate investments and identify trading opportunities in price trends and patterns seen on charts. Technical analysts believe past trading activity and price changes of a security can be valuable indicators of the security's future price movements."
I hold this belief, and have for >15 years, (I am a full time section 475 pattern day trader of the scalper varietal, and have traded professionally as a sole source of income for >20 years now). I teach TA, (but no, I am not here selling anything). I moved to full TA after years of being frustrated with the various failures I found in other means of trading (fundamental analysis, narrative trading, robotic buy and hold, et etc). IE: I did not start here, I just ended up here by way of the school of very hard knocks.
This I have learned in all that time: one is best off doing what one is most comfortable with.
The reality is that TA is pervasive, everyone (yes, even you!) uses it every day, and there are about as many forms of it as there are traders that use it. I developed my own, as I could not find one off the shelf that worked for me. Mine works very well and has a greater than 80% rate of success in scalping, (which is all I do-as I have a fundamental distrust of manipulated markets). But this post is not about scalping or day trading, etc.
*To head off the "show me proof" set of what are often just TA haters that feel threatened by TA, or treat it as some form of HODL Heresy (it isn't!), here is the oldest form of well documented TA I know of: "Dow Theory". Google that. Google the thoroughly tested author/expert "Jack Schannep". Read, read, and read. DOW Theory enhances stock market returns by ~30%. Compound that over a life time and tell me it doesn't work! :) Dow Theory has produced significantly positive results longer than anyone on Reddit has been alive. (The OP of the BS piece included.)
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Just because one can trot out a plethora of examples why TA has failed, does not mean TA is useless BS as the referenced OP loudly proclaimed, (ignorantly as it happens). Any form or theory of trading or investment can fall prey to that framing tactic. Even yours. (Certainly mine!)
Here is why TA can be so very powerful when used with care and skill:
Historical Price Action Contains A Clean Summary Of All Important Data Known To Date About A Given Asset
Nothing else does. No one can cook those books. Narratives can't begin to touch the power of historical hard data. No white paper or fundamental analysis is superior, if they were-nothing else would be used by heavy money.
The old addage: "those who ignore history are doomed to repeat it" is operative here.
Price action is a complete unedited picture of what was.
Does it mean that is what will be? No. (No such crystal balls exist.)
But when we study history, we can better forecast the probability of an event in the future.
And look, even die hard HODLrs do this. ('The price of bitcoin did X, so it will do Y.')
Patterns exist. They can be readily identified. (Monday stock markets open up >90% of the time, January returns predict annual returns, and so on.)
One of the first things I do with new TA students is show them this in real time. You can all do this right now-just pull up a chart of price action over time. Run a trend line on it and see how often trends continue from day to day.
Here is an example from today, based on the VIX, via the leveraged security UVXY:
Day 1 Action Correctly Predicted Day 2 Price Drop
This is live right now. Is this a cherry pick? No. Pull up 100 charts and do this. How many positive hits do you get? (Me? if I get >67% I use it.)
This is not complicated, in fact, I eschew complex TA. It's that "Occam's Razor" thing all over again. :)
Did I "know" today's volume in UVXY would be lighter than yesterday's? Yes. How? Historical pattern.
With this chart I shorted UVXY at 14.88, and covered it at 14.10. Nothing earth shattering-but that is TA, and that works reliably, (not always-again, nothing does that!).
Can any big firm's big algo guns sniff this trade out same as I? Of course. Did that matter? No.
Indeed, doesn't look like they even showed up this morning. (That's nice.)
Meanwhile, if you were a UVXY long buy and holder who vests in the narrative that the 'market is going to crash because it is so high'.....would you have lost $, (realized or not)? Yes.
UXVY or Coin X, just does not matter. It is all about Price Action patterns, and every asset has them.
Here is another random chart, this one for CELO:
That white line is 1 hour DDT TA Support-the overhead red line is 1hr Broken Trend
This is live right now. See how the price hugs (mean reverts) to the white line? See the volume going *meh*? What is the TA statement here? It can be read directly, like a tracker tracks an animal across solid rock:
CELO will likely hit overhead broken support (now overhead resistance), and re-seek (mean revert) to that white line-as it has 11 times over ~8hrs. Does this make me want to enter long or short? Short! The tip? Declining volume (lack of up price conviction, indeed, check the history-volume is evident pulling to the short side). Do I know why? No. Do I care what the narrative is? No. My goal is to earn money. I am short CELO right now as a direct result. That is TA. You can follow from here and see if this trade works-or not. (I certainly will.)
We can do this endlessly (I do). You can follow me and see if this is, in fact, flash in the pan stuff cherry picked stuff, or not, (it isn't).
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What TA does is give one a frame of reference that does not otherwise exist. One can use any such frame: narratives like "the price will always go back up, because it always has" (that is TA confirmed based on Bitcoin, pre the last sell off!), or "the price will go up because this is a great project" et etc..
Without such a frame, one is just randomly picking, (and no, Mr. GOX, RIP, was in fact not doing that).
I head out into the wilderness, I am bringing my compass. No Compass? A star chart. Etc.
If you like to head into uncharted waters with nothing more than a narrative, good luck to you!
TA is a compass for asset trading, nothing more, and certainly nothing less. If you do not know how to use a compass or a star chart-try learning and practice as opposed to blind bashing-as the OP of the deleted piece did. You may learn something very valuable. Learning is good!
This is what TA does, regardless of the system employed:
1) TA requires discipline. (Discipline is the #1 most important tenet of trading or investing.)
2) TA requires patience. (Patience is the #2 most important tenet of trading or investing.)
3) TA requires focus. (Focus is the #3 most important tenet of trading or investing.)
4) TA requires an action plan. (Successful Traders & Investors Plan Their Acts, and Act On Their Plans.)
5) TA provides a framework within which to organize and center yourself. (Zen philosophy anyone?)
These 5 things reduce stress and subtract emotion from trading & investing. Emotion being enemy #1.
TA may or may not work for you. But what it will do on average, for anyone that learns the ropes of it, is improve your returns and help minimize your liabilities. And it will do this on any scale-be it scalp, swing, or hodl....with any market traded asset.
Good luck out there and a parting note:
The most important tool one has at one's disposal is an open mind that can learn effectively.
Shouting NO! rarely aids in that. NO! is the end of the thought process. :)
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