Technical Analysis - a hero or Joker?

SwamiNathan

Well-Known Member
#1
Hello Friends,

I have attached an excel file. It contains a chart, created with random numbers, similar to a price data of a stock (not commodity). The formula is open. View this chart, you will find many technical analysis patterns like triangles, head and shoulders, double bottoms and other greek and Latins. After that type anything in an empty cell, (do not disturb cells those have contents), your chart will be refreshed and still you will find new patterns.

After "analysis" pls give your feedbacks...
1) Does Technical Patterns are random events?
2) Can technical analysis forecast even the random numbers? and therefore can it forecast the prices in a better way?
3) Does prices create patterns or technical analysis create patters?
 

Attachments

TracerBullet

Well-Known Member
#3
I have attached an excel file. It contains a chart, created with random numbers, similar to a price data of a stock (not commodity). The formula is open. View this chart, you will find many technical analysis patterns like triangles, head and shoulders, double bottoms and other greek and Latins. After that type anything in an empty cell, (do not disturb cells those have contents), your chart will be refreshed and still you will find new patterns.

After "analysis" pls give your feedbacks...
1) Does Technical Patterns are random events?
2) Can technical analysis forecast even the random numbers? and therefore can it forecast the prices in a better way?
3) Does prices create patterns or technical analysis create patters?
By definition random is not predictable. Nothing will work on it, if anyone claims that ta works on random data then either he is lying or does not understand or data is not random.
Many things dont work. So your task is to find out what does and to check how the market actually works rather than following some arcane theory by some high priest of ta.

Buying and selling creates patterns. TA tries to find some of the patterns that might give a little edge towards one thing happening, thats all. You cannot predict with certainty.

Adam H Grimes has some great publicly available material and a great book. A couple of links here and here from google search related to your question but there is a lot more on this subject in various places.
 

DanPSup

Hedge Strategy Trader in Options and Futures
#4
Surely an interesting read to the topic from this thread, even it epands it a bit:

The winners and losers of the zero sum game:
The origins of trading profits,
Price efficiency and market liquidity


http://www.turtletrader.com/zerosum.pdf

Following some infos from the little PDF:

INfos 1.png


INfos.png


It takes around 25 min to read all and it really will expand your thoughts about trading in generall.
 

KAL.YUG

Well-Known Member
#5
Hello Friends,

I have attached an excel file. It contains a chart, created with random numbers, similar to a price data of a stock (not commodity). The formula is open. View this chart, you will find many technical analysis patterns like triangles, head and shoulders, double bottoms and other greek and Latins. After that type anything in an empty cell, (do not disturb cells those have contents), your chart will be refreshed and still you will find new patterns.

After "analysis" pls give your feedbacks...
1) Does Technical Patterns are random events?
2) Can technical analysis forecast even the random numbers? and therefore can it forecast the prices in a better way?
3) Does prices create patterns or technical analysis create patters?

Formula: =((RAND()*6-3))/100*B3+B3

The formula gives a result, the value of which is anywhere between +3 % and -3%. So the next No is never greater then or less then 3 % of the previous number.(and also never a '0')

It is not exactly a random No. In other words the random No is part of a formula which also takes previous No. into consideration.

Nevertheless, a very nice formula. My mind is actually telling me that I should link this to Amibroker and apply my system to this and explore.;)


Appreciate and thank you for posting the excel sheet here.


Technical Analysis - a hero or Joker?
(My)Ans: Technical Analysis is just a formula applied to the current available data. If your system gives a good result, then the Hero or Joker ... is our Mind. What we do is, we add something extra of our own (interfere) while trading, instead of doing what the system tells us to do.
 

mohan.sic

Well-Known Member
#6
Hello Friends,

I have attached an excel file. It contains a chart, created with random numbers, similar to a price data of a stock (not commodity). The formula is open. View this chart, you will find many technical analysis patterns like triangles, head and shoulders, double bottoms and other greek and Latins. After that type anything in an empty cell, (do not disturb cells those have contents), your chart will be refreshed and still you will find new patterns.

After "analysis" pls give your feedbacks...
1) Does Technical Patterns are random events?
2) Can technical analysis forecast even the random numbers? and therefore can it forecast the prices in a better way?
3) Does prices create patterns or technical analysis create patters?

1) Mind can identify patterns in any set of data. Be it real stock prices or some random numbers. Also please note that even stock price movement is random.

2)Though stock prices movement is also random, it is somewhat sequential and the next data point falls within a small range of +/- % ..like 80,81,83,82,83.5, 82.5, 84.....So yes TA is easy on stock prices than on some random numbers like 9, 856, 28, 936, 4, 354.....

3) Price movement creates patterns. And we identify those patterns with certain fixed assumptions and beliefs. ( like double bottom pattern as a support). Those beliefs and assumptions about upcoming move based on past data is what we call as TA.

Take a paper and pencil. Close your eyes and draw a random price movement line. Open your eyes and you can identify patterns on that.

Technical Analysis - a hero or Joker?

TA is not a Joker. It is a good prediction method ( basic price patterns & indicators). When I say good, it is not necessarily the success rate the method generates. It is more a kind of rational and logical method of forecasting than many other forecasting methods like Astrology, Elliot , Gann, Fibonacci, etc.
 

TracerBullet

Well-Known Member
#7
Surely an interesting read to the topic from this thread, even it epands it a bit:

The winners and losers of the zero sum game:
The origins of trading profits,
Price efficiency and market liquidity


http://www.turtletrader.com/zerosum.pdf

Following some infos from the little PDF:

View attachment 37038

View attachment 37040

It takes around 25 min to read all and it really will expand your thoughts about trading in generall.
This is from 1993 ! A very nice read.

Though stock prices movement is also random, it is somewhat sequential and the next data point falls within a small range of +/- % ..like 80,81,83,82,83.5, 82.5, 84.....So yes TA is easy on stock prices than on some random numbers like 9, 856, 28, 936, 4, 354.....

Take a paper and pencil. Close your eyes and draw a random price movement line. Open your eyes and you can identify patterns on that.
Random => unpredictable => No money can be made beyond the baseline drift that buy and hold gives. Many traders believe ( and experience) that markets are almost random but there are spots with small edges which are not random.

If you are profitable over large sample, then create real random data and test you system over it. Or try to find an edge in random data and then forward test it over more random data.

A way to create market like random data is -
1) Loop over real market data of a stock
2) For each bar, get the % change from close to next bar's O/H/L/C. Do this for every bar to get an array of such changes
3) Shuffle these % changes randomly
4) Now take first bar and apply the random changes over the 1st bar.

You probably can do this excel over csv. I did this in python.
That works reasonable well, and then you can prove that TA works over random data ( not .. )

Another good read here.
 

mohan.sic

Well-Known Member
#8
This is from 1993 ! A very nice read.



Random => unpredictable => No money can be made beyond the baseline drift that buy and hold gives. Many traders believe ( and experience) that markets are almost random but there are spots with small edges which are not random.

If you are profitable over large sample, then create real random data and test you system over it. Or try to find an edge in random data and then forward test it over more random data.

A way to create market like random data is -
1) Loop over real market data of a stock
2) For each bar, get the % change from close to next bar's O/H/L/C. Do this for every bar to get an array of such changes
3) Shuffle these % changes randomly
4) Now take first bar and apply the random changes over the 1st bar.

You probably can do this excel over csv. I did this in python.
That works reasonable well, and then you can prove that TA works over random data ( not .. )

Another good read here.
Thank you, sure I will read the link later. I need time for that, as I read slowly and multiple times to get better understanding.

That works reasonable well, and then you can prove that TA works over random data ( not .. )
You mean to say that TA works on random data ? or other way

Random => unpredictable => No money can be made beyond the baseline drift that buy and hold gives. Many traders believe ( and experience) that markets are almost random but there are spots with small edges which are not random.
Yes I agree to what you said, "There are spots with edges". But I will not go to that at this point. Identifying those edges is traders intelligence. Not everyone can go to that extent in this dynamic environment with age old TA principles. But in general even stock prices are random, but some what predictable. Because, data flow is somewhat sequential and the next data point usually falls within a range from previous data point. So with a reasonable amount of past data, this gives a scope for prediction. But the success rate advantage is not largely a edge from TA. It is because of the kind of activity Stock market is. Similar edge cannot be found in other speculative activity like Horse Racing.
 

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