Why Technical Indicators Dose Not Work ?
Hmmmmmmmm............. a difficult one that is...:thumb:
Answer, IMHO, is that its not the question of indicator or system, but a question of edge and adaptation.
Edge: When Munehisa Homma first invented candlesticks, it gave him the edge to analyse the price of rice futures in a "better" way compared to his fellow competitors. This edge over the others made Munehisa Homma the one of the richest non-royals of the medieval age.
An indicator may provide a better perspective of the price, and simplify the study compared to a crude analysis of the pure price. That's what most indicators attempt to do: to provide a different perspective of the crude price and volume data. After all, real market is a series of transactions between two parties. One person sells some quantity that other one buys it at a fixed price. But one can't analyse the market in its crudest form by monitoring each and every trade. (Tape Readers are the elites that do so.......:rofl
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So once the edge is lost, the indicator would cease to work as intended. A morning star is "classically" a bullish reversal signal. But an institutional desk offloading a particular il-liquid stock may easily create a fake morning start to lure buyers to buy the stocks they want to offload. If they only knew about the morning star, they would hunt for such opportunities to go long in that stock. So its just a question of deceiving others.
All warfare is based on deception (Master Sun Tzu)...:rofl:
Problem with indicators not working is that, anyone who is even little bit serious can learn about candlesticks and indicators in few months. And this is what is happening, most of the market participants now a trading with the same knowledge. But trading is a sum zero game (most of the time), so one must loose for other to earn.
Adaptability: Again, suppose you have a super indicator/system that makes you a very good return. But trading is a sum zero game (most of the time). If someone is consistently pulling out huge amount of money from the market, others will not continue to keep loosing money. Newbies will soon run out of the money and quit, and the enlightened beings will soon reassess there strategy and modify there moves.
They say 95% traders loose money, but that money goes to the remaining 5%. The fight is for the limited amount of money that is lost by a fraction and gained by the other fraction. Any superior system, can't disbalance this say, "95% loosing to the enlightened 5% dictum" for a prolonged period. The enlightened 5% will soon adapt. The fight is for a limited amount of "float".
Secret to trading mastery doesnot lie in the indicators, but in the anticipating the actions of the all market participants (from newbies to huge institutional desk). With time it will change, and one must adapt to it. (For e.g. Stock splitting, earlier it was a considered a sign of huge positive trend, but now.....
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Indicators are just a tool that will help in trading, like a chisel is to sculpting. Michelangelo's chisel sculpted the Pieta. However, Pieta exist primarily because of the sculptors skills, not because of his chisel.
