[jboydyhacker]

The article there looks at ONE use of technical analysis which is a moving average crossover. The nicest houses I know are owned by traders who know how to use technical analysis. it is very interesting that such an uniformed opinion is the top rated comment on YC tho.

[cirgue]

I’ve always loved technical analysis discourse because it’s the starkest example of how to actually make money in financial markets, and that’s to actively cultivate information asymmetry among other market participants. If technical analysis were a successful strategy, it would, like most other techniques that can actually generate sustainable alpha, be a closely guarded secret. But it’s not. It’s something people shout about from the rooftops trying to get rubes to follow the bait. It’s the same kind of play as wallstreetbets, where you’re tying to increase the amount of stupid, predictable money in your corner of the market.

[cowthulhu]

I think it’s more down to adverse selection… while some really smart people might be making decent returns via technical analysis or whatever, they’ll never disclose their strategies since someone else could frontrun them. Instead, the only strategies we get exposed to are the ones that don’t work, since the best way to make money on a strategy that doesn’t work is to find someone to sell it to. Like - it’s clearly possible to make money trading, because a very small amount of people seem to be able to do so somewhat reliably. But if someone is trying to sell you a trading course, they’re almost certainly more of a scam artist than a genius trading savant.

[nameless912]

Right. Technical analysis makes money in the same way that LuLaRoe makes money; someone else becomes the bigger fool.

[xorcist]

In fairness, that's true for any kind of market trading.

[trashtester]

Not at all. Fundamentally, trading is a positive sum game.

Actual market research directs resources to the most productive companies, helping them grow more quickly and generate positive aggregate value.

Essentially, it's a way to add intelligence and information to the companies that represent the market, to make them more profitable. Specifically, it allows newcomers to grow more quickly if they're more efficent than legacy companies, meaning it's more difficult for the legacy companies to create moats.

Without trading, we might still have IBM at the top of the tech industry, with a massively inefficent organization, low worker salaries and enough market power to keep the competition away, since without a market, startups would need to cover ALL investments using organic profits.

But that's mostly true for medium-long term trading. Short term trading is mostly about speed and finding information or clues faster than anyone else. That part probably generates less net value than it consumes.

[andersentobias]

"The market" is just a set of order books. I don't find it weird that technical analysis work some times in some markets.

Fully systematic traders exist and make money. Efficient Markets Theory says they shouldn't, but they do anyway. EMH is probably written under stricter/ideal conditions though.

If one wants to take a systematic/technical analysis approach though, I would look at the entire universe of stocks, whereas use a fundamental approach in individual stocks.

But yeah. I'm just an amature. What do I know.

[stale2002]

> Fully systematic traders exist and make money. Efficient Markets Theory says they shouldn't, but they do anyway.

The post you are responding to already answered this question.

Here is the answer: "it would, like most other techniques that can actually generate sustainable alpha, be a closely guarded secret"

So, to answer the question, the important stuff in the trading strategies that you mentioned, include information asymmetry. Those systemic traders have hidden information, and hidden strategies that they use, and they don't just given everyone open source access to their code.

[thibauts]

They make money because growth. Any strategy that is not based on information asymmetry or unique clever use of information makes less than the market on average.

[felix318]

I don’t understand how it’s possible to make money in the stock market unless you have inside information. I deeply suspect the whole game is rigged and there are ways to do insider trading without getting caught, and the real secret to be a successful trader is to find out how to join the club.

[hattmall]

There's plenty of trade secrets in TA as well though. A lot of it comes out because eventually it's beneficial to have fundamentals understood by a larger population so that there's a pool of people to develop the internal tools. Only some of the fundamental TA is common knowledge.

[o0o0o]

> The nicest houses I know are owned by traders who know how to use technical analysis

That's a good point. Best traders know how to use technical analysis, they just don't use it to invest their own money.

[TheOtherHobbes]

This is the correct answer. Selling "advice" and managing portfolios is by far the easiest legal way to make money on the markets.

There was a newsworthy situation in the UK a couple of years ago where a star manager crashed and burned. He locked his trading account, with everyone's money still in it, and continued charging fees.

Apparently this is quite legal.

[Ekaros]

I always found it strange. You get to charge money win or lose. And then take percentage winnings... No wonder low fee index funds made so much sense...

[ProjectArcturis]

Back when there were 20 hedge funds, all managed by geniuses, it was rational to pay for uncorrelated outperformance. Now there are 6000 hedge funds, but there aren't 6000 geniuses.

[mcguire]

This is a key point. The best way to make money in the stock market is to do it with other people's money.

[NovemberWhiskey]

>The nicest houses I know are owned by traders who know how to use technical analysis.

If you have a large group of people who take risks while trading, and they form strategies indistinguishable from flipping a coin (like technical analysis), then at the end of the day you're going to have a lot of ex-traders who failed to make money and a few that look like rock stars - because taking large risks and being lucky is a "good" way to make money fast. It's the very definition of survivorship bias.

[fnovd]

Lottery winners owning fancy houses should not be taken as an endorsement of their wealth acquisition strategy.

[suaptpickle]

I buy a lottery ticket for a dollar.

I don't win; I'm out the dollar.

I buy a stock for a dollar.

It goes down 50% tomorrow. Then up 25% the next day and so on it fluctuates like a train going through the mountains.

One point in time it is low and another point in time it is high. I prefer to leave the train when it is high on the mountain.

i e. Picking a stock is a gamble but unlike the lottery I get to play the same game with the same money everyday until I win or die.

[meheleventyone]

Stocks can and do tank and get delisted or never regain the value at which you put in.

[pixl97]

Buy high, sell low, the WSB way.

[Ekaros]

WSB goes to options. So you multiply wins, possibly losses or end up with nothing on your yolo bets as your options expire worthless... Like a casino...

[worik]

> Buy high, sell low, the WSB way.

Only part of it....

Buy low, sell high, use other people's money

[pinkmuffinere]

To be fair, the fact that [some traders own nice houses] doesn't imply [technical analysis is a good method]. It's possible that the profit from this sort of trading is essentially random, and there are a few people that get a large profit from that random distribution. I've frequently heard this sort of argument, but I don't have the expertise to determine whether it's true.

[jacobsenscott]

The people I know with the nicest houses are doctors and lawyers. I don't think either of us have a large enough samples size. Those who do take a large enough sample will see technical analysis is just a rain dance.

[highfrequency]

Perhaps the worst houses are also owned by traders who use technical analysis ;)

[hattmall]

The worst houses are owned by landlords that rent them to poor people.

[amluto]

I don’t know about the nice houses, but technical analysis has one thing in common with astrology: one can make a living selling the ideas to other people.

[taffer]

How do we even know how these traders make their money? Maybe they make their money through commissions, i.e. trading other people's money, who maybe believe in technical analysis. Or maybe they make their money through arbitrage or market making. Just because someone "knows" technical analysis doesn't mean they make any money doing it.

[JumpCrisscross]

> nicest houses I know are owned by traders who know how to use technical analysis

On the sell side, sure--you know when they'll under or overpay. Anyone buying retail flow should be running these models.

Technical analysis just looks at the surface of the order book--the transaction layer. If you're integrating the book, you can see when the surface is misleading and profit from it. There are technical heuristics, e.g. dead cat bounces, round-number tendencies, et cetera which are based in reality, part flow of funds and part psychological. But technicians' sole reliance on stock charts necessitates blindness to those underlying conditions.

In summary, a stock's near-term price history can, on its own, provide information that predicts the next tick. It's just a known subset of a broader set of signals. That the delineation is known makes those relying on these strategies possible to arbitrage.

[bilater]

Actually it totally makes sense. Most people here are/will never be rich. It's the software equivalent of the business professor who talks a big game in class but has never made money or built a business.

[lxgr]

> The nicest houses I know are owned by traders who know how to use technical analysis.

One interesting thing about the stock market is that it’s entirely possible to be successful in it, attributing that success to strategy X, yet to be completely wrong about that.

It’s actually not limited to the stock market – there’s tons of professionals out there that are completely unaware of why what they do works. This makes many people nervous, and they try to come up with a rationalization or mental model for it, and sometimes they get it completely wrong.

[arde]

Extreme luck is indistinguishable from proficiency. Or magic, for that matter.

[jjav]

> The nicest houses I know are owned by traders who know how to use technical analysis.

By itself that doesn't mean anything, surely you realize?

What percentage of technical analysis traders own the million dollar houses?

You definitely can make huge amounts of money on short term trades if you get lucky. So occasionally a TA trader will become very rich and have a mansion.

But, do more than 50% of them strike it that rich? If not, it's just random.

It's like saying that powerball winners have mansions, therefore the best investment strategy is to buy powerball tickets.

[ddq]

Anecdotal. The houses of people you know are not informative.