Oh wait we're economists - free markets are sacrosanct and they are efficient - if there is an arbitrage opportunity to short surely the rational investors will price it correctly. Not.
Just because I said that technical analysis is bullshit does not mean that I think EMT holds.
I can also say that using the times bulls shit in Colorado to predict stock prices is bullshit. That once again does not mean that I think EMT holds. It just means that the technique I called out has no predictive value.
The claim "technical analysis doesn't work" is the weak form EMH.
So yes, you are being inconsistent, unless I've mistakenly interpreted "technical analysis is bullshit" as "technical analysis doesn't work". Is it your belief that technical analysis does work, but is still bullshit?
Actually, I don't believe this is correct. The weak form EMH claims that any information provided by the price history of a security should already be incorporated into the current price. You can claim that Technical Analysis (construed as patterns in charts and the like) isn't valid and that weak form EMH doesn't hold, if you believe that charting fails to correctly incorporate the relevant information from the price history.
Like most things in life, it isn't quite that simple. There are real inefficiencies in the market which can be highlighted by TA. TA can also be considered a form of Statistical Arbitrage and vice versa.
A simple example: There are many traders out there using TA, if sufficient numbers of them start following the same signals then real market impact occurs. You can use TA to establish what signals they are using and then front run them. This shows that TA has real power in some circumstances and there are many more out there.
I could go into a lot more detail, but am pressed for time at the moment.
> Like most things in life, it isn't quite that simple.
Like most things in life, technical analysis is bullshit.
> There are real inefficiencies in the market which can be highlighted by TA. TA can also be considered a form of Statistical Arbitrage and vice versa.
Stat arb is not what is commonly known as technical analysis. They are distinct.
> A simple example: There are many traders out there using TA, if sufficient numbers of them start following the same signals then real market impact occurs. You can use TA to establish what signals they are using and then front run them. This shows that TA has real power in some circumstances and there are many more out there.
Keynesian beauty contests do not provide consistent alpha. If they did, we'd see fewer VCs flame out.
Stat arb is not what is commonly known as technical analysis. They are distinct.
No. Technical analysis is forecasting prices based on past data. Stat arb is a particular form of technical analysis, based mainly on looking for mean reversion in sets of securities.
Any strategy lies somewhere on the continuum of strategies ranging from purely technical (looking at past prices only) to purely fundamental (looking at fundamental data only).
I have been a trader for 15 years, I have seen TA absolutely working and I have seen it failing. You can take the opinion of someone that has walked the walk, or not. I have given you a specific example where TA does work, so it can't all be bullshit right?
The example I gave is a logical one, which just happens to also work on occasion in the real world. It does not rely on what sort of trader I am, it is a thought scenario, which can and does work in the real world.
Logically, if a large number of people are using a specific TA signal to make trades, their trades will move the market to a degree. Then if one knows what that signal is, one can reliably make money using the same TA signal.
So even if the actual TA signal is a completely random walk, an alert person can make money from that TA signal if they understand that the market will move because some powerful players are using the same signal for whatever reason.
TLDR: A bullshit signal can be used to reliably make money.
How often do these occasions arise? If I used this technique every day, would I last a week before going broke? Give us some indication that this is more valuable than flipping a coin.
If you dont believe in technical analysis at all, what do you use to trade? Are you relying purely on fundamentals, following trends? Or are there other types of analysis that can be applied?
https://news.ycombinator.com/item?id=4589264#up_4589651
Glad to see you've changed your opinion and now believe that the (weak form) Efficient Markets Hypothesis holds.