What is technical analysis? Can you define it?
Most people think that I am technical trader, but I am not. I have nothing to do with technicals as I don't use them, so what is the definition?
I will write what I think about it, and it is only my subjective opinion.
You can write your's too.
There is no definition. Anyone can make up anything and call it . The field now seem to encompass everything from drawing to astrology.
started out with quite simple concepts, which are not all that dumb. In the early days, it was about looking for directional trends in prices and divergences between related market indexes. Experience told traders that when prices start moving in one direction, they are more likely to continue than to reverse. was just a way to visualize this concept.
Divergences was mostly about comparing the Dow Jones Industrial with the Dow Jones Transport, the two most important indexes at the time, and draw conclusions from potential differences.
Adding things like simple oversold/overbought indicators is still in the realm of sanity. Again, experience had taught traders that extreme short term moves are often followed by a sudden pullback. Emotions run wild as the price takes off, propelling the price further until a short term correction sets in when the buyers are already in and there’s no one left to push the price higher. Common sense things where was used as a tool to visualize abstract phenomena.
Then the problems set it. The visual nature of lends itself to get-rich-quick stories. After all, there’s no need for all that hard work, right? Why waste time learning tough things and gaining real life experience when all you have to do is look at a chart and draw some lines? It was only a matter of time before this field was completely taken over by snake oil salesmen. To be fair, some of them are probably just delusional and not outright immoral.
There are no rules for what is. So it became everything. In particular, everything that is easily sold. The more colorful naming and background story, the easier the sell.
At first we had the indicator explosion. An easy way to get famous in the field is to create an indicator. Especially if you manage to get that indicator included in standard software packages. So everyone and his grandmother started making indicators in hopes of fame. It’s a comfortable illusion, that all you need is to find the right indicators and you’ll be rich in no time at all. Just get those parameters right.
Then we have the field of exotic names. , three little soldiers, spinning dragons, crouching tigers, ichimoko, harami, spanking monkeys, and tons of more colorful names. Well, I might have made some of them up, but if others are allowed to make up random exotic names, why can’t I? Beware of anything that sounds ‘cool’. Most likely it has no other use than to sell products that won’t help you.
Do I say all Tech is crap? No, I wouldn’t go that far. There are actually plenty of professionals using concepts originating from . Usually they don’t use the term though, for reasons made clear above. It has a very poor reputation. Trend following, the main strategy of the 300 billion dollar CTA industry, has its roots in . A large part of quantitative, systematic trading is based on ideas from that came out of that field.
TA for me is mostly about finding patterns, trendlines, channels and such stuff. combined with price action levels (4h/daily) you may spot possible points where you can expect a retracement (fibo levels) to enter in a trade or a reversal when u think the move is completly finished. your are right about the fact that its not exact sience its mostly a small step ahead where action MAY occure. but thats the point with the most used trading styles out there. EW, Swing Trading, Cycle Trading and so on - ive never saw something like the holy grail where you got a score above lets say 70% winning trades. imho TA isnt that bad if you combine it with more informations as above mentioned. you are completly right about the gazillions of indicators out there they mostly make you crazy when u try to combine them. there is no way of getting rich in trading with a couple of weeks or so that maybe happens to 1 person out of 1million. you had to combine a lot of skills like mindset, money management and lots of practice to succeed.
one thing about get rich schemers I found in the last few months, they tend to make more money 'teaching' people about how to make money, than using it and making money themselves :)
that's one reason I like tradingview, people like you are not trying to make money selling idea's, instead they're making money off their trades and sharing the underlying assumptions on their trades, hopefully for inspiration to others.