Chapter 4 - The Illusion of TA
Reading this chapter, it brought to mind the scene in every courtroom drama, where the audience knows the facts of the case already so every time counsel brings up something that both parties agree on they shout ‘stipulated!’ and it just moves the proceedings along.
Here, JJ comes out against TA, calling it ‘clairvoyance for profit’ and discrediting its consistent use to make profits. I’ve talked about this at length, and if you don’t already know, I’ve decided to no longer review books about TA, and I don’t use TA (in the usual formats) for any of my trading, so this whole chapter is ‘stipulated’.
TA is mumbo-jumbo/voodoo. However, JJ is careful not to offend too many true believers. If you believe in it, that’s fine, he says. He doesn’t want to open up the Pandora’s box of a heated debate about TA, and neither do I!
What we need to keep in mind, says JJ, is that all traders use some form of analysis, and this generates trust which is the necessary ingredient to induce a trader to take a risk.
A Problem of Shared Data
Everyone’s using the same tools and charts, basically. And as I’ve said before, even if you had a magic bullet (AI?) once you started making too much money the whole market would change to adjust to this imbalance.
Any interpretation of TA could be interpreted a few different ways by different parties. This is why you still get buyers and sellers for any given technical situation.
TA forecasts are no better than chance. They are wishful thinking.
We can’t use price as the starting point for any analysis meant to forecast price because, “Any serious engineer, mathematician, or statistician will tell you it is against the laws of mathematics, calculus, or logic to use variable A to predict variable A. The whole point of prediction in any mathematical formula is to take a set of known constants to predict an unknown variable; and you can’t predict a variable using the same starting variable no matter what you do with the intervening formulas.”
TA is just a belief structure. Like religion for traders?
Remember the Process
One useful way to find turning points in the market is to watch other traders’ ‘black boxes’ (opaque/mysterious algo traders, of which I’m guilty of building a few) and when those systems advise taking a trade, adopt the opposite position. Copper the public’s bets!
JJ says he’s not calling black boxes ‘bad’ or ‘useless’ but he is. They are only possibly useful for the inventor.
“There are a huge number of market participants who come to conclusions based on things that can’t possibly be accurate.” Almost all of which are very complex.
JJ says TA can help us find the losers in the market. But then the chapter ends just as this tantalizing notion is dangled. I hope he comes back to this.
Trader’s Life
JJ points out that he considers himself intelligent and highly analytical, technical, and despite this, or maybe because of this, he struggled with trying to get TA to work. He didn’t want to believe that the markets could be random or that they couldn’t be ‘solved’ somehow.
“If you had spent your whole life learning and even teaching something that later you found out to be a lie, wouldn’t you be faced with an existential crisis?”
What if that thing isn’t TA, but the ‘art’ of trading itself? I suspect this is where most people quit, after having this thought. Only someone very foolish, desperate or lucky would keep going, possibly some combination of all three.
JJ keeps walking back his conclusions about TA, saying it’s not entirely useless, just that it promises more than it can deliver, and I suppose that is a safer position, because who knows what the future might bring.
Next - the psychology of initiating and liquidating a position
Reading this chapter, it brought to mind the scene in every courtroom drama, where the audience knows the facts of the case already so every time counsel brings up something that both parties agree on they shout ‘stipulated!’ and it just moves the proceedings along.
Here, JJ comes out against TA, calling it ‘clairvoyance for profit’ and discrediting its consistent use to make profits. I’ve talked about this at length, and if you don’t already know, I’ve decided to no longer review books about TA, and I don’t use TA (in the usual formats) for any of my trading, so this whole chapter is ‘stipulated’.
TA is mumbo-jumbo/voodoo. However, JJ is careful not to offend too many true believers. If you believe in it, that’s fine, he says. He doesn’t want to open up the Pandora’s box of a heated debate about TA, and neither do I!
What we need to keep in mind, says JJ, is that all traders use some form of analysis, and this generates trust which is the necessary ingredient to induce a trader to take a risk.
A Problem of Shared Data
Everyone’s using the same tools and charts, basically. And as I’ve said before, even if you had a magic bullet (AI?) once you started making too much money the whole market would change to adjust to this imbalance.
Any interpretation of TA could be interpreted a few different ways by different parties. This is why you still get buyers and sellers for any given technical situation.
TA forecasts are no better than chance. They are wishful thinking.
We can’t use price as the starting point for any analysis meant to forecast price because, “Any serious engineer, mathematician, or statistician will tell you it is against the laws of mathematics, calculus, or logic to use variable A to predict variable A. The whole point of prediction in any mathematical formula is to take a set of known constants to predict an unknown variable; and you can’t predict a variable using the same starting variable no matter what you do with the intervening formulas.”
TA is just a belief structure. Like religion for traders?
Remember the Process
One useful way to find turning points in the market is to watch other traders’ ‘black boxes’ (opaque/mysterious algo traders, of which I’m guilty of building a few) and when those systems advise taking a trade, adopt the opposite position. Copper the public’s bets!
JJ says he’s not calling black boxes ‘bad’ or ‘useless’ but he is. They are only possibly useful for the inventor.
“There are a huge number of market participants who come to conclusions based on things that can’t possibly be accurate.” Almost all of which are very complex.
JJ says TA can help us find the losers in the market. But then the chapter ends just as this tantalizing notion is dangled. I hope he comes back to this.
Trader’s Life
JJ points out that he considers himself intelligent and highly analytical, technical, and despite this, or maybe because of this, he struggled with trying to get TA to work. He didn’t want to believe that the markets could be random or that they couldn’t be ‘solved’ somehow.
“If you had spent your whole life learning and even teaching something that later you found out to be a lie, wouldn’t you be faced with an existential crisis?”
What if that thing isn’t TA, but the ‘art’ of trading itself? I suspect this is where most people quit, after having this thought. Only someone very foolish, desperate or lucky would keep going, possibly some combination of all three.
JJ keeps walking back his conclusions about TA, saying it’s not entirely useless, just that it promises more than it can deliver, and I suppose that is a safer position, because who knows what the future might bring.
Next - the psychology of initiating and liquidating a position
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