Why Does Technical Analysis Work? | Forex Factory

  • Why Does Technical Analysis Work?

    From orbex.com

    When it comes to either speculating or investing in the financial markets, there are two main approaches. The first being fundamental analysis and the other being technical analysis. Both these fields of study of the financial markets are different. Yet, they point to the same goal of buying low and selling high. Got your risk management sorted? Open your account now! In forex, technical analysis is the go-to form of study. Technical analysis is merely the study of past prices in order to predict future price movements. Traders focus on a number of methods such as studying chart patterns or using technical indicators ... (full story)

Comment Options
bloodpoodle
May 21, 2019 5:50am
Permalink
nothing works 100%. If it did trading would be easy. There are many types of technical Analysis. Some is better then others. Basically the goal is to put the odds in your favor, not to achieve a win every single trade. Also to define your risk... and to choose targets. There is no holy grail setup.

I think outside the box.. I don't use trendlines, channels, chart patterns like double bottom. I study Spikes flat consolidations and slow grinds.. And I've seen so many of them I know what to do when I see them. How price is moving is whispering trades to me. I'm also picky about the time of day I trade. I don't trade 24/7. I wait until I think the liquidity and volatility are right for my setups.
Reply
Trainman
May 21, 2019 10:55am
Permalink
Quoting Guest
{quote} Good call and a truthful statement in my view, though I prefer the term Apophenia probably the more apt diagnosis. It is a fact that in the field of finance there have been formal studies into this aspect of behaviour with direct respect to trading,structuring, sales and compensation as well as gambling. What baffles me is that with so much known that is wrong (even cognitively) with the techniques of "technical" analysis brokers, trainers and writers (such as the article in question) are allowed to freely (publicly) promote the...
The market is in a continual state of flux, trading conditions and price behavior change constantly. Technical analysis works astonishingly well when the analysis technique is matched to the dominant characteristics being expressed by the market. And it doesn't work at all if the TA method is inappropriate to the mode the market is in. The smart technician knows this and is quick to adapt his methods as the market shifts. The less astute trader makes a few perfunctory tests of TA methods and indicators that are ill-suited to the market characteristics and broadly proclaims that TA is without merit.

I have had many successes with TA that would make a hard core fundamental trader stare in slack-jawed disbelief. Just one example: using an indicator of my own development several years ago I made 30 winning trades in a single day (and not one loser), a total of 514 pips, no single trade making more than 35 pips and virtually no drawdown.

Some people totally dismiss ideas that differ from their own biases without actually checking them out. However, feel free to continue considering technical traders delusional, you provide us with something we need -- someone to take the other side of our trades.
Reply
pareshshah
May 21, 2019 10:29am
Permalink
something works all the time nothing works all the time be it funda or technical. Hence will look into a larger perspective and see that what gives us good consistent returns or smaller losses which are affordable. I trade commodities and its working fine almost 70% of the time for me. I do lesser trade but look for a big catch and wait patiently to enter the trade. Watch your trades consistently be it profit or losses and do your assessment of your trades which pre and post screenshots of charts. so that we know where we are right and wrong to make it practice that such mistakes do not happen in the future. that's my 2 cents out here.
Reply
Trader#13D0
May 21, 2019 7:56am
Permalink
Quoting Mingary
It does not work. TA is just a bad case of Pareidolia A few margin calls are the cure.
Good call and a truthful statement in my view, though I prefer the term Apophenia probably the more apt diagnosis. It is a fact that in the field of finance there have been formal studies into this aspect of behaviour with direct respect to trading,structuring, sales and compensation as well as gambling. What baffles me is that with so much known that is wrong (even cognitively) with the techniques of "technical" analysis brokers, trainers and writers (such as the article in question) are allowed to freely (publicly) promote the nonsense. How could any sane mind look at history (dead points) and say he or she sees heads and shoulders and as a result will bet X amount in trade. Completely delusional but FF and brokers through FF will continue to lure hapless kids to lose their money gambling on such non scientific approaches.
Reply
Mingary
May 21, 2019 5:39am — Edited
Permalink
It does not work.
TA is just a bad case of Pareidolia
A margin call is the cure for this illness.
Reply
Brixton
May 21, 2019 4:00am
Permalink
You need both!
Reply
thj79
May 21, 2019 5:20am
Permalink
Does it though? ;-)
Reply
AnniLi
May 21, 2019 6:04am
Permalink
Currently fundamental factors are being overpowered by political factors leaving technical analysis as a preferred approach. I prefer a fundamental approach but I need some political issues to be resolved for my approach to work well. Conversely technical positions will be at great danger when political risks diminish.
Reply
midaspro
May 21, 2019 11:41pm
Permalink
And yet so many traders make a full time living just using technical analysis!
Reply
ohyeah
Jun 26, 2022 1:36am
Permalink
Quoting bloodpoodle
nothing works 100%. If it did trading would be easy. There are many types of technical Analysis. Some is better then others. Basically the goal is to put the odds in your favor, not to achieve a win every single trade. Also to define your risk... and to choose targets. There is no holy grail setup. I think outside the box.. I don't use trendlines, channels, chart patterns like double bottom. I study Spikes flat consolidations and slow grinds.. And I've seen so many of them I know what to do when I see them. How price is moving is whispering trades...
Well said. The wisest person on the forum, ever.
Reply
ohyeah
Jun 26, 2022 1:33am
Permalink
Technical analysis does not work. It "works" implies 100%. Anything less than 100% means it doesn't "work" and it's just a guessing tool, that's it.
Reply
ohyeah
Jun 26, 2022 1:34am
Permalink
Quoting midaspro
And yet so many traders make a full time living just using technical analysis!
They're good at guessing using indicators.
Reply

  • Related Stories

There are no posts to display for these settings.
  • Story Stats