Is Technical Analysis really working or it's just an illusion? | Forex Factory

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Is Technical Analysis really working or it's just an illusion?

  • #1
  • First Post: Oct 22, 2013 5:13am Oct 22, 2013 5:13am
I haven't traded yet, but I'm getting discouraged by what TA is in its nature - predicting the future by looking at the past... I also read many criticisms for the TA which make complete sense to me and it has not yet been proven from empirical data that TA actually works, not more than randomness.

On the other hand I'm thinking that it may not be that bad, for example if I trade the news. Say an American dealer buys huge quantity Japanese cars and pays in USD, after it's converted to YEN, this will make the YEN jump. This is fundamental analysis, but with the help of TA, I'll know where to close the position(perhaps).

Does anybody know if there is a chance to know (judging from the past) for what period of time certain events affect the currencies. Say in the above given example, approximately how long will the YEN be moving up, 20 min, 1 hour? And generally when trading the news, is there a prediction for how long will a given event influence a given currency in a particular direction?

What are you thoughts on TA and its effectivness, how exactly can we use it in our favour?
  • #2
  • Oct 22, 2013 7:08am Oct 22, 2013 7:08am
What does or doesn't work for you will be as individual as your DNA. There's no hard and fast rule as to what works and what doesn't. Some people will do very well with TA, some with FA, some with a combination of both.

Don't get caught up in never ending arguments to the death over people trying to convince each other that black is white and vice versa. It will just ingrain a need to be right which is very unhelpful in trading.

If you're more drawn to fundamentals and news then focus on that. Develop your own edge from what works for you and learn to agree to disagree with others. All that matters is what works for you and your ability to execute free of ego, emotions, stress and drama.

There's tons of drama on these forums and internet forums in general. I can tell you now that any form of drama is 100% useless.

HTH.
Anything can happen.
  • #3
  • Oct 22, 2013 7:34am Oct 22, 2013 7:34am
Quoting ddinnov
If you're more drawn to fundamentals and news then focus on that. Develop your own edge from what works for you and learn to agree to disagree with others.
I will be drawn to whatever works, and whatever works for most people will work for me, that's why I'm asking...
  • #4
  • Oct 22, 2013 7:39am Oct 22, 2013 7:39am
Quote
whatever works for most people will work for me

If you're interested in TA then this method has stood the test of time:

http://www.forexfactory.com/showthread.php?t=2331
Anything can happen.
  • #5
  • Oct 22, 2013 9:18pm Oct 22, 2013 9:18pm
Quoting tradebg
{quote} I will be drawn to whatever works, and whatever works for most people will work for me, that's why I'm asking...
Don't be too sure of this.

1. How would you know if "most people" are not just sheep?
2. What ddinnov said in his first post is so true, "What does or doesn't work for you will be as individual as your DNA."

You shouldn't be drawn to whatever works for other people. You should be drawn to whatever works for you.
I'm not trying to convince anyone. I'm not in the "convincing" business.
  • #6
  • Oct 22, 2013 10:34pm Oct 22, 2013 10:34pm
Quoting skenobi
{quote} What ddinnov said in his first post is so true, "What does or doesn't work for you will be as individual as your DNA." You shouldn't be drawn to whatever works for other people. You should be drawn to whatever works for you.
I see, so if that's true a market can be very flexible and there may be 1000 very different ways of winning consistently. While I understand that, it is kind of weird at the same time because all we have is one single market, two types of main analysis and that's it. There shouldn't be that many variations that actually work in the long term, there should be glolden principles that are universal and valid for everybody. This whole market system doesn't seem that vast to allow countless possibilities for winning suited specifically for many different individuals.
  • #7
  • Oct 22, 2013 11:27pm Oct 22, 2013 11:27pm
Quoting tradebg
...it is kind of weird at the same time because all we have is one single market, two types of main analysis and that's it.
... or combos of the two....

Quoting tradebg
There shouldn't be that many variations that actually work in the long term, there should be glolden principles that are universal and valid for everybody. This whole market system doesn't seem that vast to allow countless possibilities for winning suited specifically for many different individuals.
You will find after you've been in the game long enough that the words "should" and "shouldn't" must never be part of your vocab. "Valid for everybody" is correct, but it's not necessarily true that "everybody" has the same outlook.

For instance, it's true that "everybody" sees the same candles or the same price action. But each of that "everybody" have
1. different depths of pocket,
2. different attitudes towards risk,
3. different levels of aversion to risk,
4. different levels of market sophistication,
5. different timeframes of interest,
6. etc etc (you get the picture)
I'm not trying to convince anyone. I'm not in the "convincing" business.
  • #8
  • Oct 23, 2013 12:19am Oct 23, 2013 12:19am
Quoting skenobi
{quote} "Valid for everybody" is correct, but it's not necessarily true that "everybody" has the same outlook. For instance, it's true that "everybody" sees the same candles or the same price action. But each of that "everybody" have

1. different depths of pocket,
2. different attitudes towards risk,
3. different levels of aversion to risk,
4. different levels of market sophistication,
5. different timeframes of interest,
6. etc etc (you get the picture)
Thank you for your answer. I understand that different people have different vision of the same thing due to their individuality, skills, knowledge etc. I was just hoping that for so many years and many traders, there have been something like established standarts that we can follow, something that may bring us at least 0.5% of the deposit amount daily most of the time. Whatever it is, I will adapt to that. And was wondering if TA really works at least 55-60% of the time or not, that's why I am asking traders here, if they do notice something that is definitely not random when using TA. Do S/R lines,the Trend and all indicators really work? (meaning giving us edge over randomness) or it's just an illusion? Is there more to the TA except it being a self fulfilling prophecy?
  • #9
  • Oct 23, 2013 12:20am Oct 23, 2013 12:20am
Quoting tradebg
I haven't traded yet
try it, if you like it, then...

Quoting tradebg
Say an American dealer buys huge quantity Japanese cars and pays in USD, after it's converted to YEN, this will make the YEN jump.
unless the American dealer hedges his order? and sometimes they put in orders to buy huge quantity Japanese cars months into the future (i don't know, I'm not a car salesman). and even then, aren't they just a small little part of a bigger picture?

but yes, in a market where nothing else is going on, just American dealers buying cool Japanese cars in jpy, this would cause the Yen to appreciate.
but the Yen has been depreciating for a while now, and it's not that American dealers aren't buying Japanese cars anymore (they should! being that the yen is so cheap), but that's just fundamentals on the jpy to study. government intervention in currencies.

Quoting ddinnov
{quote} If you're interested in TA then this method has stood the test of time: http://www.forexfactory.com/showthread.php?t=2331
james16 is Price Action, my friend
  • #10
  • Oct 23, 2013 12:54am Oct 23, 2013 12:54am
Quoting tradebg
{quote} I see, so if that's true a market can be very flexible and there may be 1000 very different ways of winning consistently. While I understand that, it is kind of weird at the same time because all we have is one single market, two types of main analysis and that's it.
Understand that the Forex market is affected and contributes to changes in worldwide equity markets, bonds, commodities, incl presious metals. It is THE market.. if that's what you mean by a single market.

By using purely 'technical analysis' you're knowingly subjecting your self to buy at a higher high and sell at a lower low,, placing you at a disadvantage.. much like your retail broker's spread.
Fundamental analysis is keeping up with the news.. like what the central banks are planning if unemployment continues to rise, which central banks are trying to devalue their currency by lowering interest rates, which ones plan to raise them. These are the underlying themes which large traders use to asses and prepare for the future. *Check out the correlation of a country's rising & falling interest rates with its spot prices. That's 'big money'.

Quoting tradebg
Say an American dealer buys huge quantity Japanese cars and pays in USD, after it's converted to YEN, this will make the YEN jump. This is fundamental analysis, but with the help of TA, I'll know where to close the position(perhaps). Does anybody know if there is a chance to know (judging from the past) for what period of time certain events affect the currencies. Say in the above given example, approximately how long will the YEN be moving up, 20 min, 1 hour?
This is not a good example of fundamental analysis as the USD & JPY's underlying fundamentals were not changed. Price changed due to a type of volatility which is created by a need to transact US Dollars for Jap Yen immediately.
This situation would not happen though. If the car manufacturer sold a large quantity of Usd/Jpy on the market, they would give themselves a worse and worse transaction price as their selling pushes the price of Usd/Jpy down. Some of these corporate orders could cost $100+k's/pip. That is why the Japanese company set to receive a large amount of USD would hedge their exposure by purchasing a JPY call option from a large bank so that if the price of their newly aquired USDs weaken, their option will profit back the losses. If the USD strengthens, they will lose the amount it cost to purchase the option from the bank, but profit bc those Dollars are worth more now.

There is no way to know when a security will move or how much it will move price based on technical analysis.
  • #11
  • Oct 23, 2013 12:58am Oct 23, 2013 12:58am
Quoting EmeraldEyes
{quote} There is no way to know when a security will move or how much it will move price based on technical analysis.
Thank you for the answer, quite thorough, and is there a way to know when a security will move and how much approximately it will move based on a fundamental analysis?
  • #12
  • Oct 23, 2013 1:08am Oct 23, 2013 1:08am
Quoting tradebg
{quote} Thank you for the answer, quite thorough, and is there a way to know when a security will move and how much approximately it will move based on a fundamental analysis?
When, yes. Market liquidity starts to dry up as risk events approach, like data releases, speaches, closing of the market.. The lack of liquidity will welcome volatiltiy. Like this morning when the US released it's 2-week delayed unemployment and NFP numbers. The fall in jobs vs forecasted disappointed an already disappointing USD which started the sell off. So when a currency will move based on FA, yes.

Which way and how far based on FA, no way to predict. Price will move up to find ample sellers, and down to find buyers waiting to transact. Basic market microstructure kicks in. Market buys move price up, market sells move price down to buyers.
  • #13
  • Oct 23, 2013 1:12am Oct 23, 2013 1:12am
Quoting tradebg
{quote} Thank you for the answer, quite thorough, and is there a way to know when a security will move and how much approximately it will move based on a fundamental analysis?

yes, after the move.

or if you want a different example:
take QE for example, people expect tapering to strengthen the USD, and they know when the FOMC meets. (there is your when)
maybe price will move to an area of resistance (there is your how much approximately).

but, unless you can predict/guesstimate the outcome of future political events..

basically, the real answer to your question would be No. or else everyone would be rich already.

Quoting EmeraldEyes
Some of these corporate orders could cost $100+k's/pip. That is why the Japanese company set to receive a large amount of USD would hedge their exposure by purchasing a JPY call option from a large bank so that if the price of their newly aquired USDs weaken, their option will profit back the losses. If the USD strengthens, they will lose the amount it cost to purchase the option from the bank, but profit bc those Dollars are worth more now. There is no way to know when a security will move or how much it will move price based on technical analysis....
I learned a little something here! thanks
  • #14
  • Oct 23, 2013 1:31am Oct 23, 2013 1:31am
Well Hybrid approach always works best and good (especially from me),There are some arguing that fundamentals work and some swear by technicals but when it comes to reality it is the market expectations and predominance in opinion is what moves the market I have made myself a combined approach that consists of:
1. Technicals
2. Macro sentiment
3. Market Psychology
4. Initiated flow and liquidity
5. Inter-market relationships
6. Market efficiency

http://www.babypips.com/images/schoo...hool/Stool.png
  • #15
  • Oct 23, 2013 9:56am Oct 23, 2013 9:56am
TAF thread

http://www.forexfactory.com/showthread.php?t=57639

Name speaks itself.

and Yes, George Soros does not use TA.
it's o'k to win ...
  • #16
  • Last Post: Oct 23, 2013 3:39pm Oct 23, 2013 3:39pm
Quoting zenseven
TAF thread http://www.forexfactory.com/showthread.php?t=57639 Name speaks itself. and Yes, George Soros does not use TA.
Damn...2184 pages....cheers! Will try to dig useful info there! Thanks!
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