Ending the Technical Analysis Debate | Wall Street Oasis

Ending the Technical Analysis Debate | Wall Street Oasis

After years of posts on WSO about whether technical analysis is the equivalent to reading tea leaves, a long-time lurker has finally stepped forward to settle the debate.

Spurred by the doubters in @Jared Dillian‘s recent post (“Technical vs Fundamental Trading”) amongst others, I received an email from a trader who wants to end the debate by providing moderators with statistical proof.

His background: Started trading in 2005, self-taught. Took him 3 years to start making money, has been positive every year since and he is currently trading for his own account now. 100% technical analysis based.

Note: I have verified all numbers to be real and have seen the data firsthand.


Ratio of days positive to negative: 2.55
Average positive PNL day: $3374
Average negative PNL day: -$1831
Biggest Gainer: $39,886
Biggest Loser: -$16,250

Misinformation he wants to clear up:

Technical analysis does not predict what will happen. Support doesn’t mean a stock will not get below and resistance doesn’t mean a stock won’t get above. Technical analysis is simply a systematic way to take advantage of price patterns that always have and always will repeat themselves. Stock movement will always be a probability curve, but in certain instances there is edge in the probability curve so a technical trader can make money in the long run without being able to 100% predict any given outcome.

The reason why most people don’t think it works and it has been “disproved” academically is because the analysis is much too coarse. Without applying a bunch of nuances and context, you can’t expect simple patterns to magically have edge. If it was as easy as buying a moving average break, the edge wouldn’t exist anymore.

People who think markets are perfectly efficient argue that fundamental analysis doesn’t work and that it is luck and that the data isn’t significant and so on and so on. No matter what proof you show them, they won’t believe it. For whatever reason, most people on WSO believe in fundamental analysis and mock those who think markets are perfectly efficient, yet they can’t be convinced technicals work when given the same level of proof and are then left arguing the same angle as efficient market supporters. It is almost impossible to get someone to see their hypocrisy and change their position even with verified data.

Does this settle the debate or will people raise the same old doubts? For me, I’ve seen the numbers firsthand and there is no way for me to deny that technical analysis can have edge if applied properly…?2013>

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Ending the Technical Analysis Debate | Wall Street Oasis

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