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  1. #1
    aeytovareschstils Guest

    Default Why does Technical Analysis work?

    I know that Technical Analysis works in the sense that it can give reasonably reliable indications that a stock is more likely to move up than down (or vice versa). In other words, systems with relatively high win loss ratio (say 60% to 90%?).

    This is distinct from TA approaches that rely more heavily on stop-loss/money management aspects to make a system profitable. In other words, systems with a lower win-loss ratio (say 40% to 60%).

    So my question is, why/how does TA reveal opportunities that have a relatively high probability of producing a profit?

  2. #2
    Airbladeeqr Guest

    Default

    Stop Losses and Money Management are not part of TA

    They can be used and are used by people who select with fundamental analysis or FA+TA

  3. Default

    TA works for the same reason that Pavlov's dog got fed when he (the dog) learned to ring the bell

    He (the dog) got fed when he learned a particular action was related to a particular reward

    Books have been published giving the probability of a future reward in the form of a price rise following various patterns on charts

    If enough rewards result from trades based on the repetitive recognition of chart patterns it is reasonable to accept their predictive value ... otherwise it is not reasonable to rely on charts alone

    [As we have discussed before I make no distinction between "probability" and "predictability". They are one and the same and I infer no greater probability to a prediction than I do to a probability. They are interchangeable terms with identical meaning]

    In short if a reward follows often enough from a given chart pattern ... why not repeat the ringing of the bell i.e. the entry into the stock?

  4. Default

    I was really looking for a discussion on
    * what causes the patterns to form

 

 

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