Why Technical Analysis fails

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I like how they added “analysis” to “technical analysis” as if it had some kind of validity

Hey, there’s fundamental analysis, then there’s technical analysis, so both are equally valuable, right? Just two form of “analysis,” two ways to see the market. Hint: hell no. Technical analysis has ZERO scientific value. It’s exactly the same as someone playing a slots machine and thinking, “I’ve gotten a 7 on the left side six times in a row, now I’m due for a jackpot any second now.” It’s the same as playing roulette and thinking, “This roulette has returned seven red in a row, it’s due for a black anytime now!” or “this roulette has returned 22 red out of 30 spins, it clearly is defective and gives out more red than black! Therefore, I should bet on red!”

Technical Analysis is the kind of thing you can learn in an hour. There’s nothing even slightly complicated or advanced about. When the most complicated mathematics about it is:

“ RSI=100-100/(1+RS) where RS = Average gain / Average Loss (on 14 period because, well, because) RSI = nothing at all”
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Credit: Your Mother

It’s pure pseudo-science, guys. It has ZERO scientific validity. It’s something that was pulled out of thin air and promoted by “gurus” in an attempt to give it credibility. You know all those quacks selling crystals to cure cancer or pretending that there are vibrations that put you in harmony with the universe? Technical analysts are the Wall Street version of those guys, albeit maybe a little less dangerous (maybe). If you don’t know what technical analysis is (good on you), it’s basically the most annoying thing to ever walk on this planet. It’s not my most hated thing because, let’s face it, there are a lot of things worse than that (illnesses, wars, genocides, hunger, Hilary Clinton) but it always irks me a little to read what I think is a good article and read at the end something like “the 200-day moving average also indicates the stock might be climbing back from its heights blah blah blah.” Immediately, I know I have to forget everything I just read and throw the article to the trash. In a way, perhaps I should be happy technical analysis exists, because it tells me exactly which authors to avoid.

Every analyst who actively promotes Technical Analysis as a way to earn a return higher than the market on a risk-adjusted basis is a moron. TA has never worked and never will. If you seriously think you can look at a chart and guess in which direction the product is moving with any degree of certainty higher than the average, you are wrong.


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