Why technical 'analysis' is garbage (explained by a quant developer)

Technical analysis, if you can even call it a form of analysis, is total garbage. Here's why.

Stock prices follow a random walk:

[CodingJesus]

Do you guys practice Stock Astrology? If so, let me know why down below!

[TheRealDyscyples]

I used to think this way, but discovered quickly that I was very wrong. One of the reasons technical analysis works is because people use technical analysis.

[uticaburn]

The deep irony is that this guy is apparently serious and hasn't understood that quant trading IS technical analysis.

[CScott-whyk]

ALL models (including quant) are based on previous data, by definition. Anyone who uses a model of any kind is essentially engaged in technical analysis, whether it be a price chart, an income statement, or current order flow.

[ThreeLeftOverCrest]

1:10 if prices are indeed random, then there's no edge you can possibly have, whatever other data you're using as a quant would be equally as worthless

[wesleyh]

My lazy ass would love a video where you go over the empirical evidence.

[savanthuman]

technical analysis is not used to predict the future, but to read the present market.

[veramonique]

Let’s not forget that the biggest payouts in the markets don’t come from great performances but rather it’s great promotions. Stay invested, diversification for streams of incomes is very important

[aleksanderradomski]

I use fundamental analysis mostly, but i did start from TA. I've read a lot about it and what I can say is that you don't really understand TA yourself. And probably what price is also. Price is not value and these are two different things. Prices include emotions.TA focuses on these emotions, which can be visible in the price chart.

[fahranmahmood]

This guy ain’t got a clue what he’s talking about. He wants us to die for his sins.

[robertosoto]

I disagree wirh this. I am a futures trader and TA is critical for my job. If you do not understand TA, it does not mean it does not work. Actually it works but... there are things that some people, even knowing some TA, do not know about. Some people simply do not understand the markets.

[paradigmshift]

Why focus on a single indicator? I use 200 sma, rsi, macd, volume, & 20/50/100 ema. Psychological support and resistance is real. Price is not truly random in the long term.

[andresvallelisboa]

09:00 the head and shoulders pattern is a pattern that indicates a potential reversal zone, that does not mean that the price will necesary change its direction, it is usually used as a filter to avoid trading in those situations.

[adnantamimi]

The kind of technical analysis which does work to a certain extent and is used by hedge funds and asset management firms is completely different from what retail traders do. One of popular class of methods is statistical arbitrage. A lot of asset management companies use price volume data to mine alphas and feed them to machine learning models which in turn generate signals for trade. These are the methods which work (but not 100% of the time of course) so far as "technical analysis" is concerned. All other stuff that retail traders do is considered a joke in academia. But that doesn't mean it will never work. If a lot of people are following the same method/signal to trade, regardless of whether it makes sense or not, some will surely make some profit at some times.

[deltaderivatives]

This guy is extremely ignorant, tell that to all of the consistently profitable traders that use patterns constantly, including me. Of course we use multiple forms of confirmation but to think you need to focus on some “investing” thesis is just plain stupid.

[tomyao]

The most important counterexample to your position is the performance of james simons' medallion fund. But I agree that most retail traders should not be trying to use technical analysis to try to beat actual quant funds at their own game. In fact, if people stopped trading stocks at all and just bought and held the index, even the medallion fund wouldn't be able to make money.

[shondmichael]

Hopefully, you traders see the flaw in his argument. 3:40 He stated clearly that he "knows" price action is random. In 4:59 he also stated that he understood that price is subjective (meaning price action is based on the observer). At 2:40 He also states that people are hard-wired for pattern recognition. At this point you should see why the opinion in this video is flawed. Value (price) is based on the observer. We are social observers (group observers) hard-wired to recognize patterns. What appears to be randomness in price movement is actually a product of the competing intentions of social observers. Various groupings of social observers define price movement. The intentions of those observers with the most strength (volume and/or capital) will dominate price movement. Herd recognition and response to these movements creates more pronounced patterns. Based on group pattern recognition, the direction and duration of short term price movement can be reliably predicted with an accuracy above 60%.

[robertmazurowski]

If you do not understand something doesn't mean it doesn't work. Technicals and fundamentals are different things, they are part of a whole. Best traders don't only look at a chart only but they study the sentiment, news, fundamentals, psychology of the market, indicators, long term market regime and then the chart. This cannot be quantified.
It is so easy to create a MACD based algo strategy that makes money, once you understand how the markets work, the risk and randomness of the markets.
Prices cannot be predicted but you can control your bets and position sizes.
Patterns exist, the market is so full of trading algos right now that they often repeat patterns in the market, when they apear they can be traded for a short period of time.

[fuu]

"Quant Lead" gives me "Tech Lead" vibes, shivers

[momoz]

I am a individual trader which HFT platform would u suggest me to use my automated strategy i tried MT4 but it was too slow and didnt execute orders on time also on wrong prices, please suggest HFT platforms.