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Q: What reputable research has been done to prove the value of Technical Analysis? ( No Answer,   5 Comments )
Question  
Subject: What reputable research has been done to prove the value of Technical Analysis?
Category: Business and Money
Asked by: wizzio-ga
List Price: $25.00
Posted: 08 Feb 2005 10:49 PST
Expires: 10 Mar 2005 10:49 PST
Question ID: 471181
What proven reputable research has been done to prove the value of
Technical Analysis in Trading and Investing. I mean the use of the
MACD, Bollinger Bands and various other indicators? Are Head and
Shoulder patterns really powerful? Is there really any meaning to a
"hammer" and "shooting star"? Do certain stocks fair better at it? Is
it better for Indicies?  Has there been University or  Broker led
research to support this field? Or is it all tea-leave reading hokey
pokey? Is there really an edge? Are they short lived? Can they be
replicated if taught to others?

Clarification of Question by wizzio-ga on 08 Feb 2005 11:07 PST
Are there certain time frames better than others? Minutes, Daily,
Weekly vs Monthly charts?
Answer  
There is no answer at this time.

Comments  
Subject: Re: What reputable research has been done to prove the value of Technical Analysis?
From: omnivorous-ga on 08 Feb 2005 11:12 PST
 
Wizzio --

It's what MBA students do for fun -- examine a variety of strategies
to see if they work.  I might suggest Burton G. Malkiel's "A Random
Walk Down Wall Street."  It has an extensive review of technical
analysis.

Best regards,

Omnivorous-GA
Subject: Re: What reputable research has been done to prove the value of Technical Analys
From: martin_gale-ga on 08 Feb 2005 23:48 PST
 
There is substantial evidence that technical analysis is of no use whatsoever.

Most of the academic research in this area concerns something called
the Efficient Market Hypothesis. There are three forms of this
hypothesis, "weak", "semi-strong", and "strong". The weak form asserts
that historical market data is of no use in predicting future prices.
The semi-strong and strong form expand that to fundamental analysis
and then to all information.

I have written a few articles on this theme at
http://www.efficientmarket.ca/ which is aimed at Canadian investors,
but these articles are generally relevant:

On why past performance is generally not an indication of future performance:

      http://www.efficientmarket.ca/article/Mutual-Fund-Performance

On the efficient market hypothesis in relation to selling "bad" stocks:

      http://www.efficientmarket.ca/article/Buy-And-Hold

Recently behavioral finance folks have challenged the Efficient Market
Hypothesis and presented evidence that markets are not entirely
efficient. They have demonstrated several "anomolies" in stock market
pricing whereby an investor could obtain a higher than average return
without taking a higher than average risk. These have approaches have
much in common with technical analysis in that they, for example,
arbitrage the top N versus the bottom N stocks by some metric. There
is even evidence that some of these strategies work when trading costs
and impact costs are taken into account.

However, what is ordinarilly referred to as technical analysis is
chart reading, bolinger bands, and such, and there is fairly strong
evidence that none of these actually work.
Subject: Re: What reputable research has been done to prove the value of Technical Analysis?
From: omnivorous-ga on 09 Feb 2005 02:41 PST
 
Wizzio --

MartinGale's done an excellent job of reviewing the status of research
on "technical analysis."  You may be interested in a Google Answer
that sheds some additional light on "anomalies" in the efficient
market theories:
"Cross Section of Expected Stock Returns"
http://answers.google.com/answers/threadview?id=273817

Best regards,

Omnivorous-GA
Subject: Re: What reputable research has been done to prove the value of Technical Analysis?
From: traderjack-ga on 10 Feb 2005 03:15 PST
 
There are free easy to read explanations of most common technical
analysis methods over at <a
href="http://www.traders101.com">www.traders101.com</a> - these
explanations also give some indication as to how reliable the method
is. Generally, most methods work 'some of the time'.

No method works 'all the time' for obvious reasons. Note that you
don't need a 'perfect' indicator to make money - even if it is 'right'
less tha 50% of the time, you can still make money with it as long as
you follow a rigorous money management strategy.
Subject: Re: What reputable research has been done to prove the value of Technical Analysis?
From: pfperry-ga on 09 Mar 2005 03:42 PST
 
I have never seen (despite searching) any research supporting
technical analysis, apart from the observation that some slight excess
returns can be obtained from momentum trading at some times. If the
complex strategies (Gann etc) had any validity, the experts would be
making money using them, instead of asking $$$$ to teach newcomers (I
mean, what would YOU do, if you found a 'working' system?).

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