Does technical analysis really work?

Does technical analysis really work? Is technical analysis the Holy Grail for investors? Or is it just tea leaf reading? What is the guarantee that a particular pattern will give the correct indication regarding trend reversal or trend continuation.

Some of it does, some of it doesn’t. Some of it is so subjective that it is literally impossible to say what works and what doesn’t.

Classical Technical Analysis – The Magee and Edwards style, draw trendlines on a chart type stuff, has some validity but not predictive validity.

Indicators and oscillators are price turned into a squiggle. This can be useful for objectively defining trading rules, but there is nothing predictive there.

Elliot Wave, Gann, other Fibonacci based “predict the future” methods are very suspect (though wave theory has some interesting things for students of markets) Elliot and Gann both died broke, and made more money from selling their systems than actually trading. Robert Prechter (the Wave theory guy) has been telling people to short the market with 2x leverage and no stops since 2010.

Moving average crossovers, bollinger band and donchian breakouts, etc have validity in system building although they tend to be a part of systems which have very low win rate (around 30%) with outlier wins, relying on diversification for success. There is strong objective evidence that you can build positive expectancy systems with these tools, and no evidence that they have any intrinsic forecasting power.

So bottom line, which technical analysis is real and which is bogus? My estimate is around 80% has very little to no validity. Extraordinary claims require extraordinary proof. Think about the objective level of proof required to show technical analysis has predictive validity.