I have to be honest, as someone who is not fully immersed in the financial markets, the chart pattern reading kinda strikes me as astrology for guys in suits.
… Yeah, a whole lot of ‘technical signals’ aka, chart reading that a lot of ‘retail’ (ie, amateur) day traders use… is basically astrology.
Its not quite as absolutely nonsensical as astrology, which is just absolutely 100% bullshit… like, a 50 MA crossing a 200 MA downward… definitely does indicate that stock is not having a great time right now… but as far as the “power” of such a signal to reliably indicate future trends?
No, basically no. There are some technical indicators that have a slightly higher correlation coefficient of being a reliable leading indicator, but the correlations are not really that strong… there are just way too many other confounding variables.
…
Even the quants who work for hedge funds… who use some of the most advanced and complex mathematical models in the world to try to untangle all of those confounding effects…
…well, they are on average, over a decently long timescale, no better, or even slightly worse than random chance at picking stocks, bonds, a portfolio that will grow more than just the average.
Part of this is because… if a technical trading strategy that actually works to generate outsized gains… is actually figured out by one of the big boy quants… the other big boy quants will notice this and reverse engineer it from analyzing what their rival is doing.
Then, once all the big boys are using the same strategy… well now it doesn’t return outsized gains anymore.
… Which is why all your 401ks are basically index funds for their stock component, which is just a weighted average basket of whichever particular market, usually the DJIA or SP500 as the Nasdaq is historically a bit more volatile.
…
Now, all that being said… one arguably ‘technical indicator’ that always has been correct in the last 100 years… is when the bond yield curve inverts… the economy and stock market generally suffer a downturn roughly proportional to the time and magnitude of the bond yield curve inversion… soon after or right as the bond yield curve uninverts.
Except for right now, the last few years.
We have now, in the last 4 or 5 years, had 3 periods of yield curve inversion, 2 uninversions… and the broader economy has technically not yet entered into a recession, a period of negative GDP growth.
But it looks like we are heading now for basically something akin to the Great Depression, as the latest inversion is pretty widely being interpreted as ‘investors no longer see the US Bonds as the defacto save haven, the USD as the defacto world currency’… which means the dollar will devalue as demand for it goes down… which means even if the tariffs went away and never came back, all our imports would be more expensive… and our exports won’t be worth as much… and our external debt to other countries will become even more onerous…
And we are kind of massively reliant on importing material things and exporting services or non physical ‘products’.
(Great work Mr. Trump -.-)
So… yeah you can’t really make a day trading strategy out of that.
…
Beyond all that, its probably also worth mentioning that GDP per capita is not a reliable measure of actual wellbeing of the population of a country when it has enormous wealth disparity.
To a large extent it is, the major difference being that when people take actions based of these signs, it influences which way the chart goes next, unlike the planets, which do not care the slightest what people do based on their actions. Thus you can end up making a lot of money if your actions are 1) correctly anticipating subsequent actions by other people and 2) sufficiently in advance of other actions. Which makes inside trading and pump-and-dump schemes great ways to get filthy rich, if you find yourself in a position to be able to pull that off. Or if you are lucky. Or if you have made a name for yourself and everyone else just assume you know what you are doing and follows (Warren Buffet comes to mind).
Yes, and by the sheer existence of the concept of a “death cross”, and now that it has happened for the Tesla stock, people will act as if whatever a “death cross” predicts will come to pass. So even though there was some correlation before someone formulated it as a concept, now the response will be different because people will act on it. If enough people believes it, it will probably just accelerate the process as they will seek to sell off before the downturn, pushing the prices down. Which is the way the Tesla stock should go, so I am all for this cross of death.
I feel this deep in my bones
As someone with an actual Econ degree:
… Yeah, a whole lot of ‘technical signals’ aka, chart reading that a lot of ‘retail’ (ie, amateur) day traders use… is basically astrology.
Its not quite as absolutely nonsensical as astrology, which is just absolutely 100% bullshit… like, a 50 MA crossing a 200 MA downward… definitely does indicate that stock is not having a great time right now… but as far as the “power” of such a signal to reliably indicate future trends?
No, basically no. There are some technical indicators that have a slightly higher correlation coefficient of being a reliable leading indicator, but the correlations are not really that strong… there are just way too many other confounding variables.
…
Even the quants who work for hedge funds… who use some of the most advanced and complex mathematical models in the world to try to untangle all of those confounding effects…
…well, they are on average, over a decently long timescale, no better, or even slightly worse than random chance at picking stocks, bonds, a portfolio that will grow more than just the average.
Part of this is because… if a technical trading strategy that actually works to generate outsized gains… is actually figured out by one of the big boy quants… the other big boy quants will notice this and reverse engineer it from analyzing what their rival is doing.
Then, once all the big boys are using the same strategy… well now it doesn’t return outsized gains anymore.
… Which is why all your 401ks are basically index funds for their stock component, which is just a weighted average basket of whichever particular market, usually the DJIA or SP500 as the Nasdaq is historically a bit more volatile.
…
Now, all that being said… one arguably ‘technical indicator’ that always has been correct in the last 100 years… is when the bond yield curve inverts… the economy and stock market generally suffer a downturn roughly proportional to the time and magnitude of the bond yield curve inversion… soon after or right as the bond yield curve uninverts.
Except for right now, the last few years.
We have now, in the last 4 or 5 years, had 3 periods of yield curve inversion, 2 uninversions… and the broader economy has technically not yet entered into a recession, a period of negative GDP growth.
But it looks like we are heading now for basically something akin to the Great Depression, as the latest inversion is pretty widely being interpreted as ‘investors no longer see the US Bonds as the defacto save haven, the USD as the defacto world currency’… which means the dollar will devalue as demand for it goes down… which means even if the tariffs went away and never came back, all our imports would be more expensive… and our exports won’t be worth as much… and our external debt to other countries will become even more onerous…
And we are kind of massively reliant on importing material things and exporting services or non physical ‘products’.
(Great work Mr. Trump -.-)
So… yeah you can’t really make a day trading strategy out of that.
…
Beyond all that, its probably also worth mentioning that GDP per capita is not a reliable measure of actual wellbeing of the population of a country when it has enormous wealth disparity.
Naw they already made that, it’s called the “Myers-Briggs Type Indicator”.
To a large extent it is, the major difference being that when people take actions based of these signs, it influences which way the chart goes next, unlike the planets, which do not care the slightest what people do based on their actions. Thus you can end up making a lot of money if your actions are 1) correctly anticipating subsequent actions by other people and 2) sufficiently in advance of other actions. Which makes inside trading and pump-and-dump schemes great ways to get filthy rich, if you find yourself in a position to be able to pull that off. Or if you are lucky. Or if you have made a name for yourself and everyone else just assume you know what you are doing and follows (Warren Buffet comes to mind).
That makes sense. Essentially, there are things that are influenced by perception and those that are immune to perception.
Yes, and by the sheer existence of the concept of a “death cross”, and now that it has happened for the Tesla stock, people will act as if whatever a “death cross” predicts will come to pass. So even though there was some correlation before someone formulated it as a concept, now the response will be different because people will act on it. If enough people believes it, it will probably just accelerate the process as they will seek to sell off before the downturn, pushing the prices down. Which is the way the Tesla stock should go, so I am all for this cross of death.
100% totally is.