How Effective Is Technical Analysis?

Subscribe to newsletter

Technical analysis is the study of past price patterns to identify market trends and trading opportunities. Technical analysts believe that the collective actions of all participants in the market, including buyers and sellers, producers and consumers, investors and speculators, etc., influence asset prices. By analyzing price data, technical analysts aim to identify market trends and trading opportunities.

Technical analysis is a popular tool that is used to identify trading and investment opportunities. But how effective is it? Can trading based on technical analysis beat buy and hold?

Reference [1] provided a short survey of the current research on the effectiveness of technical analysis.

Subscribe to newsletter https://harbourfrontquant.beehiiv.com/subscribe Newsletter Covering Trading Strategies, Risk Management, Financial Derivatives, Career Perspectives, and More

Technical trading strategies may be profitable because of noise in the market or investors’ irrational behaviour, yet conventional efficient market theories, such as the martingale model and random walk models, exclude technical trading profits in speculative markets. The last section surveys empirical studies. By analyzing the testing procedures used in the studies, we categorize “early” and “modern” studies. Of the 58 studies that produced positive results, 24 produced negative results. The remainder produced mixed findings. Despite the fact that several empirical studies have shown that technical trading strategies can be profitable over a long period of time, the majority of test procedures have significant limitations, such as data snooping, the ex-post choice of trading rules or search engines, and the inability to estimate transaction costs and risks. To prove that technical trading strategies are profitable, researchers will need to correct these shortcomings in testing.

We agree with the author that there are limitations in the current publication regarding technical trading strategies. The study results are mostly inconclusive and it is difficult to find strong evidence that technical trading strategies outperform buy-and-hold.

Let us know what you think in the comments below.

Reference

[1] Roopali Patil, An Overview of Technical Analysis as a Trading tool, SPECIALUSIS UGDYMAS / SPECIAL EDUCATION 2022 1 (43)

Subscribe to newsletter https://harbourfrontquant.beehiiv.com/subscribe Newsletter Covering Trading Strategies, Risk Management, Financial Derivatives, Career Perspectives, and More

Further questions

What's your question? Ask it in the discussion forum

Have an answer to the questions below? Post it here or in the forum

LATEST NEWSNorth Star Network acquires leading casino affiliate Bojoko
North Star Network acquires leading casino affiliate Bojoko

NAXXAR, Malta, Feb. 18, 2025 (GLOBE NEWSWIRE) — North Star Network and Bojoko are delighted to announce the digital sports media group’s acquisition of the leading iGaming affiliation as NSN looks to take a decisive step into the casino space. The deal, which includes all…

Stay up-to-date with the latest news - click here
LATEST NEWSBOE’s Bailey Says Trump Tariffs Cause Unwelcome Bond Volatility
BOE’s Bailey Says Trump Tariffs Cause Unwelcome Bond Volatility

Bank of England Governor Andrew Bailey said he’d like to see less volatility in bond markets, much of which he puts down to a flurry of announcements around US tariffs.

Stay up-to-date with the latest news - click here
LATEST NEWSMedtronic earnings beat by $0.03, revenue fell short of estimates
Medtronic earnings beat by $0.03, revenue fell short of estimates
Stay up-to-date with the latest news - click here
LATEST NEWSUgoWork to showcase cutting-edge lithium-ion solutions and industry insights at ProMat 2025
UgoWork to showcase cutting-edge lithium-ion solutions and industry insights at ProMat 2025

Driving efficiency and cost savings in material handling QUEBEC, Feb. 18, 2025 (GLOBE NEWSWIRE) — UgoWork™, a leading provider of lithium-ion energy solutions for the material handling industry, is set to make an impact at ProMat 2025, March 17-20 at McCormick Place, Chicago, IL. Visit…

Stay up-to-date with the latest news - click here
LATEST NEWSAmerican Lamprecht Enhances Visibility for Air and Ocean Shipments Using Descartes Solution
American Lamprecht Enhances Visibility for Air and Ocean Shipments Using Descartes Solution

ATLANTA, Georgia and AMERSFOORT, The Netherlands, Feb. 18, 2025 (GLOBE NEWSWIRE) — Descartes Systems Group (Nasdaq:DSGX) (TSX:DSG), the global leader in uniting logistics-intensive businesses in commerce, announced that Illinois-based freight forwarder American Lamprecht is providing its customers with real-time visibility into the location and status…

Stay up-to-date with the latest news - click here

Leave a Reply