I’ve always loved technical analysis discourse because it’s the starkest example of how to actually make money in financial markets, and that’s to actively cultivate information asymmetry among other market participants. If technical analysis were a successful strategy, it would, like most other techniques that can actually generate sustainable alpha, be a closely guarded secret. But it’s not. It’s something people shout about from the rooftops trying to get rubes to follow the bait. It’s the same kind of play as wallstreetbets, where you’re tying to increase the amount of stupid, predictable money in your corner of the market.
I think it’s more down to adverse selection… while some really smart people might be making decent returns via technical analysis or whatever, they’ll never disclose their strategies since someone else could frontrun them. Instead, the only strategies we get exposed to are the ones that don’t work, since the best way to make money on a strategy that doesn’t work is to find someone to sell it to. Like - it’s clearly possible to make money trading, because a very small amount of people seem to be able to do so somewhat reliably. But if someone is trying to sell you a trading course, they’re almost certainly more of a scam artist than a genius trading savant.
Not at all. Fundamentally, trading is a positive sum game.
Actual market research directs resources to the most productive companies, helping them grow more quickly and generate positive aggregate value.
Essentially, it's a way to add intelligence and information to the companies that represent the market, to make them more profitable. Specifically, it allows newcomers to grow more quickly if they're more efficent than legacy companies, meaning it's more difficult for the legacy companies to create moats.
Without trading, we might still have IBM at the top of the tech industry, with a massively inefficent organization, low worker salaries and enough market power to keep the competition away, since without a market, startups would need to cover ALL investments using organic profits.
But that's mostly true for medium-long term trading. Short term trading is mostly about speed and finding information or clues faster than anyone else. That part probably generates less net value than it consumes.
"The market" is just a set of order books. I don't find it weird that technical analysis work some times in some markets.
Fully systematic traders exist and make money. Efficient Markets Theory says they shouldn't, but they do anyway. EMH is probably written under stricter/ideal conditions though.
If one wants to take a systematic/technical analysis approach though, I would look at the entire universe of stocks, whereas use a fundamental approach in individual stocks.
> Fully systematic traders exist and make money. Efficient Markets Theory says they shouldn't, but they do anyway.
The post you are responding to already answered this question.
Here is the answer: "it would, like most other techniques that can actually generate sustainable alpha, be a closely guarded secret"
So, to answer the question, the important stuff in the trading strategies that you mentioned, include information asymmetry. Those systemic traders have hidden information, and hidden strategies that they use, and they don't just given everyone open source access to their code.
They make money because growth. Any strategy that is not based on information asymmetry or unique clever use of information makes less than the market on average.
There's plenty of trade secrets in TA as well though. A lot of it comes out because eventually it's beneficial to have fundamentals understood by a larger population so that there's a pool of people to develop the internal tools. Only some of the fundamental TA is common knowledge.
