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Comment by notShabu | Hacker News Reader

Here are the best arguments for why TA works IMO:

- The patterns are real in that they can be used to roughly identify groups of buyers and sellers who have price floors and ceilings. E.g. it's a way of gauging the momentum of a trend. However the signal:noise ratio is very high especially when traders try to act on these patterns so that their activity drowns out the original signal

- The patterns then become a schelling point and those who can read the patterns faster can front-run those who read it more slowly. The patterns themselves become reality rather than just a representation of reality.

The value is most likely fully drained from it in that there is no longer any alpha but remains sorta-kinda truish occasionally like "if they don't look you in the eyes it means they're lying" or "changing the lighting improves productivity"

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"The patterns themselves become reality rather than just a representation of reality."

This is known as a "hyperstition". It's a cool concept that I believe is more and more relevant as the world becomes more and more connected. Things like "meme magic", etc.

I think in the context of finance, "hyperstition" is more known as "reflexivity".

So to summarize, the opportunity of pattern trading is self-fulfilling, which also means if any become unfashionable then the signal will cease to exist. From that fact alone we can conclude there is no basis in the economic reality of the business or its public stock. Greater fool theory, essentially.

It’s very easy to tell if it works. If you go to an interview with Goldman Sachs and mention that you are an expert in TA what would be their reaction?

This is not an endorsement of TA but look at what they do, not say. They are highly influneced by chart movements. Price predictions and buy/sell recommendations are constrained by recent trends and observed prices. Even if they want to say they are driven by fundamentals. These “fundamentals” change in reaction to price action.

> This is not an endorsement of TA but look at what they do, not say

So do they hire you, or do they not?

Goldman Sachs is a weird authority to appeal to. And even if you want to you’ll be appealing to an authority that endorses aspects of TA.

Yes. If you value a stock based on fundamentals, including estimates of the company's future performance, at $10 and the current asking price is $100 you don't want to buy it. Vice versa, you would.

>This is not an endorsement of TA but look at what they do, not say.

What they do is make-market, rather than conduct proprietary trades, and spend huge amounts of time, money and effort on risk management that's based on hedging the risk in the book rather than forming an idea about which way the market is going to move.

Their reaction is likely to hire you to write a newsletter to their customers, to convince their customers to trade on your strategies.

Brokers don't particularly care whether their customers make money. But they do like customers who trade early, and trade often.

Why would you be interviewing for a job if you were successful in using TA?

The best way to make money in finance is to manage other peoples' money.

But if one can make money on their own, why let someone else own their time, unless they don't value their time as much?

Because if you work with other peoples money, there's a LOT more of it, so you can trade 100x more often and size your positions over a greater range.

Source: I'm a quant

Is that a strange way of saying, "if you work with other peoples money, some of it stays with you".

We provide value by increasing their wealth, and take a % for doing so, they benefit and we benefit. This concept is new to you?

Okay, do you want to make 100% of profit or loss on your portfolio of $1,000,000?

or do you want to make 1% of $100,000,000 win or lose, you still get paid every year?

> If you go to an interview with Goldman Sachs and mention that you are an expert in TA

The key point is that if you were a consistent expert in TA you don't need to interview anywhere. You can be a billionaire trading from home.

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